Applied Materials (AMAT) 1Q:08 Results

So much for buying stock at 14.

Applied blew out orders in display for the Q, coming in at 550mm vs expectations of closer to 120mm. Like I said, wish I could buy just that segment. Solar also bested expectations but that should be a given.

Guidance of orders +/- 5% also puts the order outlook above consensus.

Stock will likely continue to trend higher as it will continue to garner attention as a first mover in an upturn and less exposed to the downturn. My caution into the quarter was incorrect. It's a long.

Stock is trading at 19 in the aftermarket.

Applied Materials (AMAT) Order Color

ThinkEquity
We expect orders of $2,100M (+/- $100M) for Jan-08. For April, we anticipate
orders to jump to $2,400M (+/- $100M) driven partly by previously announced
solar contracts. Other segments such as Silicon and Flat Panel are likely to
bounce along the bottom.
In April and July, we anticipate $500-800M in recognized orders from the solar
segment—but note that most of these were contracts booked in 2007.

RBC
We expect street to be surprised positively from 1FQ08 orders and 2FQ08 order
guidance. We expect January 1FQ08 orders to come significantly above the
guidance of down 5%-15% q/q due to strength in Flat Panel Display (FPD)
orders. While peers have guided March 1CQ08 orders down 10% or more, we
expect flat 2FQ08 orders guidance. We expect management's tone bullish due to
FPD strength and potential upside from solar segment. The stock would likely
trade higher after the call.

Stifel
April Quarter Outlook: We expect the company to deliver a mixed outlook based
on strength in its FPD and solar, offset by continued weakness in its core semi
cap business. In terms of its bookings guidance, we would not be surprised to
see a range of +5% to -5% sequentially, as semi cap weakness (down 5-10%) is
offset somewhat by continued momentum in its FPD and solar businesses. At this
time, we are comfortable with our 2Q08 estimates of $2.1 billion in revenue and
pro forma EPS of $0.25, excluding options ($0.23, including options).


Stanford
We expect AMAT to guide to total company order growth of flat to up 5% in
2Q08. We believe AMAT's silicon systems orders will be flat, flat panel and
adjacent technologies will be up 10%-15% and service will be down slightly.
We expect revenue guidance to be about flat with 1Q08 at $2.1 billion with EPS
of $0.21.
AMAT could suggest that 2008 global capex will be down 10%-15%, unchanged
from prior guidance. While not likely to improve materially near-term, we
expect AMAT to say industry orders have troughed.

Applied Materials (AMAT) 1Q:08 Preview

Estimated Reporting Date	Symbol	Revenue Estimate Current Q	Operating Profit Estimate Current Q	EPS Estimate Current Q	EBITDA Estimate Current Q	Revenue Estimate Next Q	Sequential Revenue Growth Estimate, Percent	Operating Profit Estimate Next Q	EPS Estimate Next Q	EBITDA Estimate Next Q	Revenue Estimate Full Year	Operating Profit Estimate Full Year	EPS Estimate Full Year	EBITDA Estimate Full Year	Revenue Estimate Next Year	Operating Profit Estimate Next Year	EPS Estimate Next Year	EBITDA Estimate Next Year
2/12/2008	AMAT	2,007.6	381.5	0.20	480.3	2,064.8	2.85%	426.9	0.22	530.9	8,765.7	1,916.8	1.02	2,166.7	10,126.6	2,567.7	1.34	2,617.5

The skinny: Applied Materials is the behemoth in the semiconductor capital equipment market. By virtue of their size and breadth of their product portfolio, they tend to have the most diversification amongst individual semiconductor subsector end markets. Despite this diversification, memory represented 67% of orders last quarter – roughly 2/3 of that was DRAM, or 44% of overall orders.

For the last couple of quarters, analysts have been looking for a recovery in foundry spending (currently 19% of orders) to help the company to resume a growth curve. I don't see this happening. Foundry capex plans have come in lower than expected and I can't think of any reason they'd be front-end loaded for 2008 with so much fear of economic slowdown in motion.

Display business picked up significantly last quarter (up 80% q/q) and should show continued strength. The company projected a strong revenue ramp in display products beginning in Q2. As most of their compatriots in the display business (Corning, Photon Dynamics) have already signaled the all-clear, I think they'll be strong here and I wish I could buy just this segment but unfortunately it's stapled to the chicken.

The wildcard in their business is solar, where Applied is spending considerable resources and effort to build a multi-billion dollar solar equipment business. This is great long-term. The issue I have with the stock is I think solar's potential has created unrealistic investor expectations of the stock's likelihood to outperform.

I believe many funds are positioned long Applied and short other memory manufacturers, with the hope that the valuation strength the market has bestowed upon solar will insulate Applied stock from the downturn in the semiconductor business. I don't like situations like this -- too many people know the story. I can see the company having great solar orders, and disappointing on overall orders, where expectations are for a much better outlook. Solar is going to be great... but it's also the least known part of the business in terms of the effect on operations. Revenue and margins in the memory and foundry business, 3/4 of current business, should disappoint. The memory business is off a cliff here and the solar business is too on the come to really hold the stock up right now.

I don't see support until $16.20 and I worry about that support with so many people long the same story with the same expectations. That said, if there were a big dislocation down to $14, I would probably buy some and be prepared to hold it for a couple of years.

TSM Q4:2007 Results

So Taiwan Semi reported. They're important because they're the largest foundry -- they manufacture more semis than almost anyone else.

TSM thinks the market next year will grow in the mid-single digits, which is a downtick from an earlier estimate of mid-single to high-single. Putting their money where their mouth is, they cut capex to $1.8 billion for 2008. Previously they haven't had a capex estimate out there for 2008. I spent some time with management 3 months ago and they said capex is a fluid process -- so the fluid is clearly flowing the wrong way.

Once again, negative for the semi capex suppliers.

MTSN Q4:2007 Results

Mattson announced better Q4 EPS due to an unanticipated royalty payment from DNS and a tax gain. Ex those items, their operating margin was negative. Revenue guidance was significantly below the street at 42-48 mil versus consensus expectations of 57 mil -- a whopping 25% disappointment. Bookings came in well below estimates for the current quarter and apparently visibility has careened off a cliff as the company has decided not to provide bookings guidance going forward.

Mattson's semiconductor capital equipment business sports 70% exposure into the memory capex market at present. Memory has had an unprecedented wave of capex upgrades over the last few years. It's set up for a really steep decline. I continue to advocate avoiding other companies with large exposure to the memory capex market like VSEA, LRCX, KLAC. It's going to be a house of pain for quite a while.