Markets

The Zacks Analyst Blog Highlights: Lam Research, Novellus Systems, Applied Materials, ASML Holding NV and Texas Instruments - Press Releases

A generic image of a stock chart
Credit: Shutterstock photo

For Immediate Release

Chicago, IL - December 16, 2011 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Lam Research Corp ( LRCX ), Novellus Systems Inc ( NVLS ), Applied Materials ( AMAT ), ASML Holding NV ( ASML ) and Texas Instruments ( TXN ).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Thursday's Analyst Blog:

Lam Reaches Out for Novellus

Lam Research Corp ( LRCX ) will be buying Novellus Systems Inc ( NVLS ) for $3.3 billion in exchange for its shares. Specifically, Novellus shareholders will get 1.125 shares of Lam stock for each Novellus share, or roughly a 28.0% premium based on Lam's closing prices yesterday.

The agreement gives Lam shareholders a 59% share of the combined entity, which will continue to be called Lam Research Corp. The remaining 41% will go to Novellus shareholders.

Lam will also spend around $1.6 billion for share repurchases over the next year utilizing the existing domestic cash balances of both companies. This system is more beneficial for Novellus shareholders, as it makes the distribution tax-free. It is also positive for Lam, since it would not have to fork out any cash right away (as could have been the case if it was a cash-and-stock purchase).

Why It Makes Sense

The transaction, which is expected to close in the second quarter of 2012 subject to statutory closing conditions and shareholder approval of both companies, is a no-brainer, since the companies complement each other in many respects.

Most importantly, they sell complementary front-end equipment. Novellus specializes in thin-film deposition and surface preparation equipment, while Lam is a leading provider of etching and cleaning equipment.

Semiconductor manufacturing refers to the deposition of several layers of materials on a silicon wafer in specific patterns using photomasks, or reticles (held down like a stencil). However, after the deposition of each layer, the excess material deposited is etched (or "cleaned") away and the remaining material is exposed in a manner that changes the chemical properties of the wafer.

Therefore, after the merger, Lam's product line would be considerably broader, taking care of a greater portion of key semiconductor manufacturing processes.

Combining resources would also be beneficial for the R&D teams, which could put their heads together to develop solutions for 450mm wafers and three dimensional chip architectures. A focus on advanced technologies is a must in the current environment, where newer generations of computing devices and phones are increasing chip complexities, while growing demand from emerging countries is a constant pressure to lower costs.

Naturally, the combination would also enable significant cross-selling opportunities for both Novellus and Lam sales teams, helping to drive penetration at existing customer accounts.

In addition to these advantages, the merged company would be able to eliminate $100 million in costs a year (starting from the fourth quarter of 2013). The companies have also stated that the transaction would be accretive to non GAAP earnings within the first year after the deal closes.

Lam's competitive position also improves, with the company now moving to the fourth spot among semi equipment makers, behind Applied Materials ( AMAT ), Tokyo Electron and ASML Holding NV ( ASML ).

Consolidations Galore

There have been a number of big consolidations in the semiconductor sector in recent times and we are reminded of Applied Material's acquisition of Varian Semiconductor and Texas Instruments' ( TXN ) takeover of National Semiconductor.

We think that the primary concern for semiconductor companies is the uncertain economic climate and weak consumer spending that has increased the need for cost control. For example, in the last reported quarter, Lam and Novellus saw their profits shrinking 63% and 30%, respectively. The fact that this concern has also kept a lid on prices is a bonus, because it means that acquiring companies have to pay relatively less.

For equipment makers, the outlook is decidedly murky, with Gartner projecting a 23% decline in wafer fabrication equipment in 2012, following an expected 10% increase this year.

To Summarize

Lam and Novellus have entered into a mutually beneficial agreement in particularly trying times. We believe that the deal makes sense because synergies look significant right now. Also, considering the fact that the premium is not too high, Lam shareholders are likely to approve.

The fact that it is a tax-free distribution is likely to appeal to Novellus shareholders. Since the combined entity strengthens competition, legal hurdles are also likely to be limited. Therefore, the deal should go through smoothly.

Both Lam Research and Novellus have a Zacks Rank of #3, translating into a Hold rating in the near term (1-3 months).

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515 .

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518 .

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

APPLD MATLS INC ( AMAT ): Free Stock Analysis Report

ASML HOLDING NV ( ASML ): Free Stock Analysis Report

LAM RESEARCH ( LRCX ): Free Stock Analysis Report

NOVELLUS SYS ( NVLS ): Free Stock Analysis Report

TEXAS INSTRS ( TXN ): Free Stock Analysis Report

Zacks Investment Research

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


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

In This Story

LRCX ASML TXN AMAT

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More