Applied Materials (AMAT) makes capital equipment for semiconductor chip manufacturing. Demand in that sector has not been robust these last couple of years, although it has come off the bottom that lagged after the recession. This article will look at AMAT as a long-term investment, not a short term trade. Given that, the first thing to note is that it pays a dividend, which is currently $0.10 per quarter, or 3.1% per year at the current $13.06 stock price.
I believe the largest factor determining future AMAT revenue and profit will be the ongoing trend towards new, small process nodes (indicated by the size of the lines used to put transistors in chips. 32 nanometer is older than 28 nm.) But let's start with where we are now.
AMAT last reported on February 13 for the first fiscal fiscal quarter of 2013, which ended January 28, 2013. Against an overall global semiconductor capital equipment spending drop of 16% in 2012, AMAT reported revenues of $1.57 billion, down 5% sequentially from $1.65 billion and down 28% from $2.19 billion in the year-earlier quarter. That is discouraging, for certain.
Applied's core semiconductor equipment business saw a Q1 y/y decline to $969 million from $1.34 billion, a decline of 28%. Its display screen segment did better, but the solar segment did worse. Display revenue dropped 17% y/y to $87 million from $104 million, which was already low by historic standards. Solar revenue dropped 77% y/y to $47 million from $206 million. There is a glut of solar supply in the market, so no turn around is expected until at least 2015. Display may see some rebound in 2013 as screen sizes start to increase in developing markets and new screen technologies are adapted.
The bulk of Applied's revenue and profit comes from the semiconductor segment. It is well known that demand for PCs has been down, and it is hard to predict where the bottom may lay. Demand for tablets and smartphones has been increasing. Overall demand is dampened because smartphones simply contain far less silicon than PC's do. They have weaker processing chips and far less memory.
Does that mean Applied and other semiconductor equipment manufacturers should be written off as dinosaurs? I think not. I think overall computational demand will continue to increase rapidly for at least the next two decades. To cram more computation into portable devices (and the computers in the cloud that serve those devices) the industry will continue to move to smaller process nodes.
Right now demand is still high at the 28 nm node. Most chips, which work in legacy, non-mobile applications, are still made at much older nodes. For high-end graphics chips from AMD and NVIDIA, 28 nm is the cutting edge. Intel is already manufacturing its newest CPUs at 20 nm, and new memory-chip production at Samsung is just started at 10 nm. Memory process nodes typically can be smaller than computing process nodes. The most advanced ARM-based chips were recently taped out at 16 nm at TSMC.
Smaller (newer) process nodes mean that more capability can be built into mobile devices (and also non-mobile devices). Transitions to 14 nm and 20 nm are almost entirely ahead of the industry. To some extent moving to these nodes may open up capacity at 28 nm, but there is a lot of technology out there that has yet to migrate to 28 nm.
The other factor is overall demand, and that depends on the global economy and the frequency of consumer upgrades. There is a lot of old equipment out there, as seen by the high percentage of PCs still running Windows XP. With the exception on Intel, Samsung, IBM, and a few others, most chip makers are now really chip designers who send their designs to foundries like TSMC and Globalfoundries for actual production. These foundries don't want to have capital equipment sitting idle, but neither do they want to lose business because of insufficient capacity.
Generally capacity has been lean since the recession, which is one reason why there has been a shortage of 28 nm capacity. The other reason 28 nm has been tight is it was harder to get it working with good yields than had been expected There is quite a bit of impatience right now among the more cutting-edge designers because of a lack of sub-28 nm capacity.
Anything under 28 nm is far more expensive to make than 28 nm. Only Intel and Samsung have had the vast capital resources to simply move to the lower nodes without concern about how much demand would be there at startup. Even Intel announced it was cutting back capital equipment spending by $1 billion in 2013 due to lower demand projections.
But what is bad for foundries is good for AMAT and other equipment manufacturers: future nodes will require far more spending on capital equipment. One reason is that some 20 nm chips will have a 3-D structure. This means a move away from lithography defined shrinking to process-defined, where with precision engineering AMAT claims a considerable advantage.
In addition to reporting revenue, AMAT reports orders for each quarter. The good news for Q1 was that orders of $2.11 billion were well above revenue and up 31% from orders in Q4, as well as up 5% y/y.
Guidance is for Q2 fiscal 2013 revenue to be up 15 to 25% sequentially. Non-GAAP EPS is expected between $0.09 and $0.15.
While Applied Materials has substantial competition in each of the types of tools that are needed for semiconductor manufacturing, it is second in overall sales revenue only to ASML in an industry where scale matters. ASML is not much bigger: it had sales of $7.9 billion in 2011, AMAT had $7.4 billion. Another American competitor is KLA-Tencor, which had $3.1 billion in sales, placing it fourth globally.
On the whole, I think it is likely that 2013 will be a year of improvement for AMAT, and with major gearing up for 20 nm in 2014, that will be a very good year. How much improvement depends on the degree of strengthening global demand for semiconductor chips.
Disclaimer: I am a long-term investor in AMAT. I also am long AMD, but do not own any other company mentioned in this article. I will not buy or sell AMAT stock for one week following this article's publication date.
See also:
My main AMAT analyst conferences page.
My Q1 2013 AMAT analyst conference notes
www.appliedmaterials.com
Showing posts with label displays. Show all posts
Showing posts with label displays. Show all posts
Monday, April 22, 2013
Tuesday, August 28, 2012
Applied Materials Q3: Trend or Dip?
Applied Materials (AMAT), the semiconductor capital equipment maker, reported worse than expected revenue and earnings for fiscal Q3 when it reported on August 15, 2012. Contrast my story about Applied's Q1, where I said results came in better than expected because "a couple of large foundries placed unexpected orders and took delivery faster than expected on Q4 orders. Most of this unexpected bonus was to fabricate mobile application processors, which are the hearts of tablet computers and smartphones."
What are investors to make of such quarterly fluctuations? Is AMAT in trouble, or is was Q3 just a small bump in the road?
Capital equipment of any kind can be very cyclical and sensitive to changes in ultimate product demand. If end-market demand is not increasing factories (in this case foundries) don't need to add more equipment to keep up with demand. In semiconductors this is somewhat mitigated by the constant shrinking of transistor sizes, but that also comes in cycles, with Intel typically doing the first shrink and everyone else catching up later depending on their specific product needs, usually new product introductions.
The numbers tell the overall story of Q3 (which ended July 29). Revenues were $2.34 billion, down 8% sequentially from $2.54 billion and down 17% from $2.79 billion in the year-earlier quarter. GAAP Net income was $218 million, down 25% sequentially from $289 million and down 54% from $476 million year-earlier. GAAP EPS (earnings per share) were $0.17, down 23% sequentially from $0.22 and down 53% from $0.36 year-earlier.
Note that profits were substantial even at this level of revenue. This may not be the very bottom of the current cycle, but it is probably pretty close.
Foundries were cautious ordering in the quarter, prefering to risk not being able to produce enough chips in Q4 if demand is greater than expected. The same seems to be true throughout the semiconductor industry lately, with everyone trying to keep inventories low in case demand in Europe or China sinks further.
Management reported that much of the equipment is being sold to manufacture chips for mobile devices, but as device sales are seasonal, semiconductor fab equipment sales are starting to show more annual seasonality than in the past. The industry is moving to 28 nm based mobile devices, so even without global demand expansion 28 nm capacity has to be added (at 28 nm smartphone makers can get more computing capacity while extending battery life).
Applied Materials is also suffering from its display equipment segment, as display factories have plenty of capacity. However, new technologies will likely be introduced in 2013. Similarly its solar equipment sales were minimal as factories in China are able to meet short term demand for solar cells. Prices have dropped enough that demand should gradually pick up the slack caused by overproduction, despite new U.S. punitive tariffs. In addition, there has been talk of Applied selling its solar division. That makes no sense to me, it would make more sense to at least hold onto it until demand returns, when it would fetch a considerably better price.
One strong point for Applied during demand dips is its services division. Old equipment needs maintenance. Services revenue was $579 million, up 5% in the quarter.
Of course if the global economy melts down even bonds and gold will be worthless, but the most likely scenario for Applied Materials is for stronger growth in late 2012 and into 2013. This will be driven by returning demand for display and solar manufacturing equipment, as well as the more complicated (and expensive) equipment lines needed to manufacturer semiconductor chips and 28 nm and below.
AMAT has a number of competitors, but loss of market share has not been an issue. Applied spent $209 million on research and development in the quarter and has a healthy pipeline of new and future products.
For more details about Q3 results, including questions by analysts, see my Applied Materials Q3 2012 Analyst Call notes.
If you are a long-term investor in Applied Materials you can still do what I do, taking advantage of the mistakes of short-termers. We know revenue of from sales of expensive pieces of capital equipment will be cyclic. In the long run the cycles don't matter to much, only the long-term trend and dividends. On down legs the stock tends to be underpriced, and at least in bull markets on the upward portion of cycles the stock may get overpriced. Buy low, sell high. There are always people doing the opposite who will be happy to trade with you.
AMAT stock ended yesterday at , giving it a market capitalization near $14.3 billion. Its 52 week low was $9.70 on October 4, 2011, and its 52 week high was $13.94 on February 17. It pays $0.09 per quarter in dividends, making its yield today 3.1%.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I will not trade in AMAT for at least 7 days after this article is published.
See also the Applied Materials web site.
And keep diversified!
What are investors to make of such quarterly fluctuations? Is AMAT in trouble, or is was Q3 just a small bump in the road?
Capital equipment of any kind can be very cyclical and sensitive to changes in ultimate product demand. If end-market demand is not increasing factories (in this case foundries) don't need to add more equipment to keep up with demand. In semiconductors this is somewhat mitigated by the constant shrinking of transistor sizes, but that also comes in cycles, with Intel typically doing the first shrink and everyone else catching up later depending on their specific product needs, usually new product introductions.
The numbers tell the overall story of Q3 (which ended July 29). Revenues were $2.34 billion, down 8% sequentially from $2.54 billion and down 17% from $2.79 billion in the year-earlier quarter. GAAP Net income was $218 million, down 25% sequentially from $289 million and down 54% from $476 million year-earlier. GAAP EPS (earnings per share) were $0.17, down 23% sequentially from $0.22 and down 53% from $0.36 year-earlier.
Note that profits were substantial even at this level of revenue. This may not be the very bottom of the current cycle, but it is probably pretty close.
Foundries were cautious ordering in the quarter, prefering to risk not being able to produce enough chips in Q4 if demand is greater than expected. The same seems to be true throughout the semiconductor industry lately, with everyone trying to keep inventories low in case demand in Europe or China sinks further.
Management reported that much of the equipment is being sold to manufacture chips for mobile devices, but as device sales are seasonal, semiconductor fab equipment sales are starting to show more annual seasonality than in the past. The industry is moving to 28 nm based mobile devices, so even without global demand expansion 28 nm capacity has to be added (at 28 nm smartphone makers can get more computing capacity while extending battery life).
Applied Materials is also suffering from its display equipment segment, as display factories have plenty of capacity. However, new technologies will likely be introduced in 2013. Similarly its solar equipment sales were minimal as factories in China are able to meet short term demand for solar cells. Prices have dropped enough that demand should gradually pick up the slack caused by overproduction, despite new U.S. punitive tariffs. In addition, there has been talk of Applied selling its solar division. That makes no sense to me, it would make more sense to at least hold onto it until demand returns, when it would fetch a considerably better price.
One strong point for Applied during demand dips is its services division. Old equipment needs maintenance. Services revenue was $579 million, up 5% in the quarter.
Of course if the global economy melts down even bonds and gold will be worthless, but the most likely scenario for Applied Materials is for stronger growth in late 2012 and into 2013. This will be driven by returning demand for display and solar manufacturing equipment, as well as the more complicated (and expensive) equipment lines needed to manufacturer semiconductor chips and 28 nm and below.
AMAT has a number of competitors, but loss of market share has not been an issue. Applied spent $209 million on research and development in the quarter and has a healthy pipeline of new and future products.
For more details about Q3 results, including questions by analysts, see my Applied Materials Q3 2012 Analyst Call notes.
If you are a long-term investor in Applied Materials you can still do what I do, taking advantage of the mistakes of short-termers. We know revenue of from sales of expensive pieces of capital equipment will be cyclic. In the long run the cycles don't matter to much, only the long-term trend and dividends. On down legs the stock tends to be underpriced, and at least in bull markets on the upward portion of cycles the stock may get overpriced. Buy low, sell high. There are always people doing the opposite who will be happy to trade with you.
AMAT stock ended yesterday at , giving it a market capitalization near $14.3 billion. Its 52 week low was $9.70 on October 4, 2011, and its 52 week high was $13.94 on February 17. It pays $0.09 per quarter in dividends, making its yield today 3.1%.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I will not trade in AMAT for at least 7 days after this article is published.
See also the Applied Materials web site.
And keep diversified!
Saturday, May 28, 2011
Applied Materials Rocks Q2
Applied Materials, the semiconductor capital equipment maker, reported stronger than expected revenues and earnings for its second quarter of fiscal 2011 ending May1. The stock traded down on Friday based on management's cautious guidance for the remainder of 2011.
Prior guidance had been for Q2 sequentially flat to up 5% from Q1 revenues of $2.69 billion, with non-GAAP EPS of $0.34 to $0.38. Instead revenues came in at $2.86 billion, up 7% sequentially from $2.69 billion, and up 25% from $2.30 billion in the year-earlier quarter. Non-GAAP EPS was at the high end of guidance, $0.38.
Prior guidance on full fiscal 2011 revenues was over $11 billion and non-GAAP EPS was over $1.50. Management now said that is the high end of a range that depends on demand in Q3 and Q4.
The dividend is now 8 cents per quarter, 32 cents per year. There is a lot of room for growth given EPS, but acquiring Varian Semiconductor will eat up much of Applied's $4.6 billion cash and investment balance. Once Varian is digested the dividend could start growing again. At Friday's closing stock price the current dividend is a healthy 2.35%.
Within the semiconductor equipment and servicing industry Applied Materials serves a variety of segments. Variations in the demand cycles in segments and sub-segments account both for the stellar quarter and for the cautious guidance. The solar power division set a record, but revenues exceeded new orders as there are questions about end demand in Europe. Orders exceeded sales in the largest segment, silicon semiconductor manufacturing equipment, but the orders are mostly in new process modes (40 nm and under), driven by mobile end market demand. Large panel display capacity is plentiful, so most orders are to make small panels for smartphones and tablets.
My own view is that there is mainly upside. The Varian Semiconductor acquisition will make Applied very close to a full service provider for foundries. Despite uneveness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor solutions Applied Materials provides.
For more details about Q2 results, including questions by analysts, see my Applied Materials Q2 2011 Analyst Call summary.
I own Applied Materials (AMAT) stock. See also the Applied Materials web site.
See also: http://www.appliedmaterials.com/
Monday, August 23, 2010
Applied Materials Q3 2010 Guidance
On August 18th Applied Materials (AMAT) released Q2 results and held the analyst conference call for the quarter. For those trying to see where the electronics industry is heading, it was an important call.
Consumers choosing new computers, smartphones, and big screen displays recognize a limited number of brand name device makers like Apple, HP, Sony, Dell, Nokia, etc. Each of their devices is engineered from a number of components including the casings, displays, and electronic parts. A wide variety of semiconductor parts makers like Intel, AMD, Broadcom, Qualcomm, Marvell, TI, etc., compete to be chosen by the device maker; those are the design wins that point to whether a semiconductor company will grow or fade.
The semiconductor chips themselves are made with specialty capital equipment that must lay down the microscopic circuits that make the magic happen. Every few years the size of the circuit elements decreases, so fabs (after fabrication factories) must buy new capital equipment to provide for cutting edge chip production. A number of steps and hence machines are involved in the process for creating silicon wafers, cleaning, making masks, infusing them with dopants, adding insulators, etching, etc., and testing. As you may have heard lately from, for instance, NVIDIA, when new machines start to come online it often takes time to get them working well enough that the number of defects decreases to the point that most of the chips work when tested.
Applied Materials makes equipment to make semiconductor chips, solar panels, and LCD display panels. 2009 was a dry year. With end consumer (including industrial consumers) demand down for electronic devices, the fabs had plenty of capacity. Orders to AMAT consisted mainly of a few forward-looking fabs that knew that they had to keep shrinking transistors to serve their clients with the most advanced technological needs.
2010, on the other hand, has seen enough return of demand to restart the cycle for Applied. A lot of older production technology was taken off line in 2009. Now most fabs need not just new technology but capacity expansion as well.
Applied Materials has competition in each of its lines, some more so than others. With revenues of $2.52 billion in Q2 2010, up 10% sequentially from $2.30 billion and up 123% from $1.13 billion in Q2 2009, you can see the difference a year makes.
However, management is predicting that Q3 revenue will be flattish to up 5% over Q2. The main semiconductor equipment business is expected to be about flat. Services revenue looks up 10%. LCD display equipment revenue could be up 20%. But there will likely be a 10% to 20% drop in crystalline solar revenues. In addition the thin-film solar (SunFab) business is being reorganized because few governments, banks and companies wanted to take the risk of creating the very-large scale plants required for efficient thin-film operations.
Because fabs are scrambling to deal with current demand levels, a mild softening in the world economy would not cause them to put off plans to buy new equipment. In fact, it could take another year just to catch up. If, like me, you believe a gradual re-acceleration in the global economy is the most likely scenario, then this up cycle for Applied and other semiconductor equipment manufacturers is still in its opening phase.
If non-GAAP comes in at the middle of the guidance range, $0.30 per share, that would annualize to $1.20. At today's closing price of $10.99 per share, investors will be getting earnings of 10.9% per share. That sure beats the returns on bonds and CDs.
See also my notes on Applied Materials Q2 2010 analyst call;
Applied Materials site
Consumers choosing new computers, smartphones, and big screen displays recognize a limited number of brand name device makers like Apple, HP, Sony, Dell, Nokia, etc. Each of their devices is engineered from a number of components including the casings, displays, and electronic parts. A wide variety of semiconductor parts makers like Intel, AMD, Broadcom, Qualcomm, Marvell, TI, etc., compete to be chosen by the device maker; those are the design wins that point to whether a semiconductor company will grow or fade.
The semiconductor chips themselves are made with specialty capital equipment that must lay down the microscopic circuits that make the magic happen. Every few years the size of the circuit elements decreases, so fabs (after fabrication factories) must buy new capital equipment to provide for cutting edge chip production. A number of steps and hence machines are involved in the process for creating silicon wafers, cleaning, making masks, infusing them with dopants, adding insulators, etching, etc., and testing. As you may have heard lately from, for instance, NVIDIA, when new machines start to come online it often takes time to get them working well enough that the number of defects decreases to the point that most of the chips work when tested.
Applied Materials makes equipment to make semiconductor chips, solar panels, and LCD display panels. 2009 was a dry year. With end consumer (including industrial consumers) demand down for electronic devices, the fabs had plenty of capacity. Orders to AMAT consisted mainly of a few forward-looking fabs that knew that they had to keep shrinking transistors to serve their clients with the most advanced technological needs.
2010, on the other hand, has seen enough return of demand to restart the cycle for Applied. A lot of older production technology was taken off line in 2009. Now most fabs need not just new technology but capacity expansion as well.
Applied Materials has competition in each of its lines, some more so than others. With revenues of $2.52 billion in Q2 2010, up 10% sequentially from $2.30 billion and up 123% from $1.13 billion in Q2 2009, you can see the difference a year makes.
However, management is predicting that Q3 revenue will be flattish to up 5% over Q2. The main semiconductor equipment business is expected to be about flat. Services revenue looks up 10%. LCD display equipment revenue could be up 20%. But there will likely be a 10% to 20% drop in crystalline solar revenues. In addition the thin-film solar (SunFab) business is being reorganized because few governments, banks and companies wanted to take the risk of creating the very-large scale plants required for efficient thin-film operations.
Because fabs are scrambling to deal with current demand levels, a mild softening in the world economy would not cause them to put off plans to buy new equipment. In fact, it could take another year just to catch up. If, like me, you believe a gradual re-acceleration in the global economy is the most likely scenario, then this up cycle for Applied and other semiconductor equipment manufacturers is still in its opening phase.
If non-GAAP comes in at the middle of the guidance range, $0.30 per share, that would annualize to $1.20. At today's closing price of $10.99 per share, investors will be getting earnings of 10.9% per share. That sure beats the returns on bonds and CDs.
See also my notes on Applied Materials Q2 2010 analyst call;
Applied Materials site
Wednesday, January 20, 2010
Will Apple Eyefinity?
For a technology industry person, I am not much on gadgets. I've played with an iPhone and it just made me want a bigger screen. If I shell out cash, it tends to be for better business functionality. I am not a traveling salesman. I work out of my home office. So I do like big, affordable screens. Currently I have a two-screen set up, both Acer screens, one 17", one 19". My graphics card is an ATI Radeon X1200, which a gamer would scoff at, but which is fine for business applications.
Apple (http://www.apple.com/) has been mainly about mobile trends for over a decade now. After blowing much of their consumer loyalty back in the late 1980's, they regained some of it with their portable computers, or notebooks, during the 1990's. Apple became important in the pocket-sized mobile space with the iPod introduction in 2001. Then, a couple of years ago, they took on the cell phone market with the iPhone. With their high-margin model, they have made a very successful business.
Their desktop computers, however, have continued to have low market share, if not as bad of a share as they had five years ago. The Steve Jobs magic spell just has not worked out very well there so far. The last time I had a moment of Apple computer envy was way back in the decade when a friend was working on an Apple desktop with a nice big screen. It made me want a Windows computer with just as big of a screen.
So what do I want, when my business capital budget can afford it? What I really want is an Eyefinity display.
An Eyefinity display consists of one of the newest AMD/ATI graphics cards and as many as six screens. Basically, absorbing your whole visual field. The technology is in its early days, and can only get better. I expect by the holidays of 2010 you will be able to buy integrated computer systems, with graphic cards and screens, at major retailers. Also, it is not a system you want to add to a single-core processor system, or even a dual-core system. It is a good reason to upgrade to quad-core. (I'm still at dual core, myself, using Windows Vista).
Unless Apple has decided to leave the desktop space to wilt on the vine, I can't imaging that Apple won't respond to Eyefinity. The sanest response would be to simply add Eyefinity to a Mac. Since the secret is the graphics card, Eyefinity can be added to Intel processor based systems. Right now Apple uses Intel processors with NVIDIA graphics. And certainly NVIDIA will eventually have a response to Eyefinity. So maybe Apple will just wait for that. I don't see Apple coming up with its own proprietary competitor. The choices seem to be do it AMD's way or do it NVIDIA's way.
Samsung and AMD demonstrated both three and six panel Eyefinity displays at CES earlier this month, with suggested prices of $1,899 and $3,099 for the displays. Eyefinity capable graphics cards currently include the 5970, 5870, 5850, 5770 and 5750, at a wide range of price points and capabilities. There is also a validation program to help consumers identify products that are Eyefinity compatible.
My AMD analyst conference summary page
Apple (http://www.apple.com/) has been mainly about mobile trends for over a decade now. After blowing much of their consumer loyalty back in the late 1980's, they regained some of it with their portable computers, or notebooks, during the 1990's. Apple became important in the pocket-sized mobile space with the iPod introduction in 2001. Then, a couple of years ago, they took on the cell phone market with the iPhone. With their high-margin model, they have made a very successful business.
Their desktop computers, however, have continued to have low market share, if not as bad of a share as they had five years ago. The Steve Jobs magic spell just has not worked out very well there so far. The last time I had a moment of Apple computer envy was way back in the decade when a friend was working on an Apple desktop with a nice big screen. It made me want a Windows computer with just as big of a screen.
So what do I want, when my business capital budget can afford it? What I really want is an Eyefinity display.
An Eyefinity display consists of one of the newest AMD/ATI graphics cards and as many as six screens. Basically, absorbing your whole visual field. The technology is in its early days, and can only get better. I expect by the holidays of 2010 you will be able to buy integrated computer systems, with graphic cards and screens, at major retailers. Also, it is not a system you want to add to a single-core processor system, or even a dual-core system. It is a good reason to upgrade to quad-core. (I'm still at dual core, myself, using Windows Vista).
Unless Apple has decided to leave the desktop space to wilt on the vine, I can't imaging that Apple won't respond to Eyefinity. The sanest response would be to simply add Eyefinity to a Mac. Since the secret is the graphics card, Eyefinity can be added to Intel processor based systems. Right now Apple uses Intel processors with NVIDIA graphics. And certainly NVIDIA will eventually have a response to Eyefinity. So maybe Apple will just wait for that. I don't see Apple coming up with its own proprietary competitor. The choices seem to be do it AMD's way or do it NVIDIA's way.
Samsung and AMD demonstrated both three and six panel Eyefinity displays at CES earlier this month, with suggested prices of $1,899 and $3,099 for the displays. Eyefinity capable graphics cards currently include the 5970, 5870, 5850, 5770 and 5750, at a wide range of price points and capabilities. There is also a validation program to help consumers identify products that are Eyefinity compatible.
My AMD analyst conference summary page
Wednesday, May 13, 2009
Applied Materials Segment Performance Varies
Applied Materials (AMAT) is on the ropes. Fortunately it has large cash reserves. It is still paying a dividend (about 2% at this stock price). And it should bounce back when (or if) the global economy starts to recover.
The main take away for me from the AMAT analyst conference on May 12, 2009 was that there is a great deal of variance between the four major segments that make up the company. Let's take a look.
Traditionally Applied Materials makes the machines that make semiconductor chips. Broadly, the chips can be further divided into memory chips and logic IC's, although of course many systems now integrate both on a single chip. AMAT calls this it Silicon Segment. It had $260 million in revenue in the quarter. A year ago, the Silicon Segment had $1.27 billion in orders.
There is the cyclical problem with being a capital equipment manufacturer for you in a nutshell. Demand for end products like cell phones and computers is down. So demand for the chips that make them work is down. The chip manufacturing companies have plenty of capacity right now. Even as demand ramps up (if it does), they can go a bit before adding new capacity.
What silicon semiconductor equipment that was sold did not really go to increase unit capacity. A few companies are continuing to forge ahead on their technology roadmaps during the downturn. This means, in this industry, smaller process technologies. Applied Materials is selling the next generation of machines that can produce chips with smaller gates.
New orders in the Silicon Segment were $259 million. You can't tell exactly what the next quarter's revenues will be from new orders. The lag for this type of equipment is typically more than a quarter. Applied Materials had a backlog of $3.16 billion in orders at the end of the quarter (including all segments), so it could run for some time just filling older orders.
The global services segment is more steady. It had $319 million in revenue and $236 million in new orders, compared to $599 million in revenues year-earlier. That is still quite a drop off. Equipment needs to be maintained, but with utilization low the need for services drops off too.
The best news was in the environmental technology segment, which I prefer to refer to as Solar. Again, AMAT does not make solar cells, it makes the equipment to make solar cells. These are of two major types, crystalline silicon and thin-film. A year ago this quarter, revenues in solar were only $85 million. This quarter the revenue came in at $357 million, though new orders were only $141 million. Demand was very high a year ago - you remember the energy price bubble? - and now while there is plenty of long-term demand, new factories of any kind are considered a risky business.
The fourth segment is Display, which you can think of as equipment to make flat LCD screens for TVs. Results here were dismal: $84 million in sales and $13 million in new orders. Year-earlier revenues were $198 million. Again, a lot of capacity was built in 2007 and 2008, then demand slumped in the fall of 2008. Applied Materials management believes that flat-screen tvs continue to win market share, so some time in late 2009 manufacturers will have to start increasing capacity again for the presumed sunnier days of 2010.
The silicon segment is expected to recover gradually as demand re-ramps and older process technologies are scrapped for newer ones. Solar will ramp again as soon as energy prices go back up and financing becomes more generally available. Services will ramp as utilization of current equipment increases.
Of course, all of these trends assume that the economy will improve in the second half of 2009 and show something like sustained growth in 2010. In the meantime, if you own some AMAT stock (I do), sit back and enjoy your dividends. Applied Materials has $3.1 billion in cash and equivalents in the bank, and even in this dismal quarter was better than break even on cash flow (but non-GAAP net loss was $136 million, and GAAP net loss was $255 million). Some day demand for semiconductor equipment will return, and with its new solar business on top of that, Applied Materials will be even more impressive than it was back in 2007.
The main take away for me from the AMAT analyst conference on May 12, 2009 was that there is a great deal of variance between the four major segments that make up the company. Let's take a look.
Traditionally Applied Materials makes the machines that make semiconductor chips. Broadly, the chips can be further divided into memory chips and logic IC's, although of course many systems now integrate both on a single chip. AMAT calls this it Silicon Segment. It had $260 million in revenue in the quarter. A year ago, the Silicon Segment had $1.27 billion in orders.
There is the cyclical problem with being a capital equipment manufacturer for you in a nutshell. Demand for end products like cell phones and computers is down. So demand for the chips that make them work is down. The chip manufacturing companies have plenty of capacity right now. Even as demand ramps up (if it does), they can go a bit before adding new capacity.
What silicon semiconductor equipment that was sold did not really go to increase unit capacity. A few companies are continuing to forge ahead on their technology roadmaps during the downturn. This means, in this industry, smaller process technologies. Applied Materials is selling the next generation of machines that can produce chips with smaller gates.
New orders in the Silicon Segment were $259 million. You can't tell exactly what the next quarter's revenues will be from new orders. The lag for this type of equipment is typically more than a quarter. Applied Materials had a backlog of $3.16 billion in orders at the end of the quarter (including all segments), so it could run for some time just filling older orders.
The global services segment is more steady. It had $319 million in revenue and $236 million in new orders, compared to $599 million in revenues year-earlier. That is still quite a drop off. Equipment needs to be maintained, but with utilization low the need for services drops off too.
The best news was in the environmental technology segment, which I prefer to refer to as Solar. Again, AMAT does not make solar cells, it makes the equipment to make solar cells. These are of two major types, crystalline silicon and thin-film. A year ago this quarter, revenues in solar were only $85 million. This quarter the revenue came in at $357 million, though new orders were only $141 million. Demand was very high a year ago - you remember the energy price bubble? - and now while there is plenty of long-term demand, new factories of any kind are considered a risky business.
The fourth segment is Display, which you can think of as equipment to make flat LCD screens for TVs. Results here were dismal: $84 million in sales and $13 million in new orders. Year-earlier revenues were $198 million. Again, a lot of capacity was built in 2007 and 2008, then demand slumped in the fall of 2008. Applied Materials management believes that flat-screen tvs continue to win market share, so some time in late 2009 manufacturers will have to start increasing capacity again for the presumed sunnier days of 2010.
The silicon segment is expected to recover gradually as demand re-ramps and older process technologies are scrapped for newer ones. Solar will ramp again as soon as energy prices go back up and financing becomes more generally available. Services will ramp as utilization of current equipment increases.
Of course, all of these trends assume that the economy will improve in the second half of 2009 and show something like sustained growth in 2010. In the meantime, if you own some AMAT stock (I do), sit back and enjoy your dividends. Applied Materials has $3.1 billion in cash and equivalents in the bank, and even in this dismal quarter was better than break even on cash flow (but non-GAAP net loss was $136 million, and GAAP net loss was $255 million). Some day demand for semiconductor equipment will return, and with its new solar business on top of that, Applied Materials will be even more impressive than it was back in 2007.
Wednesday, August 15, 2007
Applied Materials and Technology Business Insights
Applied Materials (AMAT) reported its results for the quarter ending July 29, 2007 (their 3rd quarter fiscal 2007) yesterday. With revenues essentially flat both sequentially and year-over-year, this is not a company that investors are likely to get excited about at the moment.
Yet if you are investing in technology stocks Applied Materials is an important company to watch for insights into technology and its economics. Applied Materials is one of a small group of companies that makes a broad range of equipment for manufacturing semiconductor circuits. In the July quarter revenues were $2.56 billion. KLA Tencor (KLAC) is a competitor with $736 million in revenues last quarter; companies like Samsung and IBM make semiconductor equipment, but that is a relatively small part of their overall business; and there are a variety of smaller specialty competitors. It is reasonable to look at Applied Materials as a single-company proxy for the industry.
With Cisco reporting strong growth in the router and switch market I have to wonder if the slump we have seen this last year in revenues at semiconductor chip companies is hiding a trend towards stronger long-term growth. Cisco believes the transition to Internet telephony and video-over Internet are propelling its growth. Internet trunk line capacity was overbuilt in the late 1990's, but now we are seeing fiber optic cable being run all the way into people's homes. Certainly the bandwidth requirements of video are far higher than those of text and picture Web pages.
You might think that Applied Materials would be seeing demand for new semiconductor manufacturing equipment leading demand for chips, but that is not the case so far. Chip makers, including the increasingly important companies that run fabs for fabless and fab-light chip companies, are buying as slowly as possible. The only area where demand was characterized by Applied Materials as good was RAM or memory production. The increased use of memory in cell phones and other devices is a clear trend people are willing to bet on; no one wants to risk losing a supply contract with a cell-phone maker because they did not buy enough equipment six months ago to get it up and running and ready for next-month's demand.
But in non-memory silicon their has been caution. Demand hit 95% of capacity in 2006, then slumped, and is not back up to 95% quite yet. Discussions with customers indicate that, whereas a few years ago hitting 85% of capacity was a signal to start expanding plant, today manufacturers are delaying their costs by waiting until the 95% mark is reached.
In flat-panel display manufacturing Applied Materials management believes they are in the bottom of a short-term cycle that should end soon. In contrast to chip manufacturers, display manufacturers bought a lot of equipment in 2005-2006 and still have reasonable capacity. However, consumer demand for flat panels is exploding as prices fall, so soon more manufacturing capacity will be needed.
Applied Materials is also into creating the equipment to make both traditional solar cells and the new thin film cells; revenues in the area are growing and should be a larger percentage of revenues in 2008.
Another trend to not is the shift from 200 mm silicon wafers to 300 mm. Much is still done with 200 mm wafers, but Applied Materials believes the cost advantages of 300 mm are such that in the 2008 - 2009 time frame 200 mm wafers will no longer be cost-competitive, so those who have delayed shifting will have to buy 300 mm equipment.
You can tweek your models however you like, but no one is sure when video demand is going to help anyone much besides Cisco. Older personal computers don't do a good job with video; there are always people who (wisely) change computers only when they get a major performance benefit out of doing so. High-end cell phones are becoming more popular, driving demand for low-energy, high-capacity digital and analog chips. Increases in overall demand will show up eventually in semiconductor equipment maker revenues. Macroeconomics aside, I expect demand to be healthy as display screen sizes, memory requirments, and processing capacity for video all continue to attract end consumers (including businesses who want to save money by using telepresence technology).
More Data:
My summary of the Applied Materials analyst conference (August 14, 2007)
Applied Materials home page
KLA-Tencor home page
Yet if you are investing in technology stocks Applied Materials is an important company to watch for insights into technology and its economics. Applied Materials is one of a small group of companies that makes a broad range of equipment for manufacturing semiconductor circuits. In the July quarter revenues were $2.56 billion. KLA Tencor (KLAC) is a competitor with $736 million in revenues last quarter; companies like Samsung and IBM make semiconductor equipment, but that is a relatively small part of their overall business; and there are a variety of smaller specialty competitors. It is reasonable to look at Applied Materials as a single-company proxy for the industry.
With Cisco reporting strong growth in the router and switch market I have to wonder if the slump we have seen this last year in revenues at semiconductor chip companies is hiding a trend towards stronger long-term growth. Cisco believes the transition to Internet telephony and video-over Internet are propelling its growth. Internet trunk line capacity was overbuilt in the late 1990's, but now we are seeing fiber optic cable being run all the way into people's homes. Certainly the bandwidth requirements of video are far higher than those of text and picture Web pages.
You might think that Applied Materials would be seeing demand for new semiconductor manufacturing equipment leading demand for chips, but that is not the case so far. Chip makers, including the increasingly important companies that run fabs for fabless and fab-light chip companies, are buying as slowly as possible. The only area where demand was characterized by Applied Materials as good was RAM or memory production. The increased use of memory in cell phones and other devices is a clear trend people are willing to bet on; no one wants to risk losing a supply contract with a cell-phone maker because they did not buy enough equipment six months ago to get it up and running and ready for next-month's demand.
But in non-memory silicon their has been caution. Demand hit 95% of capacity in 2006, then slumped, and is not back up to 95% quite yet. Discussions with customers indicate that, whereas a few years ago hitting 85% of capacity was a signal to start expanding plant, today manufacturers are delaying their costs by waiting until the 95% mark is reached.
In flat-panel display manufacturing Applied Materials management believes they are in the bottom of a short-term cycle that should end soon. In contrast to chip manufacturers, display manufacturers bought a lot of equipment in 2005-2006 and still have reasonable capacity. However, consumer demand for flat panels is exploding as prices fall, so soon more manufacturing capacity will be needed.
Applied Materials is also into creating the equipment to make both traditional solar cells and the new thin film cells; revenues in the area are growing and should be a larger percentage of revenues in 2008.
Another trend to not is the shift from 200 mm silicon wafers to 300 mm. Much is still done with 200 mm wafers, but Applied Materials believes the cost advantages of 300 mm are such that in the 2008 - 2009 time frame 200 mm wafers will no longer be cost-competitive, so those who have delayed shifting will have to buy 300 mm equipment.
You can tweek your models however you like, but no one is sure when video demand is going to help anyone much besides Cisco. Older personal computers don't do a good job with video; there are always people who (wisely) change computers only when they get a major performance benefit out of doing so. High-end cell phones are becoming more popular, driving demand for low-energy, high-capacity digital and analog chips. Increases in overall demand will show up eventually in semiconductor equipment maker revenues. Macroeconomics aside, I expect demand to be healthy as display screen sizes, memory requirments, and processing capacity for video all continue to attract end consumers (including businesses who want to save money by using telepresence technology).
More Data:
My summary of the Applied Materials analyst conference (August 14, 2007)
Applied Materials home page
KLA-Tencor home page
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