Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Financial Statement
From the same quarter a year ago, earnings increased 33% to $3.744B. COGS rose 25% for the same comparison period, yielding $1.7B in gross profit from a 46% gross margin. R&D was up almost 20% from a year ago while the rest of overhead remained flat. Net income was $925M, up from $505M a year ago. Net margin stands at 25%. Earnings were good for $0.85 per diluted share.

On the balance sheet, cash and short-term investments grew by $3.5B to a total of $7.2B. Long-term debt also rose, to $5.3B, up $2.2B from a year ago. AMAT appears to be taking advantage of low interest rates. The cash flow statement shows, in the previous three quarters, they have raised almost $2B in new debt while purchasing $1.72B in new investments. Applied have earned $2.910B in cash from operations. $740M of this was from deposits on new tool orders, effectively a form of short-term debt. They paid equity owners back $1.11B in the last nine months, two-thirds in stock repurchases and the remainder in dividends. They have $5.2B in cash and equivalents compared to $2.8B a year ago, and $5.3B in long-term debt. Also, they have $3B in short and long-term investments.

Their share repurchases almost offset dilution from equity grants to employees. Over the last two years they have diluted shareholders by about 1M shares per quarter, on a count of a billion shares. AMAT's stock is up 240% in the last two years, so their repurchases all look great.

Conference Call
CEO comments: Record revenue and profits this quarter. Applied has set a profit record in each of the last five quarters. The company has never been better-positioned. There is "pervasive" demand from diverse end-markets in electronics, their expertise in materials engineering gives them unprecedented breadth and depth in products, and execution has never been more effective. In NAND memory, demand is being driven by storage and mobile. The process technology needed for 3D NAND is in Applied's wheelhouse because they are materials problems. 3D NAND shifts more of the equipment spending from lithography to other equipment (my commentary) In Foundry customers there is strong demand for both leading edge and trailing edge equipment. Data center logic content is growing at 2x the rate of memory, because of AI. 2017 industry CapEx to be 20% higher than 2016, then 2018 will be higher than 2017. 64% of the market is addressed by Applied. Display equipment demand is growing faster than semiconductors. Etch and CVD revenues are at record levels. They called out PVD and CMP for having YoY growth in the mid-40% range. Their services business grew 15% over last year, the result of their larger installed base and the customer's need for faster ramp times. Display revenues increased 50% over 2016 and are forecasted to grow 30% next year. The CEO talked a lot about how they are differentiated from competitors because of their breadth and depth.

CFO comments: Two-thirds of NAND demand is driven by smartphones and SSDs. Demand growth will be over 40% in both 2017 and 2018. For DRAM, growth is mostly in smartphones and servers. These segments are expected to see 30% demand growth in both 2017 and 2018. OLED is taking over in displays. GM is up 5% in the last five years. They are also focused on expense control. Opex/Sales = 17%. Cash from operations is 36% of revenue. 40% of their cash balance is in the U.S. They guided for $3.85B to $4B in revenue next quarter. For 2018, they expect record revenues and profits.

Analyst Q&A How sustainable is the current memory market strength? NAND and DRAM are both very profitable. Wafer start additions have been modest. WFE (Wafer Fabrication Equipment) spending has historically been 26% of EBITDA. They are predicting it will be 14% next year. This ratio has been 26% for NAND also; forecasted to be 19% next year. Overall, they see NAND remaining healthy for the foreseeable future. China spending is strong in both display and semis. Won't see much in wafer supply growth from China in the next year. Most of the activity is getting pilot lines up. DRAM supply growth is in the teens % while demand is growing 25-30%. They see NAND having an elastic market because of SSDs, DRAM not as much. They expect more investment in NAND than DRAM, because of the higher growth and higher elasticity. Overall, the end-markets have never been better and AMAT has never been stronger.

Smooth Hughes Comments
I look at Applied's financial performance for insight into the memory market. I am long MU. I have no AMAT position. My quick-take on Applied as an investment is, I see two options. The semiconductor equipment market is consolidated. Applied is as strong as any of the remaining players so buying them is buying the long-term use of semiconductors in our economy - a strong secular trend. Even with their share appreciation, they are trading at about a market multiple. I thin you can buy and hold for ten years here and beat the market. The other option, if you want to buy Applied, is wait for the next downturn in semis, because there always will be one and the semi stocks always get punished more than the overall market when it happens. I have enough semi exposure already so I am not adding AMAT, but I'll buy a basket of WFE stocks (Applied, ASML, LAM) when the next downturn hits.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.