Wednesday, March 5, 2008

Applied Materials (AMAT) Solar Play

Applied Materials (AMAT) disclosed a deal to sell $1.9 billion in solar cell manufacturing equipment to a non-U.S., privately held, unnamed corporation on Tuesday [See the AMAT SEC filing]. Applied SunFab thin film tandem junction production equipment and installation/warranty services will be used to construct multiple solar factories.

This comes a few weeks after Applied Material's fiscal Q1 2008 analyst conference of February 12 [See my summary of that.]. Overall Q1 was a poor quarter as semiconductor manufacturers, AMAT's customers, were cautious about investing in new equipment in the face of questionable demand going forward.

The bright spot was the solar energy segment (Energy and Environmental Solutions) which is a relatively new market for Applied Materials. Revenues in the quarter were $122 million, but new orders in the quarter were $260 million.

Management said it was in discussion with 4 major potential purchasers wanting to build solar cell fabrication factories. This $1.9 billion order must be one of those four.

Given that the annual revenue run rate has descended to approximately $8 billion per year, this is a big boost. But what is great is that Applied Materials, even at the low run rate, managed $262 million in net income in the quarter. So its way in the black even in a down cycle.

Applied Materials also has a fair amount of cash, $3.4 billion at the end of the quarter. This despite several fairly recent acquisitions for the solar segment.

I would like to buy Applied Materials, which seemed undervalued to me when I last wrote about it back in November [See Applied Materials Valuation]. On the other hand I have limited cash for investment, and other stocks I would like in my portfolio are also under priced due to the current liquidity crunch.

Even given all this, Applied Materials is a somewhat risky investment due to the uncertain future of the semiconductor manufacturing industry.

Keep diversified.

More data:
My Applied Materials main page.

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