Applied Materials, Inc (AMAT): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Applied Materials is one of the world's largest suppliers of fabrication equipment to semiconductor, LCD and solar PV cell manufacturers. Applied's fourth quarter earnings were in-line with the Zacks Consensus Estimate, with most of the segments performing well. The proliferation of mobile devices, strength in mobility platforms, TV capacity builds, better utilization of resources and the recently-announced merger with Tokyo Electron are positives. Of course, the high cost structure and customer concentration are things to be cautious about. We therefore have a Neutral recommendation on Applied Materials shares.

Overview:

Applied Materials, Inc. (AMAT) is one of the world's largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules. The company also offers deployment and support services related to the equipment supplied.

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In fiscal year 2013, Applied reported results in four segments Silicon, Applied Global Services, Display, and Energy and Environmental Solutions.

Applied Materials' Silicon segment offers equipment for front-end operations in the semiconductor manufacturing process. Front-end processes involve the deposition or implantation of multiple thin layers of electronically conductive, semiconductive and insulating materials onto and within a silicon wafer with the help of photomasks (reticles) to give multiple copies of integrated circuit devices.

Specific processes enabled by Applied's equipment include atomic layer deposition (ALD), chemical vapor deposition (CVD), physical vapor deposition (PVD), etching (cleaning off the extra photoresist as exposed by the mask), rapid thermal processing (RTP), chemical mechanical planarization (CMP), wafer metrology and inspection. The company also makes equipment for the etching, measurement and inspection of photomasks.

With over 33,000 systems installed, the Applied Global Services segment goes a long way to ensure customer satisfaction and support. There are primarily three kinds of services offered. The first, fab and equipment services, is with respect to facilitation of processes at fabs using Applied's equipment. Offerings under this category include spares, the ExpertConnect remote diagnostics tool for maintaining and optimizing customers' manufacturing operations Applied FabVantage Consulting Services delivered through teams providing technology to identify and solve manufacturing challenges and TechEdge advanced service services to address manufacturing issues like excursion control and predictive maintenance. Legacy systems essentially extend the life of 200mm equipment through system enhancements and certification of refurbished equipment and also include fab transition services. Automation systems are proprietary software for factory-level or tool-level control and automation.

Applied has developed technologies for significantly larger-sized wafers made of materials other than silicon. This has helped it expand its portfolio into equipment for thin film transistor (TFT) LCDs (made from glass) and OLED, which are used in smartphones, TVs and other consumer electronic devices. The company operates this business under the Display segment.

The Energy and Environmental Solutions segment primarily consists of the solar product line. The company ventured into this business in 2006 and currently offers equipment for manufacturing both wafer-based crystalline silicon (c-Si) and glass-based thin film used in the solar PV cell fabrication process. To this, Applied added the SunFab Thin Film product line for manufacturing very large glass substrates that could be used by solar farms, utilities and building-integrated solar PV installations. In the third quarter of 2010, market conditions prompted the company to discontinue sales of its fully-integrated Sunfab product to new customers.

Applied uses a direct sales force for the distribution of its products. The company's significant presence in Asia is attributable to the fact that a large chunk of semiconductor manufacturing has shifted to the region. Being a leading producer of specialized equipment, most of the competition comes from other large equipment makers, such as KLA-Tencor Corporation and Lam Research Corporation.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: AMAT , ALD , CVD , CMP

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