Applied Materials makes the high technology capital equipment that fabricators use to make semiconductor chips, flat-pannel displays, and solar cells. In early 2009 this business was in stall mode. Revenues dropped to $1 billion for the quarter ending April 26, 2009 (AMAT's 2nd fiscal quarter).
In the first calendar quarter electronics sales were down, and chip manufacturers (fabs) thought had too much capacity. The only reason to buy equipment from Applied Materials was to stay on the upgrade path to new technologies, in particular smaller feature sizes.
Lately all the talk in the computer and electronics industry is about supply constraints. The fabs don't have enough capacity for the newest technologies that are in demand. Just for instance, neither AMD nor NVIDIA has been able to get the new high-end graphics chips in quantities desired.
So fabricators in Taiwan and elsewhere are trying to catch up to the curve. So much so that by the time Applied reported its latest earnings (on February 17 for the quarter ending January 31) revenues for the quarter were $1.85 billion, and net income was $82.8 million.
Guidance given on February 17 was for fiscal 2010 revenues to be up 50% over fiscal 2009 revenues.
But it gets better. Semiconductor chip manufacturers are ordering even more broadly just in the last few weeks. So yesterday Applied Materials increased its guidance. It expects fiscal 2010 revenues to be up over 60% from fiscal 2009. Leading the charge is the silicon manufacturing equipment division, which is expected to be up 120%. Lagging is the solar division, which is expected to be flat to slightly up.
Predicting the future is a dangerous business, but they it is a business I am in. Silicon is coming in quantity to nations like India, China, and Brazil in never-before seen quantities. Applied Materials is one of the few companies with the capital and expertise to keep pushing the limits on shrinking the size of the components on the chips. After minimal upgrading in 2008 and 2009, now through at least 2012 should be a major upgrade and expansion cycle for fabs.
There are small electronics and software companies that will grow faster over this period, but Applied Materials right now is both a value and a growth stock. It pays a dividend, 1.78% at this moment's stock price of $13.71. You will probably get most of your returns, however, out of stock appreciation.
I am a long-term AMAT investor.
See also my fiscal Q1 2010 Applied Materials analyst conference summary
And of course www.appliedmaterials.com