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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (26289)	11/15/1998 7:29:00 PM
From: Darin	Read Replies (1) \| Respond to of 70976

To All, FYI: AMAT: PREVIEW OF 4Q98-WE EXPECT MODEST SEQUENTIAL IMPROVEMENTS BUT THIS COULD ALREADY BE REFLECTED IN THE STOCK Subject: Applied Materials (AMAT-38 11/16)--OTC SEMICO INI COM EPS OPINION Current: ACCUMULATE Analysts: John W. Pitzer (212) 778-5252 Prior: Risk: MODERATE 12-Month Target Price: $45 Ind. Div.: -- Yield: -- Shares: 378.1 mil. 52-Wk.Range: 40-21 EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 10/97 $ 1.38 Current 10/98 $ 1.09E 35.5X $ 0.52 $ 0.37 $ 0.17 $ 0.02E Current 10/99 $ 0.58E 66.7X $ 0.05E $ 0.09E $ 0.19E $ 0.25E Current 10/00 $ 1.50E 25.8X INVESTMENT HIGHLIGHTS: 1) AMAT is due to report 4Q98 results on Nov 17 after the market close. 2) We expect an in-line revenue and operating EPS for the quarter. 3) Operating EPS excludes one-time restructuring charge. 4) Key metric to monitor is bookings. Bookings in 4Q98 should come in slightly better than previous guidance of $600 million, up slightly from 3Q98 bookings level of $608 million. 5) We believe that Company will guide the street to modest sequential improvements in bookings for 1Q99. 6) Recent stock action leads us to believe that much of the incremental news may already be reflected. 7) Near-term stock is in a trading range, longer-term, stock continues to look attractive versus 2000 estimates. DISCUSSION: Preview Of The Quarter-Inline. Applied Materials is due to report results for 4QFY98 (Oct.) on November 17th after the close of the market. We believe that the Company will meet our estimates for 4Q98 of $650 million in revenue and operating EPS of $0.02, in-line with street consensus. Our operating EPS estimate does not include the effects of a $285 million or $0.56 per share one-time charge associated with restructuring and reserves. Table 1 Applied Materials - 4Q98 Estimates 4Q98E 3Q98A 2Q98A 1Q98A Revenue $650.0 mil $884.5 mil $1,176.3 mil $1,307.6 mil Gross Margin 43.5% 44.6% 47.1% 48.1% Operating Margin 0.7% 10.3% 17.9% 22.6% Net Income $7.7 mil $64.9 mil $141.2 mil $197.8 mil Operating EPS $0.02 $0.17 $0.37 $0.52 Reported EPS $(0.54) $0.17 $0.37 $0.52 Source: Company Reports, Prudential Securities Incorporated Estimates. Breakdown Of One-Time Charges. The restructuring charge of $285 million for the quarter includes $50 million for employee severance and benefits related to a 2000 person head-count reduction completed in August, $50 million for the consolidation of facilities, $70 million for write-down of impaired assets and $65 million reserve regarding a doubtful receivable from a lawsuit settlement with ASM International (ASMIF-4 7/16, Not Rated). In addition, the Company will incur an after-tax charge of $50 million associated with the discontinuance of operations of Applied Komatsu Technology. The magnitude of the write-down is directly proportional to the severity of the downturn. The Company has returned to bookings and revenue levels that were prevalent in 1993 and needed to react accordingly to re-size its infrastructure. We believe that the restructuring will reduce expenses by approximately $40 million per quarter and have adjusted our estimates accordingly. Table 2 Breakdown of Restructuring Charge Reason Charge Head Count Reduction $50 million Facility Consolidation $50 million Impaired Assets $70 million Doubtful Receivable $65 million Applied Komatsu $50 million TOTAL $285 million Source: Company Reports, Prudential Securities Estimates. Bookings Are The Key Driver Of The Stock. The key stock driver for Applied Materials is bookings. In 3Q98, the Company reported gross bookings of $608 million. Net of cancellations, new bookings in 3Q98 were $470, down over 60% from peak levels established in 4Q97. Our estimate for 4Q98 bookings is $615 million, a slight improvement with 3Q98 gross levels. Table 3 AMAT Bookings Performance Chart (in millions) Q197 Q297 Q397 Q497 Q198 Q298 Q398 Q4E98 Billings $836 $901 $1,057 $1,280 $1,307 $1,176 $885 $650 Booking* $905 $1,015 $1,240 $1,350 $1,290 $1,028 $608 $615 Book-to-Bill 1.08 1.13 1.17 1.13 0.99 0.87 0.69 0.94 *Represents Gross Bookings Numbers based on fiscal year ending Oct. Source: Company Reports, Prudential Securities Incorporated Estimates. We Believe That Applied Should Guide To Modest Sequential Gains. The focus for investors will be bookings guidance for F1Q99. While visibility to our bookings estimates is not high, we believe that 3Q98 and/or 4Q98 represent a bookings trough for Applied Materials. Technology buys associated with the semiconductor industry's transition to 0.18 micron processing should allow for modest bookings improvements for Applied in 1HFY99. An absolute bottom in bookings should provide downside support for the stock-incremental information that end market demand for semiconductors is strong should transition investor's focus from trough valuation to peak earnings potential. However, meaningful sequential gains in bookings will not occur until late 1999 when capacity buys should begin to resume in earnest. Valuation, Approaching A Near-Term Trading Top; Longer-Term The Stock Still Looks Attractive. Stocks in our universe have begun to react positively to investors sentiment that the industry is approaching a bottom. As a result, of late our universe has seen significant stock appreciation. The magnitude of the recent run-up forces us to be somewhat cautious and advocate and near-term trading mentality-let the stocks find levels of support before committing new capital. However, we do believe that the industry is at or near the trough of the current cycle and incremental news should be positive-albeit modestly-a stabilization of equipment fundamentals against the backdrop of good semiconductor demand will increase the likelihood that stocks in our universe will begin to trade off of earnings potential estimated during the next growth cycle-calendar 2000 and 2001. We believe that Applied Materials can earn $1.85 in calendar 2000E and $2.50 in 2001E. Because the Company is the industry leader, we believe the stock will support a higher multiple to the peer group. We have established a 12 month price target of $45 or 25 times our 2000E estimate. We believe that this is a conservative multiple in relation to historical multiples as the industry has re-established growth. As we see more conclusive evidence that the industry has turned the corner we would expect multiples for industry leaders to reach 28-30 times the out year. 1Q99 Demand Environment Is Critical For Further Stock Appreciation. Increased visibility will be a function of positive incremental news on: (1) PC unit sales, (2) IC unit growth and (3) commodity memory pricing. In the current environment as the industry prepares for the Christmas selling season, all three metrics have turned positive. The key question is whether or not this environment is just seasonal or whether current strength is sustainable into 1Q99-it is still too earlier, given the amount of turns in business, to gather definitive data. It is our contention that the first two weeks of December will be a critical junction as wafer starts at this time should give a good indication of expected demand in 1Q99. A positive bias on demand in 1Q99 should provide the basis for multiple expansion against our 2000 estimates.

To: Gottfried who wrote (26289)	11/15/1998 8:02:00 PM
From: blake_paterson	Respond to of 70976

A more positive (less Blake-ish) view of the sector: techstocks.com To: Kent Sarikaya (2304 ) From: Donald Wennerstrom Friday, Nov 13 1998 11:29PM ET Reply # of 2307 The last 5 weeks have produced a gain of 66 percent for the semi- equip group. The group was obviously oversold and when that rubber- band decided to snap back, it really "moved out". During the same period, the SOX-X was up 45 percent. The top 10 stocks in the group are up 100 percent or more. AFLX is first with a gain of 235 percent, but ASYT is right behind with a gain of 207 percent. The top 30 stocks are up 50 percent or more. Even with all this increase in group performance, another 12 percent gain is required before the group equals its low for the year on 4/25/97. Full recovery is still a long way away. Of course, the question is - how fast, and when, is the recovery going to take place? Tune in next weekend to see how we did for this coming week. 10/09/98 11/13/98 CLOSE CLOSE PERCENT SYMBOL COMPANY PRICE PRICE CHANGE AFLX Adflex Solutions 2.50 8.38 235 ASYT Asyst Technologies 6.19 19.00 207 LTXX LTX 1.28 3.00 134 WFR MEMC Electronic Materials 3.50 8.19 134 MTSN Mattson Technology 2.75 5.91 115 TGAL Tegal 1.50 3.19 113 GSNX Gasonics 3.63 7.69 112 NVLS Novellus Systems 23.06 48.06 108 ASMLF ASM Lithography Holdings 13.63 27.75 104 ASEC Aseco 0.75 1.50 100 SVGI Silicon Valley Group 6.88 13.31 93 PRIA Pri Automation 10.63 20.13 89 TER Teradyne 18.00 33.94 89 DPMI Dupont Photomasks 19.31 34.19 77 CYMI Cymer 8.00 14.13 77 ETEC Etec System 20.25 35.44 75 PLAB Photronics 11.00 19.25 75 IMSC Integrated Measurement Systems 5.75 10.00 74 IPEC Integrated Process Equipment 6.19 10.63 72 CMOS Credence Systems 10.06 17.13 70 LRCX Lam Research 9.91 16.69 68 PHTN Photon Dynamics 2.38 4.00 68 SFAM SpeedFAM 10.13 16.69 65 SMTL Semitool 5.00 8.13 63 BRKS Brooks Automation 8.63 14.00 62 CFMT CFM Technologies 6.63 10.75 62 FSII FSI International 4.63 7.50 62 AMAT Applied Materials 23.63 38.25 62 ATMI ATMI Inc 11.38 18.19 60 NANO Nanometrics 4.81 7.38 53 EGLS Electroglas 9.25 13.75 49 KLAC KLA Instruments 25.00 37.00 48 KLIC Kulicke & Soffa Industries 11.56 16.50 43 MASK Align-Rite International 8.88 12.52 41 HELX Helix Technology 8.63 12.06 40 VECO Veeco Instruments 24.75 34.13 38 SFLX Smartflex Systems 5.94 8.00 35 UTEK Ultratech Stepper 15.38 19.38 26 COHU Cohu 15.38 17.88 16 MICN Micrion 5.38 6.13 14 WJ Watkins Johnson 16.50 18.25 11 TOTALS 408.63 677.99 66 SOX-X Phili Semiconductor Index 200.80 291.63 45