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No. of Recommendations: 0
I compiled this RM spreadsheet on Applied Materials.
They supply semiconductor manufacturing equipment to
chipmakers.  Seems like an important industry to be in.
I am new at this so I would appreciate any feedback.
I had some trouble finding a viable competitor which is a 
good sign.  I used KLA Tencor Inc. which only has 
about 1/5 the revenues as AMAT.  Any other 
suggestions?  At 49 they just missed a first tier 
ranking.  Their fool ratio was 1.26 which just misses 
the 1.25 cutoff or they would have topped the 50 point 
barrier.  What about valuation?  At a P/E of 84 it 
looks expensive.  But when you couple in the expected 
70% growth in revenues for FY00 and the 25% growth in 
earnings for the foreseeable future, this looks one 
like a winner.







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Financial AnalysiCompany Being Evaluated                        Competitor #1   Competitor #2  Competitor #3

                 Applied Materials Inc.                       KLA Tencor Corp. <Fill in Name> <Fill in Name>
                 Current Period Year-ago PeriodYear-over-Year  Current Period  Current Period Current Period
                     1/31/00        1/31/99       Growth          12/31/99         <Date>         <Date>
Income Statement . . .
  Sales               1,666,957        742,477    124.5%               330,757
  Cost of Goods S       831,544        421,374     97.3%               153,373
  Net Income            328,469         52,885    521.1%                49,249
  Shares Outstand       409,817        388,233     5.6%

Balance Sheet . . .
  Cash & Equivale     3,004,177      1,924,313     56.1%               446,133
  Current Assets      5,060,461      3,597,539     40.7%             1,778,542
  Short-term Debt        42,273          7,652    452.4%                15,145
  Current Liabili     1,669,393      1,042,959     60.1%               411,571
  Long-term Debt        584,357        616,902     -5.3%                     0
                                                                              1              0              0Competitors
Margins & Ratios . . .
  Gross Margins            50.1%          43.2%     6.9                   53.6%                                    53.6%
  Net Margins              19.7%           7.1%    12.6                   14.9%                                    14.9%
  Cash-to-Debt              4.79           3.08    55.6%                  29.46                                    29.46
  Net Cash             2377547.0      1299759.0    82.9%               430988.0                                 430988.0
  Fool Flow Ratio           1.26           1.62   -21.8%                   3.36                                     3.36


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Ranking Rule Makers

1) Brand          Points (0-1)                                3) Financial Dire Points (0-3)
Familiarity                    1                              Sales Growth                   3
Openness                       1                              Gross Margins                  3
Optimism                       1                              Net Margins                    3
Legitimacy                     1                              Shares Outstandin              1
Inevitability                  1                              Cash-to-Debt                   2
Solitariness                   1                              Fool Flow Ratio                3
Humor                          1                              Expansion Potenti              3
  Subtotal                     7                                Subtotal                    18

2) Financial Loca Points (0-2)                                4) Monopoly Statu Points (0-4)
Mass Market Habit              2                              Gross Margins                  0
Gross Margins                  1                              Net Margins                    2
Net Margins                    2                              Net Cash                       4
Cash-to-Debt                   2                              Fool Flow Ratio                4
Fool Flow Ratio                0                              Convenience                    4
Your Interest                  2                                Subtotal                    14
  Subtotal                     9
                                                              5) Your  Enjoymen              1

                   Total Score               49 Second Tier

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No. of Recommendations: 0
Amat is in a cyclical industry. On a cyclical peak, amat will appear to be the perfect Rule Maker, and on a downturn, its numbers will look horrible.
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No. of Recommendations: 2
I'll give the ultimate wishy-washy answer.

"It depends"

As for competitors, try Novellus, KLA-Tencor, Teradyne, and if you can can get the relevent info, Nikon and Tokyo Electron. You will probably find, as I did, that Applied Materials has a distinctly superior balance sheet.

What prevents it from being a Rule Maker? The flow ratio is too high, 1.5-2.0, which is actually quite good for this industry. Gross margins run around 50%, so it hovers just around Rule Maker criteria. (The story is similar with net margins). Debt is not a problem. In addition, the volatility and cyclical nature of the business is a concern, and the industry is not for the technically faint of heart.

AMAT is clearly the Rule Maker in the semiconducting equipment industry, even if AMAT probably falls a little short in the overall Rule Maker criteria.

But as you can probably guess, I think it is a great investment, and am indeed long on AMAT.

-rundwp
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