1. 2 agenda technology overview industry overview –industry information –industry trends and...
TRANSCRIPT
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Agenda
• Technology overview• Industry Overview
– Industry information– Industry trends and outlook
• Company Analysis– Intel (INTC)– Advanced Micro Devices (AMD)– Applied materials (AMAT)
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What is a Semiconductor?
• A semiconductor is a substance, usually a solid chemical element or compound, that can conduct electricity under some conditions but not others, making it a good medium for the control of electrical current.
• The most common semiconductor materials are silicon and germanium.
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What are Semiconductors Used For?
• Integrated Circuits– 89.7% of market– CPU and PC memory (DRAM, SRAM,
Flash Memory)
• Discrete Devices– Transistors, diodes, resistors
• Optoelectrics– LED, Optical coupler, laser diode
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What are Semiconductors Used For?
• Worldwide semiconductor product breakdown
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Industry Characteristics
• Short life cycles– Continuous innovation– Moore’s law: The number of transistors in an integrated circuit doubles every 18 months
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Growth of Computation Power
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Industry Characteristics
• High Research and Development Costs– R&D is vital to maintaining competitive
advantage – R&D enables firms to release
competitive products
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Industry Characteristics
• The sector is highly cyclical with peaks (2000) closely followed by troughs (2001).
• While there are numerous strong competitors in this sector, over 64% of the sector remains relatively fragmented.
• Intel leads the semiconductor sector, generating $28 billion in revenues, giving the company a 17% sector share.
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Industry Characteristics
• Where are Semiconductors Used?
Consumer products23%
Communications Equipment
13%
Manufacturing Industries
12%
Automobiles5%
Military2%
Computers45%
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Annual Sales
Annual Industry Sales 1994-2004
0
50000
100000
150000
200000
250000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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2004 Recap
• Market Value– The global semiconductors industry
sector grew by 28% in 2004 to reach a value of $213 billion.
• Market Value Forecast– In 2008 the global semiconductors
industry sector is forecast to have a value of $314 billion, an increase of 87.1% since 2003.
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2004 Recap
• Market Segmentation I– By far the leading source of revenue for the
semiconductors industry sector is the IC segment, which generates 89.7% of the sector's value.
• Market Segmentation II– The largest market globally for the
semiconductors industry sector is the Asia-Pacific region, which generates 56.8% of the sector's value.
• Market Share– The leading company in the semiconductors
industry sector is Intel, which generates 16.7% of the sector's value.
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Industry Leaders
Ticker Name Market Capitalization
TTM Sales $ Employees
MktCap Weighted Average
48,966.738 13,061.236 33276
INTC Intel Corporation 145,774.063 34,209.000 85000
TXNTexas Instruments Incorporated
44,134.445 12,580.000 35472
TSM
Taiwan Semiconductor Mfg. Co. Ltd. (ADR)
39,977.859 NA 16529
AMATApplied Materials, Inc.
26,968.701 8,238.181 12191
STMSTMicroelectronics N.V. (ADR)
15,438.713 8,760.000 45700
AMDAdvanced Micro Devices, Inc.
6,349.500 5,001.435 15900
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Industry Stock Performance
• Chart: Weekly semiconductors vs SP500
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Industry Outlook
• Opportunities– Expansion into Asia– Multi-core processors– Network products (wired and wireless)– Mobile products
• Laptops• Personal Digital Assistants (PDAs)• Cellphones
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Industry Outlook
• Increasing Foreign Consumption (sales)
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Estimated Future Growth
• PC industry– Projected 14% growth– Technological advancement
• Telecommunication– Projected 14 % growth– Increase use of wireless telecom products
• Consumer products– Projected 30% growth– Increase use of digital technology
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Estimated Future Growth
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History
• Incorporated in California in 1968– Initially supplied DRAM and EPROMS– Success of memory chip sales funded the
microprocessor development
• Processor Timeline
8086 80286 80386 80486 Pentium Pentium Pro
1978 1984 1987 1990 1992 1995
Pentium II
Pentium III
Pentium IV
Xeon Itanium Pentium M
1997 1999 2000 2001 2002 2003
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Company Overview
• Mission statement:“ Do a great job for our customers, employees and stockholders by being the preeminent building block supplier to the worldwide digital economy. ”
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Recent Developments
• March 2005: Intel Corporation Raises Low End of Q1 2005 Revenue Guidance Above Analysts' Estimates
• February 2005: Intel Corporation Desktop Processors Get 64-Bit Support
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Recent Developments
• January 2005: Intel Corporation Announces New Centrino Mobile Technology
• January 2005: Intel Corporation Restructures Into Five Units
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Recent Developments
• November 2004: Intel Corporation Board Elects Paul Otellini Intel Chief Executive Officer; Craig Barrett to Become Intel Chairman
• November 2004: Intel Corporation Doubles Cash Dividend and Authorizes Repurchase of 500 Million Shares of Intel Common Stock
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Recent Developments
• September 2004: Intel Corporation Invests in Five Companies Developing Technologies for the Digital Home
• March 2004: Intel Corporation May Cut China Sales Due To Rule
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Management
Andrew Grove (Chairman)• Founder (1968)
Craig Barret (CEO)• Joined Intel in 1974. Voted into BOD in
1992.
Paul Otellini (President and COO)• Joined Intel in 1974, became president in
2002.
Andy Bryant (Executive VP, CFO)• Joined Intel in 1981. Became CFO in 1994.
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Business Segments and Products
• Primary lines of busines:– Intel Architecture Business– Intel Communications Group
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Business Segments and Products
• Intel Architecture Business– Microprocessors
• Desktop Platform Pentium 4• Mobile Platform Pentium M• Enterprise Platform Xeon
– Chipsets • Intel chipsets are compatible with variety of
industry-accepted specifications
– Motherboard products
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Business Segments and Products
• Intel Communications Group– Flash memory– Wired and wireless connectivity
products– Processors for handheld computing
devices– Cellular baseband chipsets
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Major Customers
• Distributors • Original Equipment Manufacturers of
computer systems• Retail
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Competitors
• Intel Architecture Business– Advanced Micro Devices (Desktop,
mobile platform)– IBM (Desktop, mobile platform)– ATI, Broadcom, SIS, Via (Chipsets)– Nvidia, ATI (Chipsets/Motherboards)– Transmeta (Mobile platform)– Sun Microsystems (Enterprise platform)
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Competitors
• Intel Communications Group– Samsung, TI (Application processors)– Spanshion (falsh memory)– Qualacom (Cellular baseband chips)
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Strategy
• Strategy– Utilize core competencies to develop advanced products– Exercise control over value chain– Utilize “Intel inside” marketing campaign– Expand into faster growing complementary businesses– Invest in companies globally to further strategic
objectives (Intel Capital program)
• Objectives:– Extend silicon leadership and manufacturing capability – Deliver architectural innovation for all platforms – Pursue worldwide opportunities
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Financial Overview
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Financial Overview
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Financial Statement Analysis
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Segment Performance
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Options
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Options
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Fundamental Information
RATIO COMPARISON
Valuation Ratios Company Industry Sector S&P 500
Current Price 23.64
Shares Outstanding
6.323b
Market Capitalization
148.7b
EPS 2.45
Cash per share 1.329
Gross Margin 57.72 53.16 53.32 46.26
Operating Margin
29.61 22.69 18.60 21.96
P/E Ratio (TTM) 20.88 25.62 28.50 21.62
Price/Book Ratio (MRQ)
3.92 3.71 5.40 4.01
% Owned Institutions
56.11 58.33 46.49 65.39
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Management Effectiveness
Management Effectiveness (%)
Company Industry Sector S&P 500
Return On Assets (TTM)
15.73 12.19 10.43 7.59
Return On Assets - 5 Yr. Avg.
12.18 6.80 6.60 6.63
Return On Investment (TTM)
18.59 14.44 14.23 11.41
Return On Investment - 5 Yr. Avg.
14.50 8.06 9.97 10.50
Return On Equity (TTM)
19.64 15.57 17.73 19.89
Return On Equity - 5 Yr. Avg.
15.50 9.02 13.72 18.69
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Stock Buyback
2004Quarter
Shares Purchased (M Shares)
Cum. Shares Purchased (M Shares)
$Millions Cum. $ Millions
Q4 89.0 2,186.5 2,000.0 41,785.7
Q3 106.3 2,097.5 2,500.0 39,785.7
Q2 56.0 1,991.2 1,511.0 37,285.7
Q1 49.2 1,935.2 1,505.0 35,774.7
2003Quarter
Shares Purchased (M Shares)
Cum. Shares Purchased (M Shares)
$Millions Cum. $ Millions
Q4 61.4 1,886.0 2,003.2 34,269.7
Q3 0.0 1,824.6 0.0 32,266.5
Q2 51.8 1,824.6 1,005.1 32,266.5
Q1 62.6 1,772.8 1,003.5 31,261.4
2002Quarter
Shares Purchased (M Shares)
Cum. Shares Purchased (M Shares)
$Millions Cum. $ Millions
Q4 58.8 1,710.2 1,005.9 30,258.0
Q3 56.6 1,651.4 1,001.3 29,252.0
Q2 37.2 1,594.8 1,001.7 28,250.8
Q1 30.9 1,557.6 1,004.6 27,249.1
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Price History – 52 Weeks
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Price History vs. SOX – 52 Weeks
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Price History – 10 Years
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Price History vs. SOX – 10 Years
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Value Drivers
• Market leading research and development
• Financial strength• High brand recognition• Economies of scale
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What Would Fisher Say?
1. “Superiority in production, marketing, research and financial skills”– Market leader in production– Strong “intel inside” marketing campaign– Solid financial base
2. “The people factor”– All top executives have been with the firm
for over 20 years
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What Would Fisher Say?
3. “Investment characteristics of some businesses”– High barriers to entry– Fragmented competition
4. “The price of the investment”– Moderate price– Low P/E ratio relative to industry
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Recommendation
Positive:• Competent and
proven management• Strong financial
performance• High profit margins• Future growth
prospects
Negative:• Size of company limits
overall growth
BUY!!
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History
• Founded in 1969 and based in Sunnyvale, California, AMD provides microprocessors, Flash memory devices, and silicon-based solutions for customers in the communications and computer industries worldwide.
• Facilities in US, Europe, and Asia
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Company Overview
• Purpose: " We empower people everywhere to lead more productive lives."
• Mission: To achieve success, AMD combines innovative concepts with leadership in process technology and design and manufacturing excellence to offer products and services that reduce the cost, improve the performance and shorten the time to market for our target customers worldwide.
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Company Overview
• March 2005: AMD Supports Fair Trade Commission Of Japan’s (JFTC) Decision To Stop Illegal Business Practices By Intel
• March 2005: AMD Opens New Test, Mark And Pack Manufacturing Facility In Suzhou, China
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Company Overview
• June 2004: AMD Strengthens Mobile Computing R&D with New Engineering Lab in Tokyo
• August 2004: AMD Demonstrates World’s First X86 Dual-Core Processor
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Company Overview
• October 2004: Spansion Expands System Engineering Capabilities at Design Centers Around the Globe
• December 2004: AMD, IBM Announce
Semiconductor Manufacturing Technology Breakthrough
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Executives
Date joined
Hector de J. Ruiz, Ph.D.Chairman of the Board, President and Chief Executive Officer
2000
Dr. Bertrand CambouExecutive Vice President and President and CEO, Spansion
2002
William T. Edwards, Ph.D.Senior Vice President and Chief Strategy Officer
2004
Thomas M. McCoy Executive Vice President and Chief Administrative Officer
1995
Dirk Meyer Executive Vice President, Computation Products Group
1996
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ExecutivesDate
joined
Patrick MoorheadVice President, Global Marketing, Microprocessor Business Unit, Computation Products Group
2000
Iain MorrisSenior Vice President, Personal Connectivity Solutions Group
2004
Henri RichardExecutive Vice President, Worldwide Sales and Marketing
2002
Robert J. RivetExecutive Vice President and Chief Financial Officer
2000
Marty SeyerCorporate Vice President and General Manager, Microprocessor Business Unit, Computation Products Group
2002
Fred Weber Corporate Vice President and Chief Technical Officer
1995
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Business Segment and Products
• Computation products• Memory products• Personal connectivity solution
products
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Computation products
• Processors– Desktop Sempron, Athlon, Athlon 64– Server Opterron & Athlon– Mobile Turion, Sempron Athlon– Workstation Opteron & Athlon
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Memory products
• From Spansion– Flash Memory
• MirrorBit• Floating gate
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Personal connectivity solution products
• E86™ Embedded Processors – AMD Geode™ Solutions – AMD Alchemy™ Solutions
• Wired Ethernet
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Customers
• Distributors • Original Equipment Manufacturers of
computer systems• Resellers• Retail
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Competitors
• Computation Products– Intel
• Memory Products– Intel, Samsung, Toshiba, Sharp,
STMicroelectronics, Silicon Storage Technology and Macronix International
• Personal connectivity solution products– Freescale (formerly Motorola
Semiconductor), Hitachi, Intel, NEC Corporation, Toshiba and Via Technologies
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Strategic Partners
• Fujitsu– Spansion (manufacturing flash memory)
• Microsoft– Developing and operating system that
works with AMD64 technology
• IBM– Joint development agreement to develop
new process technologies
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Strategy
• Expand position in the enterprise segment through AMD64 based processors
• Expand position in the Flash memory market– Increase adoption of MirrorBit technology
• Developing new microprocessor and Flash memory products
• Expanding to high growth global markets – China, Latin America, India and Europe
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73
Financial Overview
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74
Financial Overview
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75
Financial Over view
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Computation products
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77
Memory products
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Financial Overview
Segment breakdown
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Financial Statement Analysis
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Research and Development
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Stock Options
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82
Stock Options
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Fundamental Information
RATIO COMPARISON
Valuation Ratios
Company Industry Sector S&P 500
Current Price 16.08
Shares Outstanding
393.89m
Market Capitalization
6.349b
EPS .245
Cash per share
2.332
Gross Margin 39.37 53.16 53.32 46.26
Operating Margin
4.44 22.69 18.60 21.96
P/E Ratio (TTM)
67.88 25.62 28.50 21.62
Price/Book Ratio (MRQ)
2.13 3.71 5.40 4.01
% Owned Institutions
73.9 58.33 46.49 65.39
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Management Effectiveness
Management Effectiveness (%) Company Industry Sector S&P 500
Return On Assets (TTM) 1.00 12.19 10.43 7.59
Return On Assets - 5 Yr. Avg. -1.79 6.80 6.60 6.63
Return On Investment (TTM) 1.28 14.44 14.23 11.41
Return On Investment - 5 Yr. Avg. -2.39 8.06 9.97 10.50
Return On Equity (TTM) 3.51 15.57 17.73 19.89
Return On Equity - 5 Yr. Avg. -2.77 9.02 13.72 18.69
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85
Price History – 52 weeks
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Price History vs. SOX – 52 weeks
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Price History – 10 year
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Price History vs. Sox – 10 year
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What would Fisher say
1. “Superiority in production, marketing, research and financial skills”– Heavy investment in research and
development– Lots of negative figures
2. “The people factor”– Only 2 of the top executive have been
with the company more than 10 years
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What would Fisher say
3. “Investment characteristics of some businesses”– High barriers to entry– Fragmented competition
4. “The price of the investment”– Moderate price– High P/E ratio relative to industry
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Recommendation
Positive:• Relatively small and
has room for growth• Good products (AMD
64)• Positive earning for
2004
Negative:• Competes with Intel• Inconsistent earnings• No Dividends• Lots of debt
HOLD!!
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Company Overview
• History– 1967, Applied Material was founded by
Michael A. McNeilly and others– 1972, first public stock offering– 1992, became the world’s leading
semiconductor equipment manufacture
– From 1971, AMAT has opened office worldwide: Europe, China (Beijing, Shanghai), Korea, Taiwan, Singapore
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Company Overview
• Acquisition– 1997, Opal, Inc. and Orbot Instruments
• Process diagnostic and control technology
– 1998, Consilium, Inc.• Manufacturing Execution System Software
– 2000, Etec Syetems, Inc.• Mask pattern generation
– 2004, TORREX• Transistor Fabrication Technologies
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Company Overview
• Mission Statement– “to be the leading supplier of
semiconductor fabrication solutions worldwide – through innovation and enhancement of customer productivity with systems and service solutions”
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Company Overview
• Current– Largest supplier of manufacturing
systems and related service to the globe semicon industry
– 2004• First 65-nm X Architecture Interconnect Test
Chip Produced at Maydan Technology Center• ASIA, the source of more than 70% of
revenue
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Management
Mike Splinter– President and CEO– Joined AMAT at 2003– 30 yr veteran of the semiconductor industry
• Intel• Rockwell
James Morgan– Chairman of the Board– Joined AMAT at 1976
• CEO from 1977-2003• Chairman since 1987
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Management
• Dan Maydan (1980)– President Emeritus
• Franz Janker (1982)– Executive V.P., Sales and
Marketing
• David N.K. Wong (1980)– Executive V.P., Applied
Materials Asia
• Nancy Handel (1985)– Senior V.P., CFO
• Manfred Kerschbaum (2004)– Senior V.P., GM Applied
Global Service
• Farhad Moghadam (1999)– Senior V.P., GM Thin Film
Product Business Group and Foundation Engineering
• Mark Pinto (2004)– CTO, Senior V.P. New
Business and New Product Group
• Ashon K. Sinha (1990)– Senior V.P, GM Etch Product
Business Group
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Business Segments
• Film Deposition– A process where a thin, uniform layer of
material is created (deposited) on the wafer surface
• Chemical Vapor Deposition (CVD)• Physical Vapor Deposition (PVD)• Electro Chemical Plating (ECP)• Atomic Layer Deposition (ALD)• Chemical Mechanical Polishing (CMP)
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Business Segments
• Photolithography– A process where a mask, the pattern of
chip’s circuitry, is placed in a precise location across the wafer
• Etch• Ion Implantation• Rapid Thermal Processing (RTP)• Interconnects
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Business Segments
• Metrology & Inspection– Defect Inspection– Defect Review Scanning Electron
Microscopy (DR-SEM)– Critical Dimension Measurement
Scanning Electron Microscopy (CDM-SEM)
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Company Overview
• Major Customers– Intel– Samsung
Electronics– AMD– Freescale
(Motorola)
• Top Competitors– KLA-Tencor (8.9B)
• Supplier of process control and yield management solutions
– Lam Research (3.8B)• Designs, manufactures,
markets, and services semicon process equip.
– Tokyo Electronic• LCD Inspection equip
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Strategy
• Strategy– “Early leaders win.”– “…Close to the Customer, Mutual Trust
and Respect, World-Class Performance…”– “Attract, retain, and develop the best
people…”
• Objectives– “Our customers' business results come
first! “
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Financial
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Financial Statement Analysis
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Fundamental Information
2004 2003 2002 2001 2000
C. Shares 1680 1677 1648 1631 1624
Employees 12191 12050 16077 17365 19220
Insurance of Stock
253.4 72.8 74.5 169.0 99.2
C. on Hand 2282 1365 1283 1356 1647
New Orders 8.98B 4.32B 6.14B 6.10B 12.3B
Revenue 8013 4477 6052 7343 9564
R & D 991.9 920.6 1052 1199 1107
Net Profit 1351 149 269 507 2063
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Options
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Options
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Options
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Management Effectiveness
Management Effectiveness (%)
Company Industry Sector S&P 500
Return On Assets (TTM)
13.44 12.19 10.43 7.59
Return On Assets - 5 Yr. Avg.
8.88 6.80 6.60 6.63
Return On Investment (TTM)
16.41 14.44 14.23 11.41
Return On Investment - 5 Yr. Avg.
11.46 8.06 9.97 10.50
Return On Equity (TTM)
17.49 15.57 17.73 19.89
Return On Equity - 5 Yr. Avg.
12.61 9.02 13.72 18.69
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Fundamental Information
RATIO COMPARISON
Valuation Ratios Company Industry Sector S&P 500
Current Price 15.99
Shares Outstanding
1667.82M
Market Capitalization
26.668B
EPS .91
Cash per share 1.24
Gross Margin 46.31 53.16 53.32 46.26
Operating Margin
24.87 22.69 18.60 21.96
P/E Ratio (TTM) 18.02 25.62 28.50 21.62
Price/Book Ratio (MRQ)
2.94 3.71 5.40 4.01
% Owned Institutions
67.33 58.33 46.49 65.39
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Price History – 52 weeks
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Price History vs. SOX– 52 weeks
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Price History – 10 years
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115
Price History vs SOX – 10 years
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Value Drivers
• Product Momentum– Increasing Market Share in Existing Product– Delivering Products for the Nanometer Era– Entering New Markets
• Solution for a Changing Industry– Larger size wafers with nanotechnology
• Inventing the Future w/ Breakthrough Technology– $992 millions in R&D
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What Would Fisher Say?
1. “Superiority in production, marketing, research and financial skills”– Market leader– Solid financial base
2. “The people factor”– 6/10 executives joined AMAT prior 1990
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What Would Fisher Say?
3. “Investment characteristic of some businesses”– Unique, hard to duplicate– Embedded growth factor
4. “The price of the investment”– At the low end of past 52 weeks
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Recommendation
Positive:• Positive
– Under priced• Above industry PM
and ROE– Industry leader and
technology leader– Old faces in a long-
lasting company
Negative:– Another Adobe case– Limited growth due
to its size
BUY!!