Transcript Slide 1
U.S. Semiconductor
INTEL, AMD, AMAT
Jonathan Chao, Jesse Galpin, Kevin Sandhu, June Jiang
Semiconductor Industry
Industry Background
Industry Profile
Industry Trend
Current Environment
Key Industry Ratios and Statistics
Industry Background
From the early 1900s to the 1950s :
vacuum tubes
Invention of the transistor in 1948
In 1958, integrated circuit (IC)
In 1971, Intel Corp.; Intel 4004
microprocessor, which ran at 108
kilohertz and served as a
component in a calculator
Industry Background
Ongoing technological advancement
Rising performance, falling prices
Moore’s Law describes pace of
innovation
Inherent cyclicality
Huge capital investments
Marketing chips: going for the
design win
Targeting the end user
Types of Chips
Bipolar technology versus metal oxide
technology
Discrete semiconductors
Analog semiconductors
Digital semiconductors
Microprocessors
Memory chips
Logic devices
Microperipherals
Microcontrollers
Standard cell logic
Optoelectronics.
Digital signal processors (DSPs)
Types of Chips
How Chips Are Made
Semiconductors are produced through a highly
advanced and complex manufacturing process.
The two basic stages in chip production are the “front
end” and the “back end.”
The front end involves materials preparation (circuit
design, photomask making, and manufacture of raw
wafers) and wafer processing (repeated cycles of
deposition, etch, doping, planarization, and in-process
testing).
The back end consists of packaging and final test
operations.
http://www.intel.com/education/makingchips/index.htm
Industry Profile
Total Se miconductor World Marke t Sale s in %.
US
EUR
JAP AN
ASIA/P AC
45%
40%
%
35%
30%
25%
20%
15%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Ye ar
Total Semiconductor World Market Sales & Shares (in Millions/$)
Year
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US
33562
46998
42679
45850
41432
47478
64071
35778
31275
32330
39065
EUR
19736
28199
27562
29089
29406
31881
42309
30216
27788
32310
39424
JAPAN
29406
39667
34175
32079
25921
32835
46749
33148
30494
38942
45757
ASIA/PAC
19174
29540
27550
30184
29853
37184
51264
39820
51156
62843
88781
101878
144404
131966
137202
126612
149378
204393
138962
140713
166425
213027
TOTAL
Industry Profile
Source: IC Insights.
LARGEST SEMICONDUCTOR COMPANIES
(Ranked by 2004 revenues, billions of dollars)
REVENUES
COMPANY (COUNTRY)
%CHG.
2003
2004
2003–04
27.03
30.9
14.3
2. Samsung (S. Korea)
10.4
15.83
52.2
3. Texas Instruments (US)
8.25
10.7
29.7
4. Infineon (Germany)
7.11
9.18
29.1
5. Renesas (Japan)
7.97
9
12.9
6. STMicroelectronics
(Switz.)
7.24
8.76
21
7. Toshiba (Japan)
7.36
8.53
16
8. TSMC (Taiwan)
5.86
7.65
30.6
5.6
6.47
15.5
4.51
5.69
26.2
1. Intel (US)
9. NEC (Japan)
10. Philips (Netherlands)
Industry Profile
LEADING SEMICONDUCTOR EQUIPMENT MANUFACTURERS
COMPANY
2004 SALES* (MIL. $)
2003 RANK
1. Applied Materials
7,552.00
1
2. Tokyo Electron Ltd.
4,742.00
2
3. ASML Holding NV
3,022.00
3
4. Advantest
2,176.00
6
5. KLA-Tencor
1,892.00
4
6. Nikon Corp.
1,411.00
5
7. Lam Research
1,360.00
9
8. Novellus Systems
1,337.00
7
9. Hitachi High-Technologies
Corp.
1,315.00
8
10. Canon Inc.
1,284.00
11
Total Top 10 revenues
26,091.00
Industry Trend
Semiconductors drive economic productivity
Lower trend line growth (next slide)
Evolving corporate strategies
High-end microprocessors drive the market
DRAM market especially prone to boom-andbust cycles
Automotive chips receive renewed focus
Outsourcing continues to grow
Industry Trend
WORLDWIDE SEMICONDUCTOR SALES (Year-to-year % change)
%change
50%
40%
30%
% change
20%
10%
0%
1995
-10%
1996
1997
1998
1999
2000
-20%
-30%
-40%
Year
2001
2002
2003
2004
Current Environment
Total Semiconductor World Market Sales
US
EUR
JAPAN
ASIA/PAC
T OT AL
250,000
$ in Millions
200,000
150,000
100,000
50,000
1994
1995
1996
1997
1998
1999
Year
2000
2001
2002
2003
2004
Current Environment
Total Semiconductor World Market Sales (in %)
Year
199
4
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US
32.
9%
32.5
%
32.3
%
33.4
%
32.7
%
31.8
%
31.3
%
25.7
%
22.2
%
19.4
%
18.3
%
EUR
19.
4%
19.5
%
20.9
%
21.2
%
23.2
%
21.3
%
20.7
%
21.7
%
19.7
%
19.4
%
18.5
%
JAPAN
28.
9%
27.5
%
25.9
%
23.4
%
20.5
%
22.0
%
22.9
%
23.9
%
21.7
%
23.4
%
21.5
%
ASIA/PAC
18.
8%
20.5
%
20.9
%
22.0
%
23.6
%
24.9
%
25.1
%
28.7
%
36.4
%
37.8
%
41.7
%
TOTAL
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
Total Semiconductor World Market Shares in %
SHARES
MKT
TOTAL
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US
43.4
%
40.9
%
46.2
%
51.6
%
53.4
%
51.4
%
49.9
%
51.2
%
50.1
%
48.3
%
46.7
%
JPN
40.1
%
38.9
%
36.0
%
28.6
%
26.4
%
28.5
%
28.3
%
28.1
%
26.0
%
27.4
%
25.6
%
OTH
16.5
%
20.2
%
17.8
%
19.8
%
20.2
%
20.1
%
21.2
%
20.7
%
23.9
%
24.3
%
26.8
%
BASE
Current Environment
Consumer products drive chip demand
Current Environment
FASB accounting rule change to phase in
STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES
— FISCAL 2004
COMPANY
Reported EPS
Pro Forma EPS
Option Expense
Option Expense as
a % of Reported
EPS
Advanced Micro Devices
0.25
(0.18)
0.07
29
Analog Devices
1.45
0.91
0.54
37
Applied Materials
0.78
0.58
0.20
26
Intel
1.17
0.98
0.19
16
Linear Technologies
1.02
0.79
0.23
23
Maxim Integrated
Products
1.20
0.82
0.38
32
Microchip Technology
0.65
0.47
0.18
28
Micron Technology
0.24
(0.07)
0.31
129
Nvidia Corporation
0.43
0.00
0.43
100
Xilinx
0.85
0.56
0.29
34
Key Industry Ratios and Statistics
Global Sales Report.
Total Semiconductor World Market Sales
US
EUR
JAPAN
ASIA/PAC
T OT AL
250,000
200,000
$ in Millions
150,000
100,000
50,000
1994
1995
1996
1997
1998
1999
Year
2000
2001
2002
2003
2004
Key Industry Ratios and Statistics
Semiconductor equipment book-to-bill ratio
Semiconductor Equipment Book-to-Bill Ratio
Book-to-Bill Ratio
1.60
1.40
1.20
1.00
0.80
0.60
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Sep-99
May-99
Jan-99
Sep-98
May-98
Jan-98
Sep-97
May-97
0.40
Jan-97
Key Industry Ratios and Statistics
Wafer fabrication plant utilization rates
TOTAL IC's Utilization(%)
TOTAL IC's
100.0
90.0
80.0
70.0
05
1Q
04
3Q
04
1Q
03
3Q
03
1Q
02
3Q
02
1Q
01
3Q
01
1Q
00
3Q
00
1Q
99
3Q
99
1Q
98
3Q
98
1Q
97
3Q
97
60.0
1Q
Key Industry Ratios and Statistics
Institute for Supply Management (ISM)
Report on Business
PMI (%)
65
60
55
50
45
40
n0
M 0
ay
-0
0
Se
p00
Ja
n0
M 1
ay
-0
1
Se
p01
Ja
n0
M 2
ay
-0
2
Se
p02
Ja
n0
M 3
ay
-0
3
Se
p03
Ja
n0
M 4
ay
-0
4
Se
p04
Ja
n0
M 5
ay
-0
5
Se
p05
35
Ja
Source: http://www.ism.ws/ISMReport/PMIndex.cfm
Key Industry Ratios and Statistics
US index of leading economic
indicators
Gross domestic product (GDP)
U.S. Consumer Price Index, CPI
U.S. Civilian Unemployment Rate
3 Month U.S. Treasury Securities Yield
INTEL
NASDAQ: INTC
Background Agenda
History
Current Events
Company Overview
Management
Business Structure
Operations
Products
Customers
Competitors
Financial Analysis
History (1 of 3)
1965
1968
Moore’s Law: “the number of transistors
incorporated in a chip will approximately
double every 24 months”
Integrated Electronics (Intel) Corp. is
founded by Gordon Moore and Robert
Noyce.
1971
Intel goes public
History (2 of 3)
Processor Timeline
8086
80286
80386
80486
Pentium
Pentium Pro
1978
1984
1987
1990
1992
1995
Pentium II
Pentium III
Pentium IV
Xeon
Itanium
Pentium M
1997
1999
2000
2001
2002
2003
History (3 of 3)
2004 & 2005
New technology – Not Processors
Centrino
Dual-Core processors
64-bit architecture
Hyper threading:
Current Events
Intel will make new Apple CPU’s NOT Motorola
Intel court battles with AMD and MicroUnity
Intel and RIM collaborate on BlackBerry
devices
Intel will team with Microsoft in support of
new DVD format HD DVD by Toshiba not with
Sony’s Blu-ray Disc
Agreement to Acquire Digital Broadcast
Technology Assets, Expertise from Zarlink
Semiconductor – expand digital home
segment
rd
Company Overview (1 of 4)
Mission
Do a great job for our customers,
employees, and stockholders by being the
preeminent building block supplier to the
worldwide digital economy
Company Overview (2 of 4)
Values
Customer Orientation
Results orientation
Risk taking
Great Place to work
Quality
Discipline
Company Overview (3 of 4)
Objectives
Extend silicon leadership and manufacturing
capability
Deliver architectural innovation for platforms
Pursue worldwide opportunities
Company Overview (4 of 4)
Strategy
Utilize core competencies to develop
advanced products
Exercise control over value chain
Utilize “Intel inside” marketing campaign
Expand into faster growing complementary
businesses
Invest in companies globally to further
strategic objectives (Intel Capital program)
Management (1 of 2)
Joined Intel as Technology
Development manager in 1974
Elected to BoD in 1992
Served as COO 1993-1997
Intel’s fourth president 1997
CEO in 1998
Chairman of the Board May 18, 2005
Joined Intel in 1974.
Elected to BoD in 2002
Served as president and COO
2002-2005
CEO on May 18, 2005
Management (2 of 2)
Andy D. Bryant
Executive Vice President
Chief Financial and Enterprise Services
Officer
Joined Intel in 1981.
CFO in 1998.
Chief Financial and Enterprise Services
Officer in 1999
Sean Maloney
Executive Vice President
General Manager, Mobility Group
Joined Intel in 1982
1999 Senior VP
2001 Executive VP
2004 Co-manager of Mobility Group
Business Structure (1 of 2)
Past
1.
2.
Intel Architecture
Business
Intel
Communications
Group
Present
1.
2.
3.
4.
5.
Mobility Group
Digital Home
Group
Digital Enterprise
Group
Digital Health
Group
Channel Products
Group
Business Structure (2 of 2)
Mobility Group:
Digital Home Group:
Develop processors for all corporate systems (PC’s to
datasevers)
Digital Health Group:
Develop processors for digital entertainment devices in the
living room.
Digital Enterprise Group:
XScale processors for handheld devices (PDA’s) & Pentium M
(Centrino) for notebooks
New area of focus - Products such as motion-detecting
sensors that could help senior citizens live more
independently.
Channel Products Group:
develop specific products for local markets around the world.
Operations
Manufacturing
Leader in semiconductor manufacturing and
technology
Competitive advantage through economies
of scale,
11 fabrication facilities
6 assembly and test facilities worldwide
2003: $3.7 billion on capital investments
Switch from 200mm wafers to 300mm
wafers cuts price 30%.
Research and Development
2005: $ 5.2 billion on R&D. (3.78b so far
this year)
7,000 researchers and scientists in labs
Major Products
1.
2.
Microprocessors, chipsets, boards, flash
memory, application processors used in
handheld devices, cellular baseband
chipsets.
Networking and communications
products, optical components and
network processing components,
embedded control chips
Major Customers
1.
2.
3.
Distributors
Original Equipment Manufacturers
(OEM) of computer systems and
peripherals
PC users (retail)
Major Competitors
AMD
ATI
Broadcom
IBM
Nvidia
Qualacom
Samsung
SIS
Spanshion
Sun Microsystems
TI
Transmeta
Via
Financial Analysis
Financial Analysis
Ticker
INTC
Exchange
NASDAQ
Price (23/10/2005)
$ 23.10
Dividend (Yield)
$0.32 (1.4%)
Sector
Information Technology
Sub-Industry
Semiconductors
Peer Group
Semiconductors – Logic - Large
S&P Weight
(approx)
1.40%
Beta
2.36
Shareholders
230,000
Market Cap
$154 billion
S&P Credit Rating
A+ (highest)
Financial Overview
Financial Overview
Financial Overview
Sales Revenue
y = 0.5732x + 6.1014
12
Sales (Millions)
10
8
9.96
9.43
9.23
2005 Q1
2005 Q2
8.74
7.83
6.75
6.82
2004 Q1
2004 Q2
6
4
2
0
2004 Q3
2004 Q4
Regression Line Shows Sales Increasing at $573m
2005 Q3
Financial Overview
12
0.4
0.35
10
0.3
8
0.25
6
0.2
0.15
4
0.1
2
0.05
0
0
2004 Q1
2004 Q2
2004 Q3
2004 Q4
2005 Q1
2005 Q2
Revenue (pink) v. EPS (blue)
2005 Q3
Financial Overview
INTC over the past 365 Days
Financial Overview
INTC over the past 365 days
50day/200day moving averages - Suggesting a Sell
Financial Overview
INTC over the past 365 days
vs
Semiconductor Industry over the past 365 days
Financial Overview
INTC over the past 365 days
vs
AMD over the past 365 days
Financial Overview
2005
Quarter
Shares Purchased
(M Shares)
Cum. Shares
Purchased
(M Shares)
$Millions
Cum. $ Millions
Q3
93.6
2486.9
2500
49285.7
Q2
98.9
2393.3
2500
46785.7
Q1
107.9
2294.4
2500
44285.7
2004
Quarter
Shares Purchased
(M Shares)
Cum. Shares
Purchased
(M Shares)
$Millions
Cum. $ Millions
Q4
89.0
2,186.5
2,000.0
41,785.7
Q3
106.3
2,097.5
2,500.0
39,785.7
Q2
56.0
1,991.2
1,511.0
37,285.7
Q1
49.2
1,935.2
1,505.0
35,774.7
$49.9 billion spend on 2.5B shares
constant buyback program ($2.5B each ¼)
Financial Analysis
Internal Liquidity
Current Ratio
Quick Ratio
INTC
2.9
2.3
AMD
1.6
1
industry
2.8
2.2
S&P 500
1.5
1
Financial Analysis
Operating Performance
INTC AMD
Industry
S&P 500
0.7
3.7
0.3
8.1
Operating Efficiency
Asset turnover
Inventory turnover
0.8
3.8
0.7
2.2
Financial Analysis
Operating Performance
INTC AMD
Industry
S&P 500
Operating Profitability
Gross Margin
70.7
66.5
60.9
47
Operating Margin
29.7
-1.9
17.9
11.6
Net Profit Margin
21.8
0.8
13.3
7.8
Return on Equity
22.2
3.03
13.7
15
Return on Assets
17.9
1.16
9.6
2.6
Return on Capital
21.9
1.96
12.4
7.2
Financial Analysis
Risk
INTC
AMD
Industry
S&P 500
Debt/Equity Ratio
0.01
0.56
0.11
1.07
Interest Coverage
474.3
1
47.5
3.5
Leverage Ratio
1.2
2.7
1.4
5.8
Financial Analysis
Growth (%)
INTC
AMD
Industry
S&P 500
Sales
3.1
3.15
5.63
4.71
EPS
9.84
-
-
6.97
Dividends
24.22
-
15.42
3.87
Financial Analysis
Price Ratios
INTC
AMD
Industry
S&P 500
Price/Earnings
17.3
221.2
24
18.8
Price/Sales
3.69
1.67
3.14
1.44
Price/BV
3.75
3.09
3.24
2.74
Price/CF
10.8
6.8
11.4
12
Value Drivers
Consumer spending/optimism
Research and development
Economies of scale – efficient cost
Financial Analysis
4 Dimensions of Fisher
1. “Functional Factors”
Production Leader
Marketing Leader
“intel inside”
“Pentium M”
R&D Leader
Strong Financials
3. “Essential Business
Characteristics”
High barriers to entry
E of S
Fragmented competition –
‘Diversified’
2. “People Factors”
Voted best place to work
Top Executives at Intel for
minimum 20 years
Lost Andrew Grove,
founder and former
Chairman
Otellini’s new structure
not just cosmetic
4. “Value of the Stock”
Moderate price
Price Ratios indicate
proper pricing
Financial Analysis
BUY
Advanced Micro Devices
Overview
History
Current Events
Company Overview
Management
Business Structure
Products
Customers
Competitors
Strategy
Financial Statement Analysis
Valuation
Recommendation
Introduction
Advanced Micro Devices, Inc. (AMD): is a manufacturer
of integrated circuits based in Sunnyvale, California
Founded in 1969 and is the second-largest supplier of
x86-compatible processors, and a leading supplier of
non-volatile flash memory
It has manufacturing facilities in the U.S., Europe and
Asia and sales offices throughout the world
History
September, 1969
•Opened first headquarters at Sunnyvale CA
•Over the next 5 years AMD grew
substantially with 1500 employees and
making over 200 products
Advanced Micro Devices
May, 1969
•The establishment of
AMD
•The main goal at the
time was to create a
successful semiconductor
company
September, 1972
•AMD goes public
•NYSE: AMD
Current Events
October 27, 2005
AMD
announced that the digital backbone of the new
Lucasfilm Animation Singapore digital animation
center is powered by AMD64 processor technology the gold standard for 64-bit computing
October 25, 2005
Enterprise
and Industrial Designers Turn to AMD
Geode and AMD Alchemy Solutions for Low-Power,
High-Performance Processing. AMD embedded
solutions provide low power consumption which gives
designers the ability to create efficient and versatile
devices for a wide variety of applications
Company Overview (1 of 2)
AMD's Purpose, Vision, Mission, and Values
Purpose
•To empower people everywhere to lead more
productive lives
Vision
•With a strong commitment to our core values and
mission, we anticipate and respond quickly to changing
customer needs while preserving a culture that brings
out the best in each of us
Company Overview (2 of 2)
AMD's Purpose, Vision, Mission, and Values
Mission
•To achieve success by combining innovative concepts
with leadership in process technology and design and
manufacturing excellence to offer products and services
that reduce the cost, improve the performance and
shorten the time to market for our target customers
worldwide.
Values
•AMD is a proud guardian of the culture. This culture is
a belief that people are the ultimate source of our
competitive advantage. AMD employees work hard,
have fun, and celebrate our successes.
Management Team (1 of 2)
Hector de J. Ruiz, Ph.D.
Chairman of the Board, President and Chief Executive Officer
- Dr. Ruiz joined AMD in January 2000 was named CEO in April 2002.
Dr. Bertrand Cambou
Executive Vice President and President and CEO, Spansion
- Dr. Cambou joined AMD in January 2002
William T. Edwards, Ph.D.
Senior Vice President and Chief Innovation Officer
- Dr. Edwards is responsible for creating the Office of Strategy and
Technology (OST)
Robert J. Rivet
Executive Vice President and Chief Financial Officer
- Bob Rivet joined AMD in 2000 as senior vice president and chief
financial officer
Management Team (2 of 2)
Dirk Meyer
Executive Vice President, Computation Products Group
- Mr.Meyer joined AMD in 1996 as the director of engineering for the
AMD-K7 ™ microprocessor development program
Thomas M. McCoy
Executive Vice President and Chief Administrative Officer
- Mr.McCoy joined AMD in 1995
Henri Richard
Executive Vice President, Worldwide Sales and Marketing
-Mr Richard joined AMD in 2002
Fred Weber
Corporate Vice President and Chief Technical Officer
- Mr.Weber joined AMD in 1995
Business Structure
definitions:
Microprocessor
A microprocessor is an electronic computer component made from
tiny transistors and circuit elements on a single semiconductor
integrated circuit (IC). The semiconductor chip is controlled by the
central processing unit (CPU) which is also the most well known
microprocessor.
Flash memory
Flash memory is a form of rewritable memory similar to the Random
Access Memory (RAM) that allows the storage of information without
the need for a power supply. Examples of Flash memory are USB
flash drives, MP3 Players, digital cameras and cell phones
Business Structure
Microprocessor Market – Computational Products
Flash Memory Market – Memory products
Used for control and computing tasks and
complementary chipset components, which perform
essential logic functions that support the
microprocessors
Used to store data and programming instructions
Embedded Microprocessor Market
Personal connectivity devices and specific consumer
markets
Products
Microprocessor Market
computation devices, mainly microprocessors
Desktop & mobile PC
Server & Workstation
Dual Core processors & Chipsets
Flash Memory Market
flash memory devices.
Floating Gate Technology
Mirror Bit Technology
Embedded Microprocessor Market
A minor product produced is also the embedded microprocessors for personal
connectivity devices
Personal connectivity devices (PDAs)
Media players
Digital TV
Customers
Main customers include:
1) Original Equipment Manufacturers (OEM)
(Multinationals, Regional Accounts and Target Market Customers)
>Microprocessors:
Foreign and domestic manufacturers of PCs and Motherboards.
> Flash Memory:
Foreign and domestic manufacturers of mobile phones,
consumer and automotive electronics and networking equipments
2) Third Party Distributors
Authorized distributors that resell to sub-distributors and mid sized
OEMs and to electronic manufacturing service providers
Competitors (1 of 3)
Microprocessor Market:
Intel has been the industry leader for years and decisions made
regarding:
Price and allocation strategies
Product mix and new product timing
Impact on industry standards, branding and marketing
all have an impact on AMDs decisions. Intel has more financial
resources than invests more on R&D thus will continue to be an ongoing
threat to AMD both now and in the future
Competitors (2 of 3)
Flash Memory Market:
Intel
Toshiba
STMicroelectronics
N.V. Sharp Electronics
Samsung
Silicon Storage Technology
Micronix International
Competition is expected to increase and intensify in the future when
there are more entrants in the industry who compete on price
Competitors (3 of 3)
Personal Connectivity Solutions:
Embedded processors faces competition
Freescale (formally Motorola Semiconductors
Hitachi
Intel
NEC Corporation
Toshiba
Via Technologies.
AMD expects competition to increase as these competitors focus on
low power embedded processor solutions.
Operational Overview
Manufacturing:
Leading semiconductor company with
manufacturing plants in United States, Europe and
Asia with sales offices throughout the world
AMD owns 12 manufacturing facilities:
5 – Wafer Fabrication and 7 – assembly and test
facilities
Research and development is focused on product
design and system and on processor development
R&D for 2002, 2003 and 2004: $816M, $852M and
$935M
Strategy
Leverage the strength of the AMD64
technology based processor to increase
market share
Expand into the flash memory market by
emphasizing more on the MirrorBit
technology
Innovative creations of new flash memory
and microprocessor technology
Expand into new growing markets
Financial Statement Analysis
Ticker
Exchange
Price
Dividend (Yield)
Sector
Sub-Industry
Peer Group
Shares Outstanding
Market Cap
AMD
NYSE
$ 22.32 (23/10/2005)
$0.0 (0.0%)
Technology
Semiconductors –Broad Line
Semiconductors – Logic - Large
398.36 million
$8.89 billion
Financial Overview
SALES REVENUE
NET REVENUE
6
5.001
4.644
5
3.892
4
3.519
2.697
3
2
1
0
0
Year
2000
2001
2002
NET SALES BY YEAR
2003
2004 YEAR
Financial Overview
OPERATING INCOME
1000
500
0
YEAR
Year
2000
2001
2002
-500
-1000
OPERATING INCOME BY YEAR
2003
2004
Financial Overview
STOCK PRICE – 52 Weeks
Financial Overview
STOCK PRICE – 52 Weeks VS SOX
Financial Overview
STOCK PRICE – 60 Weeks (5 year)
Financial Overview
STOCK PRICE – 60 Weeks (5 year) VS SOX
Financial Overview
Internal Liquidity
AMD INTC
Industry
S&P 500
Current Ratio
1.6
2.9
2.8
1.5
Quick Ratio
1.0
2.3
2.2
1
•Current ratio is 1.3 lower than INTC making it less liquid than Intel and
under performs relative to the industry however is slightly up from the S&P
index
•Quick ratio is also trailing by 1.3 making it less financially sound than
Intel. It also under performs relative to the industry and is at par with the
S&P index
Financial Overview
Operating Performance
AMD
INTC
Industry
S&P 500
Asset turnover
0.7
0.8
0.7
0.3
Inventory turnover
2.2
3.8
3.7
8.1
Operating Efficiency
•Asset Turnover is fairly comparable to Intel trailing by only 0.10 which
gives Intel a slight advantage of being efficient with their assets. They are
at par with the industry and above the index
•Inventory Ratio on the other hand is a lot lower which means AMD’s
inventory isn’t managed as well as Intel and trailing both the Industry and
S&P’s index.
Financial Overview
Operating Performance
AMD
INTC
Industry
S&P 500
Gross Margin
66.5
70.7
60.9
47
Operating Margin
-1.9
29.7
17.9
11.6
Net Profit Margin
0.8
21.8
13.3
7.8
Return on Equity
3.03
22.2
13.7
15
Return on Assets
1.16
17.9
9.6
2.6
Return on Capital
1.96
21.9
12.4
7.2
Operating Profitability
•From the above table, Intel outperforms every aspect of AMD, and AMD
only seems to perform better than the industry and S&P index in Gross
Margin
Financial Overview
Risk
AMD
INTC
Industry
S&P 500
Debt/Equity Ratio
0.56
0.01
0.11
1.07
Interest Coverage
1
474.3
47.5
3.5
2.7
1.2
1.4
5.8
Leverage Ratio
•AMD has a higher usage of leverage because their debt/equity ratio is a
lot higher than Intel as well as the industry however is less when
compared to the S&P 500 index.
•Interest Coverage is much more superior for Intel than AMD showing
that it is better able to meet interest payments
•Consistent with the table, the leverage ratio for AMD will be much
higher because it has a higher usage of debt
Financial Overview
Growth (%)
AMD
INTC
Industry
S&P 500
SPS (Sales per
Share)
3.15
3.1
5.63
4.71
EPS (Earnings
per Share)
0.10
1.34
-
6.97
0.0
24.22
15.42
3.87
Dividends
Payout Ratio
(%)
•AMD does not pay dividends and has a lower EPS. However, Sales
for AMD is higher but trails the industry and S&P 500.
Financial Overview
Price Ratios
AMD
INTC
Industry
S&P 500
Price/Earnings
221.2
17.3
24
18.8
Price/Sales
1.67
3.69
3.14
1.44
Price/BV
3.09
3.75
3.24
2.74
Price/CF
6.8
10.8
11.4
12
•AMD has a high P/E ratio compared to Intel because of earnings.
Value Drivers
Consistent expenditures on R&D
Strong potential in the flash memory
market - MirrorBit technology (hoping to
reverse negative trend in memory
market)
Competitive position in the existing
market
Irving Fisher Approach
FUNCTIONAL
FACTORS:
Consistent
investments for R&D
Some negative figures
PEOPLE
FACTORS:
Relatively
new management that
has yet to build a history with AMD
Irving Fisher Approach
ESSENTIAL
BUSINESS
CHARACTERISTICS:
High
barriers to entry due to R&D
Diversified competition
VALUE
Lower
OF STOCK
P/CF than INTC & Industry
High Price
Recommendation
PROS:
Has
high growth
potential
Good R&D
Good technology
Positive Trend in
earnings
CONS:
Follower
of Intel
Highly Leveraged
No Dividends
Fluctuating Earnings
HOLD
Applied Materials
Overview
History
Company Overview
Management
Products
Business Segments
Customers
Competitors
Strategy
Financial Statement Analysis
Valuation
Recommendation
History
1967 - Applied Materials founded
1972 – IPO
1992 - Officially becomes world’s largest
semiconductors manufacturer
2005 - Declares cash dividend
Company Overview
Largest supplier of manufacturing
material to global semiconductors
industry
Business model based on Semiconductor
Capital Equipment, primarily focusing
on:
Wafer
fabrication systems
Related services
Company Overview
Mission
“Applied
Materials' mission is to be the leading
supplier of semiconductor fabrication solutions
worldwide—through innovation and
enhancement of customer productivity with
systems and service solutions.”
Goal: “Our customers' business results
come first!”
Management
James Morgan
Chairman
Joined
in 1976
CEO from 1977 to 2003, Chairman since
1987
Prior experience in Venture Capital and
Manufacturing environments
Mike Splinter
President
and CEO
Joined in 2003
Over 30 years experience in semi’s
industry and nearly 20 years with Intel
Products
Manufactures systems that perform most
of the primary steps in the chip
fabrication process
Semiconductor Capital Equipment with 4
platforms:
the
Centura®
the Endura®
the Producer®
the Vantage®
Business Processes
Deposition: layer of dielectric or
electrically conductive film is deposited,
or grown, on a wafer
Etch
Ion Implantation
RTP: Rapid thermal processing
Wager metrology and inspection
Business Segments
Through subsidiary AKT, Inc.:
Manufactures CVD systems and array
testers for making flat panel displays
(FPDs)
FPD products used in notebook
computers, desktop computer
monitors, Televisions, and other
monitors.
Competitors
Major Competitors:
KLAC KLA-Tencor
Operates
in Process Control and Yield
Management industies
LRCX Lam Research
Design
and manufacture semiconductor
processing equipment.
NVLS Novellus Systems
Develop,
manufacture, market and support
systems used in the fabrication of integrated
circuits
Many small manufacturers compete with
various business lines as well
Competitors
Semiconduct er Sales
$ 9,000,000
$ 8,000,000
AMAT
$ 7,000,000
$ 6,000,000
KLAC
$ 5,000,000
$ 4,000,000
LRCX
$ 3,000,000
$ 2,000,000
Novellus
$ 1,000,000
$2003
2004
2005
Competitors
Semico nd uct o r Earning s
$ 1,500,000
$ 1,300,000
$ 1,100,000
AMAT
$ 900,000
$ 700,000
KLAC
$ 500,000
LRCX
$ 300,000
NVLS
$ 100,000
$ (100,000)
2003
$ (300,000)
2004
2005
Customers
Major Customers:
Intel
Represent
Samsung Electronics
Represent
AMD
Motorola
nearly 10% of total sales
nearly 10% of total sales
Strategy
Aiming to:
Increasing market share in existing markets
Expand into related markets
Cultivate new markets and business models
Expand sales to new
regions and create
similarly sized
global markets
Orders By Geography
Q3, FY2005
Financial Statement Analysis
2004
2003
2002
2001
2000
1999
Sales
8,013,053
4,477,291
5,062,312
7,343,248
9,564,412
5,096,302
Gross Margin
3,701,245
1,604,455
2,056,661
3,252,033
4,855,728
2,419,219
Net Income
1,351,303
(149,147 )
269,004
507,829
2,063,552
747,675
Gross Income
46.19%
35.84%
40.63%
44.29%
50.77%
47.47%
Net Income
16.86%
-33.31%
5.31%
6.92%
21.58%
14.67%
RD&E
13.13%
20.56%
19.59%
16.33%
11.58%
14.52%
As a % of Sales
Financial Statement Analysis
’05 –
Q3
‘05 –
Q2
‘05 –
Q1
‘04 –
Q4
‘04 –
Q3
‘04 –
Q2
‘04 –
Q1
Sales
1,631,93
8
1,861,18
9
1,780,57
6
2,203,34
8
2,236,15
2
2,018,10
5
1,555,44
8
Gross Margin
717,089
818,430
790,225
1,027,20
3
1,059,23
2
938,641
676,169
Net Income
369,591
304,830
288,765
455,008
440,571
373,348
82,376
Gross
Income
43.94%
43.97%
44.38%
46.62%
47.37%
46.51%
43.47%
Net Income
22.65%
16.38%
16.22%
20.65%
19.70%
18.50%
5.30%
RD&E
14.49%
12.12%
13.58%
11.27%
11.48%
12.10%
15.60%
As a % of
Sales
Management Performance
2004
2003
2002
Return on Assets
11.17%
-1.45%
2.61%
Return on Book
Equity
14.59%
-1.85%
3.33%
Return on Invested Capital
13.97%
-1.75%
3.16%
Net Income
1,351,303
(149,147)
269,004
12,093,445
10,311,622
10,311,622
Book Equity
9,262,027
8,068,034
8,068,034
Total Capital
9,672,463
8,524,456
8,524,456
Assets
Stock Based Compensation
Fiscal Year
2002
2003
2004
$269,004
($149,147)
$1,351,303
($316,699)
($389,100)
($345,897)
($47,695)
($538,247)
$1,005,406
Basic
$0.16
($0.09)
$0.80
Diluted
$0.16
($0.09)
$0.78
Basic
($0.03)
($0.32)
$0.60
Diluted
($0.03)
($0.32)
$0.58
Reported net income/(loss)
Stock based compensation expense, net of tax
Pro forma net income/(loss)
Earnings/(loss) per share as reported:
Pro forma earnings/(loss) per share:
Stock Performance
AMAT Stock Performance from Oct. 28, 2004 to Oct. 28, 2005
Stock Performance
AMAT Stock Performance versus Semiconductors Index (SOX) from
Oct. 28, 2004 to Oct. 28, 2005
Stock Performance
AMAT Stock Performance from Oct. 28, 2000 to Oct. 28, 2005
Stock Performance
AMAT Stock Performance versus Semiconductors Index (SOX) from
Oct. 28, 2000 to Oct. 28, 2005
Valuation
Market Cap:
Enterprise Value:
26.5B
20.8B
Trailing P/E (ttm):
Forward P/E (fye):
19.34
19.95
Price/Sales (ttm):
Price/Book:
Price/FCF:
3.55
2.94
19.12
Enterprise Value/Revenue (ttm):
Enterprise Value/EBITDA (ttm):
2.78
10.52
EPS (trailing)
EPS (forward consensus)
$0.846
$0.820
Dividends Per Share
Dividend Yield
Net Cash Per Share
Sales Per Share
Book Value Per Share
Free Cash Flow Per Share
$0.12
0.73%
$1.13
$4.50
$5.56
$0.86
Price Ratios
INTC
AMD
industry
S&P 500
Price/Earnings
17.3
221.2
24
18.8
Price/Sales
3.69
1.67
3.14
1.44
Price/BV
3.75
3.09
3.24
2.74
Price/CF
10.8
6.8
11.4
12
Value Drivers
Strong industry position in existing
markets
Largest
global supplier of semiconductor
manufacturing equipment
Innovative technologies
New
wafer sizing and use of nanotechnologies
Consistent dedication R&D Spending
Nearly
$1B in fiscal 2004 (over 13% of revenue)
Fisher Approach
1.
Functional Factors:
2.
People Factors:
3.
Experienced managers
Generous with management compensation
(stock options)
Essential Business Characteristics:
4.
Global leader in semiconductor manufacturing
equipment production
Strong customer base with weak competition
Strong competitive position
High growth industry with many applications
Value of the Stock:
Mid-point of 52 week range
High levels of growth priced into stock
Recommendation
PROS
CONS
Industry leader
Commitment to
R&D Spending
SELL
Poor growth
Pending Lawsuit
with major
competitor
High stock option
expensing
Too Expensive!