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

To: Gottfried who wrote (27061)	12/9/1998 9:25:00 AM
From: Shoibal Datta	Respond to of 70976

FYI Solomon Smith Barney's take on AMAT and the sector (from their web site) Applied Materials (AMAT, $42.81, 1-H) Raising Price Target, But May Be No Further Upside Revisions Raising price targets for Applied Materials, KLA-Tencor and Novellus Systems by rolling our discounting horizon forward into 2000 from 1999. However, these forecasts assume no summer slowdown and no airpockets during 1999, which is difficult to believe but not completely unlikely. The earliest test of the current valuations could come in the Jan. Mar. time period, as the semiconductor/equipment industries are forced to assess full calendar 1999 visibility. We Have Only Had Free Falls And V Shaped Recoveries Over The Last 6 Years... While the 1990-1992 time period with the US economy sliding into a recession and the Japanese economy following subsequently after seems eerily similar to the current Asian economic crisis environment, the market's memories are short and are influenced by the free falls and V shaped recoveries of the last 6 years. The 1990-1992 time period wherein the equipment market fluctuated between growth rates of +7% and -9% seem like a distant memory. Since 1993 onwards we have only had explosive upturns and free falls with equipment market growth rates 28% in 1993, 40% in 1994, 66% in 1995. While the growth rates of 10% in 1996, 5% in 1997 and -18% expected in 1998 may seem to indicate a much kinder-gentler environment, the yearly numbers belie the underlying turbulence. Applied Materials' quarterly bookings slid from $1.2 billion in early 1996 to $683 million in 4Q96 (October) only to rise again to $1.37 billion in 4Q97 and to fall again to $608 million in 3Q98 (July). Hence, it is not a surprise to see equipment stocks rallying sharply off of the bottom as the direction of the news begins to point in the right direction, because the market is valuing equipment stocks from its most recent memory. ...We Believe That This One Is Probably Different. Given the Asian crisis and the slower growth rates of the semiconductor industry due to upstream pricing contraction and furious competition in the semiconductor sector, we believe that the equipment sector is constrained to growth rates lower than the trend line 16%-17% secular growth that we have typically seen. Even SIA (Semiconductor Industry Association), which has consistently had an optimistic tilt, has forecast semiconductor industry growth rates of 9% for 1999, 15% for 2000 and 18% for 2001. Past SIA forecasts during the 1993-1995 proved too conservative due to explosive PC sector growth, however, we do not see such rosy PC forecasts on the horizon. With semiconductor industry growth constrained to the 15% regime, we find it hard to believe that the equipment sector could grow appreciably stronger than that. Hence, our thesis for a steady-but-not-spectacular recovery with estimated equipment market growth rates of 0%-2% in 1999, 17% in 2000 and 20% in 2001. However, There Is No Litmus Test For The Next 2-3 Months. While the market appears to be wildly excited about the current positive semiconductor equipment news, we note that most forecasts for Applied Materials called for the company to book $800-$850 million in 3Q98 (July) and the resulting figure of $608 million fell considerably short of the prior forecasts. The current pick-up is really a snap back for an industry that had dropped to unsustainable levels of equipment spending and not the first sign of a V shaped recovery. However, from the current oversold equipment bookings levels, there is really no litmus test that can establish whether it is a V shaped or a U shaped recovery for at least the next 2-3 months. Most equipment companies are getting ready to close a December quarter at or slightly better than expectations and we believe this will guide us to a March quarter sequential revenue/bookings growth of 5%-10%, which can be used to justify almost any growth scenario. Summer 1999 Visibility Is Clouded. We believe that the earliest trouble could come in the late January/February time frame as the June quarter visibility becomes clearer and/or the seasonal semiconductor/equipment summer slowdown issues come to the surface. In the 1997 upturn, we did not have a seasonal summer slowdown, however, prudence dictates that we may have airpockets during the summer of 1999. Most semiconductor and equipment companies currently have good visibility into 1Q99, but visibility beyond that is currently clouded. As the current rally begins to take hold, we are concerned that the market has begun to price the equipment sector to perfection leaving it susceptible to airpockets in the first half of 1999. We Are Raising Our Price Targets By Rolling Forward Our Discounting Horizons, However, There Is Little Room For Error From Here On. During the summer of 1997, Applied Materials traded at 4-4.5 times calendar 1998 sales-per-share estimates that ranged between $13-$14. A 4 times multiple of our calendar 2000 sales-per-share estimate of $13.8, yields a price target of $55, which is our new target. However, this scenario assumes no air pockets or perturbations. Raising 12-Month AMAT Price Target To $55 From $41. Using a 4 times multiple of next year's sales-per-share estimate, we come up with our $55 12-month target price or 4 times calendar 2000 sales-per-share estimate of $13.8. Our prior price target was $41, or 4 times calendar 1999 sales-per-share estimate of $10.2. We are maintaining our 1H rating. Raising 12-Month KLA-Tencor Price Target To $50 From $36. Using a 3 times multiple of next year's sales-per-share estimate, we come up with a 12-month target price of $50, or 3 times calendar 2000 sales-per-share estimate of $16.7. Our prior price target was $36, or 3 times calendar 1999 sales of $11.9. We are maintaining our 1H rating. Raising 12-Month Novellus Price Target To $60 From $43. Using a 20 times multiple of next year's earnings leads to a 12-month price target of $60, or 20 times calendar 2000 earnings estimate of $2.99. Our prior price target was $43, or 25 times 1999 earnings per share of $1.70. We are using a 20 times multiple as we expect the earnings stream to begin to deleverage during 1999. We are maintaining our 2H rating. Release Date: 12/08/98

To: Gottfried who wrote (27061)	12/9/1998 10:13:00 AM
From: Duker	Respond to of 70976

Gottfried, Don't overlook, when discussing AMATs steep forward multiple, Applied's upcoming e-commerce effort. Think about it, you could buy an Endura Electra Cu™ System right from your home (installation and shipping excluded)! Think of the market potential. Once they move far enough along the learning curve on the front-end equipment side, Morgan said that they could then move into gifts and videos -- with only minimal tweaking. --Duker