Semiconductor Equipment - Berenberg Bank

Applied Materials Inc
Technology Hardware
Recovery and growth priced in
• We initiate coverage on Applied Materials (AMAT) with a Hold
recommendation and a price target of $14.4. AMAT supplies
equipment used in semiconductor, flat panel display (FPD) and solar
cell manufacturing processes. Our Hold rating is based on the
following. 1) AMAT only addresses 72% of the total wafer fab
equipment (WFE) market (Gartner data), and would need to gain a
3-6% market share from its current customer base to gain a further 2-
4% total share by 2016, as targeted by management. We consider this
to be a challenging target as the market is highly consolidated and
AMAT’s competitors – LAM, TEL and KLA – are all trying to
expand/maintain their market share. 2) We think that at the $16.5
share price level, much of the good news such as cost savings and
WFE market share gain opportunities is priced in.
• Key debates: 1) Can AMAT achieve a 4% WFE share gain by 2016?
2) Will AMAT be able to gain market share in the process control
market from its competitor KLA? 3) Can management deliver the 5%
opex cut as targeted by 2016?
1. We expect AMAT to only gain a 1% share by 2016, as: a) its
WFE market share has never reached 22% in the past 10 years;
b) it would need to gain a 3-6% share from its current customer
base to reach the target, as it only addresses 72% of the WFE
market; c) its potential share gain from etching and process
control only translates into a 1% total WFE share gain by 2016,
according to our calculations.
2. We think AMAT can gain up to a 5% market share in process
control by 2016 from its competitor KLA, given the recent
release of its new Applied SEMVision G6 product and the new
president’s experience in the process control market.
3. We believe the new president and CFO, both of whom had good
track records at their respective previous posts at Varian Semi,
will improve the likelihood of AMAT achieving is 5% opex cut
target by 2016.
• Our forecasts are in line with consensus.
• We value AMAT on a P/E multiple basis: Our price target of
$14.4 implies a P/E of 12x based on our 2014 EPS estimate of $1.2.
The 12x P/E is the mid-point of the historical 10-14x multiple applied
in the middle of the semiconductor recovery cycle.
Hold (initiation)
Rating system
Current price
USD 16.56
Absolute
Price target
USD 14.40
18/07/2013 New York Close
Market cap USD 19,897 m
Reuters AMAT.O
Bloomberg AMAT US
Share data
Shares outstanding (m) 1,202
Enterprise value (USD m) 18,595
Daily trading volume 13,958,129
Performance data
High 52 weeks (USD) 17
Low 52 weeks (USD) 10
Relative performance to SXXP NASDAQ
1 month 3.3 % 3.0 %
3 months 21.5 % 15.7 %
12 months 36.2 % 34.9 %
Key data
Price/book value 2.7
Net gearing 0.0%
CAGR sales 2012-2015 3.4%
CAGR EPS 2012-2015 173.6%
Business activities:
AMAT supplies semiconductor
fabrication equipment, flat panel display
fabrication equipment and solar PV
manufacturing systems.
Y/E 31.10., USD m 2011 2012 2013E 2014E 2015E
Sales 10,517 8,719 7,784 9,438 9,626
EBIT 2,410 1,379 1,135 1,842 1,961
Net profit 1,928 109 451 1,382 1,471
Y/E net debt (net cash) -5,227 -1,046 -1,302 -2,268 -3,319
EPS (GAAP) 1.45 0.06 0.38 1.17 1.25
EPS (Proforma) 1.30 0.75 0.67 1.17 1.30
CPS 4.51 1.14 1.63 2.47 3.40
DPS 0.24 0.33 0.38 0.40 0.41
Gross margin 41.8% 40.9% 42.1% 43.7% 43.4%
EBIT margin 22.9% 15.8% 14.6% 19.5% 20.4%
Dividend yield 1.4% 2.0% 2.3% 2.4% 2.5%
ROCE 21.9% 1.5% 6.1% 17.1% 16.7%
EV/sales 1.6 1.9 2.2 1.8 1.7
EV/EBIT 6.9 14.5 16.4 9.4 8.1
P/E 11.4 269.3 43.9 14.2 13.2
Source: Company data, Berenberg
22 July 2013
Tammy Qiu
Analyst
+44 20 3207 2673
tammy.qiu@berenberg.com
Jean Beaubois
Specialist Sales
+44 20 3207 7835
jean.beaubois@berenberg.com
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