Semiconductor Equipment - Berenberg Bank

Applied Materials Inc
Technology Hardware
Margin to expand with revenue growth and cost saving
The SSG operating margin is expected to be down in 2013, with the cost saving
expected from its planned factory shutdown offset by the low margin achieved in
the first two quarters. However, we believe that the SSG margin will improve over
the next two years driven by an increase in the top line and further cost-saving
initiatives. We expect that the AGS operating margin will move with the top line,
and hence also expand in 2014 and 2015. The Display division’s operating margin
is projected to be 24% in 2014, due to the higher revenue level expected in this
segment. We expect display’s revenue to drop by 24% in 2015 after 54% growth in
2014, as we do not believe the strong order momentum will last. We believe that
the loss in EES will narrow over time from $184m in 2012 to $137m in 2013,
driven by the ongoing cost-saving programme.
We estimate the gross margin will expand as revenues increase, from 40.9% in
2012 to 42.1% in 2013 and 43.6% in 2014.
Figure 23: Profit and loss
Profit and Loss 2011 2012 2013E 2014E 2015E
(Dollars in millions)
Revenues 10,517.0 8,719.0 7,783.6 9,437.8 9,626.5
YOY % 10.1% -17.1% -10.7% 21.3% 2.0%
Cost of goods sold 6,118.8 5,153.0 4,504.3 5,317.6 5,451.4
Gross profit (proforma) 4,398.2 3,566.0 3,279.2 4,120.1 4,175.1
Gross margin (proforma) 41.8% 40.9% 42.1% 43.7% 43.4%
Research & development 1,113.0 1,236.0 1,283.6 1,379.3 1,347.7
Marketing & selling 436.4 471.8 413.7 445.3 442.8
General & administrative 439.0 479.2 447.4 453.0 423.6
Operating Income (proforma) 2,409.8 1,379.0 1,134.5 1,842.4 1,961.0
OP margin (proforma) 22.9% 15.8% 14.6% 19.5% 20.4%
Interest & other expense (income) 16.0 78.0 41.0 0.0 0.0
PBT (Pro forma) 2,393.8 1,301.0 1,093.5 1,842.4 1,961.0
Taxes (proforma) 670.0 342.0 294.5 460.6 451.0
Tax rate 28.0% 26.3% 26.9% 25.0% 23.0%
Net income before JV (proforma) 1,723.8 959.0 799.0 1,381.8 1,510.0
EPS - Pro forma $1.30 $0.75 $0.67 $1.17 $1.30
YOY % 47.7% -42.4% -16.7% 66.2% 4.0%
Common shares (millions) 1,329.8 1,274.8 1,203.8 1,197.5 1,194.5
Source: Berenberg estimates
Dividends and share buyback
AMAT has a history of paying a stable level of dividends. In March 2013, it raised
its quarterly dividend level from $0.09 to $0.10. Assuming it maintains its dividend
level, the payout ratio will be 33.5% and 30.5% in 2014 and 2015 respectively by
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