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An Upbeat Analyst Day

In fact, management at this tech holding was more positive than we had expected.
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Applied Materials (AMAT) held an upbeat analyst day Monday that was incrementally more positive than what we had expected. Soon after the bell yesterday, we added to our position on weakness, and we will continue to do so.

During the analyst day, Applied Materials management did a good job of outlining its earnings-power story of $1.95 to $2.15 per share (management's estimate for the next several years), which was ahead of our expectations of $1.70 to $1.90. There were another few notable points from the company. For one, fiscal 2013 wafer fab equipment (WFE) spending should be flat to down 10% vs. last year, per management expectations. That could be conservative, too, given the strong memory spending trends.

The company also sees a year-on-year uptick in fiscal 2014 spend -- and, for 2013 to 2016, it targets WFE spend to average at between $32 billion and $35 billion per year vs. $27 billion to $30 billion in 2013. Strength will be driven by a ramp of 16-nanometer products at the foundry, 3D NAND (flash memory) build-out and increases in mobility. Mobility demand is being driven by performance enhancements, and that is spurring stronger materials spend vs. lithography.

That positions Applied Materials well in this transition, with its leadership position and expertise in such production processes as physical vapor deposition (PVD), chemical vapor deposition (CVD) and etch. (Lam Research (LRCX) will also benefit.)

As for device performance, 90% is coming from materials and 10% from lithography. This is expected to continue from ramps of the company's FinFET and 3D NAND products. Importantly, management believes it will increase WFE share by 2% to 4%, and that silicon-segment sales will grow $1.6 billion from 2012 to 2016. That's to be largely driven by a lift in its research-and-development budget -- to 63% of total operating expenses from the prior 56% -- though the company still expects to reduce total opex to sales to 20% from 25% in this time frame. In display, the company believes it can grow sales to $1 billion by fiscal 2016 and increase its market share by 5%, given its broad product lineup.

Overall, management was incrementally more positive and we expect shares to respond well to the meeting. Our target and numbers are unchanged, but we are more positive about the underlying spending trends over the next 12 to 18 months, and about Applied Materials' strong positioning.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUSwas long AMAT.