US SemiConductors (Intel, AMD and Applied Materials)
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US SemiConductors (Intel, AMD and Applied Materials)

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  • Shares in the largest US companies
  • AKT manufactures CVD systems used to make flat panel displays (FPDs) thare are used in notebook computers, desktop monitors, televisions and other applications. Etec is a leading manufacturer of systems used to generate, etch and inspect circuit patterns on reticles used in the photolithography process.
  • AMAT operates primarily in a single industry segment for the manufacture, marketing and servicing of semiconductor wafer fabrication equipment. It currently manufactures systems that perform most of the primary steps in the chip fabrication process. It also provides manufacturing facility management software to the semiconductor industry, as well as services to enhance manufacturing yeilds. AMAT sells most of its single-wafer, multi-chamber systems based on three main plafform: the Centura, the Endura, and the Producer. These platforms currently support ALD, CVD, PVD, etch and RTP technologies.
  • AM’s long-term growth strategy requires continued development of new manufacturing products. AM invested $1.1 billion (20.8 % of net sales) for 2002, $920,618,000 (20.6% of net sale) the last five year ave is about 16.76% of net sale
  • AKT manufactures CVD systems used to make flat panel displays (FPDs) thare are used in notebook computers, desktop monitors, televisions and other applications. Etec is a leading manufacturer of systems used to generate, etch and inspect circuit patterns on reticles used in the photolithography process.
  • AMAT operates primarily in a single industry segment for the manufacture, marketing and servicing of semiconductor wafer fabrication equipment. It currently manufactures systems that perform most of the primary steps in the chip fabrication process. It also provides manufacturing facility management software to the semiconductor industry, as well as services to enhance manufacturing yeilds. AMAT sells most of its single-wafer, multi-chamber systems based on three main plafform: the Centura, the Endura, and the Producer. These platforms currently support ALD, CVD, PVD, etch and RTP technologies.
  • AM’s long-term growth strategy requires continued development of new manufacturing products. AM invested $1.1 billion (20.8 % of net sales) for 2002, $920,618,000 (20.6% of net sale) the last five year ave is about 16.76% of net sale
  • Majority of market in Asia-Pacific.. Hotspot for growing economy.
  • Improvement in all areas since 2003, The "all other" category includes acquisition-related costs, including amortization and any impairments of acquisition-related intangibles and goodwill. "All other" also includes the results of operations of seed businesses that support the company's initiatives. Finally, "all other" includes certain corporate-level operating expenses, including a portion of profit-dependent bonus and other expenses not allocated to the operating segments
  • Why we think that Intel will still have market demand to fill
  • All old timers at Intel.. Good sign.
  • Price has been going down lately.. Dividends are released every quarter. Originally $.02, but it directors approved an increase to $.04 in Jan 2004
  • Returns are under performing the industry index. What does this mean?
  • This means that their operating structure has relatively stayed the same
  • Cash flow going up..
  • Used the Free Cash Flow model.. Find the free cash flow per share
  • Using the assumed data from the Bloomberg site.. Note that the data used to get the FCFF was based on 2003 figures, as these have been audited and I feel would be a safer basis than the unaudited statements, despite the lateness of news.

US SemiConductors (Intel, AMD and Applied Materials) US SemiConductors (Intel, AMD and Applied Materials) Presentation Transcript

  • U.S. Semiconductor Industry Sebastian Budijanto Siantoro Chandra Emily Chiang Ambrosio Lina
  • Industry & Market Analysis
  • Definition
    • Materials that has electrical conductivity between a conductor and an insulator
    • The most common semiconductor materials are silicon and germanium.
    • Example: Computer chips, both for CPU and memory
  • Product Categories
    • Integrated Circuits (IC)
      • 85% of market
      • CPU and PC memory (DRAM, SRAM, Flash Memory)
    • Discrete Devices
      • Transistors, diodes, resistors
    • Optoelectrics
      • LED, Optical coupler, laser diode
  • Business Models
    • Fabless
      • Focus on marketing and product development
    • Foundries
      • Manufacture and sell to other companies
    • Integrated Device Manufacturer (IDM)
      • 60% of market
      • Develop, produce and market products
      • Intel and AMD
  • Industry Characteristics
    • Short product lifecycle
      • Moore’s Law
      • The number of transistors in IC doubles every 18 months
    • Increasing R&D expenditure
      • Development of nanotechnology
    • Increasing foreign consumption
      • In 3 rd Quarter 2004, Asia Pacific has nearly 40% market share
  • Industry Characteristics
    • Large IDMs start shift to fabless
      • E.g. Broadcom & Xilinx
    • Outsourcing production to foundries
      • E.g. TSM and IBM
    • More concentrated customer bases
    • Growth direction parallel to PC and telecommunication industry
  • Annual Sales
  • Industry Statistics
    • Market Capitalization = $ 556 B
    • Revenue (est.) = $ 180 B
    • Financial Ratios
    • Profitability and management effectiveness
  • Financial Ratios
    • Price /Earnings 27.263
    • Price/Book 3.645
    • Current Ratio 4.007
    • Debt/Equity 0.102
  • Profitability and Management Effectiveness
    • Gross Margin 53.076%
    • Operating Margin 22.065%
    • Net Profit Margin 22.415%
    • ROA 13.678%
    • ROI 11.604%
    • ROE 15.022%
    • YoY Qtrly Rev Growth 32.7%
    • YoY Qtrly EPS Growth 42.8%
    • Dividend Yield 0.6%
  • Cost Structure
  • Leaders by Market Capitalization
    • Intel Corp $ 147.7 B
    • Texas Instrument Inc. $ 42.7 B
    • TSM Co. Ltd. $ 38.2 B
    • Applied Materials Inc. $ 27.7 B
    • STMicroelectronics NV $ 17.2 B
    • 21. AMD $ 6.02 B
  • Microprocessor Market share 2.30% Other 3 15.10% AMD 2 81.90% Intel 1 Market Share Supplier Rank
  • Flash memory market share Source: iSupply Market Analysis (September 2004) 9.50% All others combined - 3.50% Macronix International 9 3.90% Samsung 8 4.50% Silicon Storage Technology 7 5.00% Renesas Technology 6 5.40% Toshiba 5 11.50% Sharp Electronics 4 12.30% ST Microelectronics 3 18.10% Intel 2 27.30% Spansion 1 Market Share Supplier Rank
  • Leaders by Sales (2003 Annual Report)
    • Intel Corp. $ 30.1 B
    • Flextronics Int. Corp. $ 15.9 B
    • Texas Instruments Inc. $ 12.2 B
    • 8. Applied Materials Inc. $ 4.5 B
    • 10. AMD Inc. $ 3.5 B
  • Market Composition
  • Year 2003 Recap
    • US Sales = $80 Billion
    • U.S Market Share = 48% of $163 B
    • U.S. Jobs = 226,000 (estimate)
    • % of Sales Outside U.S. = 73%
    • R&D Investment = $22.82 Billion, 14% of Sales (estimate)
  • Global Market Share
  • Philadelphia Semiconductor Index (SOXX) – 5 year
  • SOXX – 2 Year Range
  • SOXX – 1 Year Range
  • SOXX & DJI – 5 Year range
  • SOXX & GSPC – 5 Year Range
  • Environment
    • R&D Developments
    • Tariffs and export regulations
    • Broadband internet
    • Emergence of China
  • R&D Developments
    • Increase in R&D funding by Congress
      • $5.6 billion for NSF (increase of 5%)
      • 20% projected increase in 2005 for nanotechnology
      • $12.6 billion for Department of defense (increase of 12%)
    • R&D tax credit and Equipment depreciation tax reforms
  • Tariffs & Export Regulations
    • Elimination of semiconductor tariffs in 2002
    • SIA is lobbying for PTA (President Trade promotion Authority)
      • Negotiating free trade agreement in Latin America and Asia Pacific
  • Broadband Internet
    • Availability of broadband benefits US economy by hundreds of billions dollars
    • High Tech Broadband Coalition won over FCC in deregulation of broadband.
  • Emergence of China
    • 3 rd largest market share for semiconductor products
    • Predicted to be 2 nd highest in 2010 the U.S.
    • Subject to WTO regulations
      • Anti-dumping law
      • Patent, standard, and quality enforcement
      • Trading and investing regulations
  • Industry Forecast
  • Development for industry sectors
    • PC industry
      • Projected 14% growth
      • Technological advancement
    • Telecommunication
      • Projected 14 % growth
      • Increase use of wireless telecom products
    • Consumer products
      • Projected 30% growth
      • Increase use of digital technology
  • Consumer Products
  • Advanced Micro Devices Inc. (AMD)
  • Company Overview
    • Founded in 1969, based in Sunnyvale, California
    • Global supplier of integrated circuits (IC)
      • Personal, network computer, and communications
    • Facilities in US, Europe, and Asia
  • Mission Statement
    • Purpose
      • “ We empower people everywhere to lead more productive lives.”
  • Executives Date joined 1995 2002 2000 April 2002 2004 2000 1996 January 1995 January 2004 January 2002 January 2000 Fred Weber Corporate Vice President and Chief Technical Officer Robert J. Rivet Executive Vice President and Chief Financial Officer Marty Seyer Corporate Vice President and General Manager, Microprocessor Business Unit, Computation Products Group Iain Morris Senior Vice President, Personal Connectivity Solutions Group Henri Richard Executive Vice President, Worldwide Sales and Marketing Dirk Meyer Executive Vice President, Computation Products Group Patrick Moorhead Vice President, Global Marketing, Microprocessor Business Unit, Computation Products Group Thomas M. McCoy Executive Vice President and Chief Administrative Officer William T. Edwards, Ph.D. Senior Vice President and Chief Strategy Officer Dr. Bertrand Cambou Executive Vice President and President and CEO, Spansion Hector de J. Ruiz, Ph.D. Chairman of the Board, President and Chief Executive Officer
  • Products Overview
    • Microprocessors
      • Desktop PC
        • AMD Athlon 64 FX, AMD Athlon 64, AMD Athlon XP, AMD DuronTM
      • Mobile:
        • AMD Athlon 64, AMD Athlon XP-M
      • Servers & Workstation:
        • AMD Opteron, AMD Athlon MP
    • Flash Memory
      • Spansion memory, Multi-chip packages
    • Personal Connectivity Solutions
      • AMD Geode, AMD AlchemyTM
  • Competition
    • Microprocessor
      • Intel
    • Flash memory
      • Intel, Samsung, Toshiba, ST Microelectronics N.V., Sharp Electronics Corporation, Renesas Technology, Silicon Storage Technology, and Macronix International
    • Personal Connectivity Solutions
      • Hitachi, Intel, Motorola, Inc., NEC Corporation, Toshiba, Transmeta, and Via Technologies
  • Strategic Partners
    • Formed FASL LLC (now Spansion LLC) with Fujitsu Limited
      • Design, produce, and market flash memory products
    • Agreement with IBM
      • Jointly develop new logic process technology
    • Formed AMTC and BAC with Infineon Technologies AG and Dupont Photomasks, Inc.
      • Constructing and operating advanced photomask facility
  • Sales and Marketing
    • Distribution:
      • Direct sales force
      • Third party distributors
        • Avnet Inc. accounted for 13% of 2003 consolidated net sales
        • Fujitsu Limited accounted for 13% of 2003 consolidated net sales
      • Independent representatives
    • International sales
      • 80% of net sales in 2003
      • 73% of net sales in 2002
      • 67% of net sales in 2001
  • Sales and Marketing (cont)
    • Expanding to China
      • Regional headquarter
      • Established relationship with OEM in China
    • Pricing
      • AMD sells to distributors under terms allowing the distributors certain rights of return and price protection on any inventory of our products held by them.
  • Miscellaneous
    • Intellectual properties
      • 5,900 patents and 2,000 pending patents
    • Employees
      • 7,400 non-unionized employees (AMD)
      • 6,900 partially unionized employees (FASL LLC)
    • Restructured in 2001 and 2002
  • AMD’s Demand Expectations
    • Worldwide demand for PC microprocessors will increase in 2004
      • Replacement cycle for older PC system
      • Lower-priced PC system
      • Enhanced product features
      • Improved economic condition
  • Goal
    • Microprocessor
      • Increase market acceptance
    • Flash memory
      • Increase market acceptance
    • Personal Connectivity Solutions
      • Continue provide cost-effective product
  • Financial
  • Financial cont’d
  • Financial cont’d
  • Financial cont’d
  • Financial cont’d
  • Company Snapshot $6,016,830,000 $17.09 $18.50 $10.76 354,348,000 417,576,000 2.36 2.78 $7.24 $6.16 Market Capitalization Close Price (As of November 5, 2004 16:04 ET) 52 Week High 52 Week Low Shares outstanding -basic -diluted Price to book value -basic -diluted Current book value -basic -diluted As of Nov. 5, 2004
  • Stock Performance (1yr)
  • Stock Performance (2yr)
  • Stock Performance (5yr)
  • Balance Sheet Analysis $6.16 2.78 1.6198 1.1913 1.8320 0.1740 0.0062 0.0170 Q3 2004 2001 2002 2003 10.69 1.7909 1.5013 0.5855 $7.03 1.9971 1.5167 1.9095 0.1374 -0.0107 -0.1126 $7.21 1.6759 1.3324 1.3144 0.1187 -0.0574 -0.5281 Book value per share Price to Book ratio Current Ratio Quick Ratio Debt to Equity Ratio Asset Return ROA ROE
  • Income Statement Analysis 0.4046 0.0354 0.0552 0.4605 0.4032 $0.1234 $0.1050 138.46 162.75 Q3 2004 0.3346 -0.0156 -0.0150 0.4999 0.4762 -$0.1822 -$0.1822 0.2193 -0.4831 -0.4543 1.3800 1.1331 -$3.8063 -$3.8063 0.3387 -0.0780 -0.0663 0.7148 0.4927 -$0.7912 -$0.7912 -$21.60 -$21.60 Gross profit margin Net profit margin Operating margin RD&E SG&A EPS -basic -diluted Price to earning -basic -diluted 2001 2002 2003
  • Value Drivers
    • Research and development
    • Market share of Spansion Flash memory
    • Semiconductor demand expectations
  • Analysts Recommendation (Source: MSN Money)   2.75   2.91   2.91   2.91   Mean Rec. 3 3 3 3   Strong Sell 2 2 2 2   Moderate Sell 11 12 12 12   Hold 0 0 0 0   Moderate Buy 7 5 5 5   Strong Buy   3 Months Ago   2 Months Ago   1 Month Ago   Current   Recommendations
  • Recommendation
    • Analysis:
      • Too much debt
      • No clear business plan
      • Intense competition
    • Conclusion
      • Sell
  • Applied Materials Inc. (AMAT)
  • Company Overview
    • Established in 1967
    • The world’s largest supplier of products and services to the global semiconductor industry (develop, manufacture, market, service)
    • One of the leading information infrastructure providers
    • Subsidiary: AKT Inc. & Etec Systems Inc.
    • Hasn’t declared or paid cash dividends
  • Top Competitors
    • Tokyo Electron
    • Nikon Corp
    • KLA-Tencor Corp
    • ASLM Holding N.V.
    • Canon Inc.
    • LAM Research
  • Sales Comparison Note: Intel Corp (13% of 2003 Net Sales)
  • Management Overview
    • Michael R. Splinter, CEO
    • Joined April 30, 2003. 30 years in the industry; 20 years with Intel
    • James C. Morgan, Chairman of the Board of Director
    • Joined 1976
    • Nancy Handel, CFO & Group VP
    • Joined 1985. Named CFO October 2004
    • Franz Janker, Senior VP Sales & Marketing
    • Joined 1998
  • Firm Objective
    • To be the leading supplier of semiconductor fabrication solutions worldwide-through innovation and enhancement of customer productivity with systems and service solutions.
    • AM’s long-term growth strategy requires continued development of new manufacturing products
  • Operating Costs
    • Gross margin: $1,604,455 (35% of net sale)
    • Research, development and engineering: $920,618 (20.6% of net sale)
    • Marketing, selling, general and administrative: $625,865 (14% of net sale)
    (2003 Annual Report)
  • RD&E Investment (% of Revenue)
  • Products Overview
    • Chemical Vapor Deposition (CVD)
    • Chemical Mechanical Planarization (CMP)
    • Electrochemical Plating
    • Epitaxial and Polysilicon Deposition
    • Inspection
    • Ion Implantation
    • Manufacturing Execution Systems (MES) software
    • Mask Pattern Generation, Etch, and Inspection systems
    • Metrology
    • Physical Vapor Deposition (PVD)
    • Plasma Etching
    • Rapid Thermal Processing (RTP)
    • Systems to make Flat Panel Displays (FPDs)
    • Wet Cleaning
  • Financial Highlights
  • Financial Highlights
  • Financial Highlights
  • Financial Highlights
  • Financial cont’d
  • Net Sales by Region Note: 58% to Asia
  • Bookings by Region
  • Business Trend
  • As of Nov 5, 2004 Market Capitalization (000) $7,641,271 Close Price $16.28 52 Week High $25.62 52 Week Low $15.36 Price Change - 5 Day 1.1% Price Change - 4 Week 0.4% Price Change - 26 Week -12.8% Price Change - 52 Week -35.5% Price Change - YTD -25.7%
  • AMAT Stock Price (1yr)
  • AMAT Stock Price vs. SP500 (4yr)
  • AMAT vs. Industry (return) AMAT:US           S5SEEQ:IND
  • Summary Balance Sheet (unaudited)
  • Balance Sheet Highlights (2003 Annual Report)
    • Cash, Cash Equivalents, and Short-term investments total $5.5 billion (53% of total assets)
    • Total liabilities total $2.2 billion(21% of total liabilities and shareholders equity)
    • Retained Earnings total $5.8 billion (56% of total liabilities and shareholders equity)
  • Cash & Revenue Trend
  • Summary Income Statement (unaudited)
  • Analysis of Financial Statements (Nov 5, 2004)
    • Enterprise Value: $21.61 billion
    • Revenue: $7.03 billion
    • Gross profit: $1.60 billion
    • Market Cap: $27.65 billion
    • Beta: 2.305
    • Price to book value of equity: 3.03
    Data Provided by Reuters
  • Analysis of Financial Statements Cont’d
    • P/E: 30.78 (Estimated EPS $0.53 for 2004)
    • (EPS negative in year 2003)
    • EPS: 0.26 (Q3, 2004)
    • ROE: -1.9% (2003 Annual Report)
    • Shares outstanding: 1,698,233,000
    • Free Cash Flow: $536,474,000 (2003) ($0.32/share)
    • Cash Flow from Operation: $801,754,000 (2003)
  • Value Drivers
    • Research and Development
    • Strong Cash Flows
    • Dominant Player in the industry
  • News
    • Metron Technology N.V., a leading global service provider of marketing, sales, service, and support solutions to semiconductor materials and equipment suppliers and semiconductor manufacturers, had entered into a definitive agreement pursuant to which AM would acquire the worldwide operating subsidiaries and business of Metron.
  • Cont’d
    • Q1’05
    • Revenue: $62.7 million
    • Gross margins: 21.8%
    • Net loss: $0.6 million
  • Fair P/E Raito
    • Using Graham’s model:
    • P/E Ratio: 22.68
    • P/E Estimate (2004):30.78
    • Slightly overpriced
  • Recommendation
    • HOLD
    • Cash Flow; Debt
    • Rebound (New Orders increase to $2.46B, Net Sales increase to $2.24B)
    • Industry expectation
    • P/E Ratio
    • Return vs Industry
    • Acquisition
    • 2004 Final Report
  • Intel Corporation (INTC)
  • Background
    • Incorporated in California in 1968 (rise of the computer age)
    • World’s largest semiconductor chip-maker
    • Currently, most of their products are sold or licensed worldwide.
    • Two lines of business: Chip (IC) Manufacturing, and Communications and Computing.
  • Business Profile
    • Provide key components for networking and communications infrastructure technology. Communication Components
    • Design and provide products with faster processor performance and improved capabilities. Microprocessor
    • Mission: Become the preeminent building block supplier to the Internet economy
  • Major Products
    • 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
    • Computer system, cellular, telecommunications and network communication equipment manufacturers (OEMs)
    • PC and network communication product users (retail, reseller, OEMs)
    • Other manufacturers
  • Geographic Revenue (millions)
          • Q3 2004 Q2 2004 Q3 2003
    • Americas $1,799 $1,956 $2,168
    • (21%) (24%) (28%)
    • Asia-Pacific $4,014 $3,661 $3,266
    • (48%) (45%) (42%)
    • Europe $1,886 $1,665 $1,683
    • (22%) (21%) (21)
    • Japan $772 $767 $716
    • (9%) (10%) (9%)
  • Product Revenue (millions)
          • Q3 2004 Q2 2004 Q3 2003
    • Microprocessor $5,928 $5,751 $5,719
    • Chipset, Motherboard and other $1,210 $1,023 $1,140
    • Flash $ 638 $ 587 $ 389
  • Operating Segment (millions)
    • YTD 2004 YTD 2003
    • Architecture Business
    • Revenue $20,937 $18,481
    • Income $ 8,586 $ 6,633
    • Communications Group
    • Revenue $ 3,663 $ 2,893 Income $ (596) $ (681)
    • Other
    • Revenue $ 11 $ 26
    • Income $ (760) $ (981)
  • Market Analysis
    • Wi-fi phenomenon – Intel’s PRO/Wireless 2915ABG adapter. Supports three WiFi standards: 802.11a, b, and g (these are the standards for the average home user)
    • Rising handheld industry – increasing demands on handheld digital device (cell phones, PDA’s) capabilities with more powerful processors
  • Management
    • Andrew Grove-Chairman
      • Founder
    • Craig Barret-CEO
      • Came in 1974. Voted into BOD in 1992.
    • Paul Otellini-President
      • Came in 1974, became president in 2002.
    • Andy Bryant-CFO
      • Joined Intel in 1981. Became CFO in 1994.
    • Sean Maloney-(ITC) Gen Mgr
      • Joined Intel since 1982. Became head of ITC in 2001.
  • Price History (1 year) Last price as of Nov. 7,2004: $23.360
  • Intel vs. Industry Returns    INTC:US              S5SECO:IND
  • Revenue vs Income chart
  • Cash Flow Statement Highlights
  • Fundamentals
    • Outstanding Shares: 6,323.00 Million
    • Earnings Growth Rate (quarterly): 29.3%
    • Market Cap: $ 147,705.3 Million
    • ROE: 15.389
    • Trailing P/E: 20.437
    • Last Dividend Reported: 0.04 cash
    • Dividend Yield: .685
    • Year estimated EPS: $ 1.11
  • Financial Model:
    • FCFF= CF (operations) -Exp (C) + Interest *(1-tax rate)
      • 2003: $ 8,004.54 (in millions) or $ 1.21 /share
      • 2002: $ 4,569.84 (in millions) or $.69 /share
      • 2001: $ 1,712.42 (in millions) or $.25 /share
  • Recommendation
      • P/E trailing * FCFF = 20.43 * $1.21 = $ 24.72
    • Therefore.. Since last price is $ 23.36,
    •  BUY!
  • The Fisher Approach
    • Company has had a stable operating structure (ratio of revenue-income stayed consistent)
    • All the head managers and officers have been with the company for at least 22 years.
    • Majority of revenue come from Asia-Pacific Region which has steadily increased.
    • **Prospects look promising. Assuming no unforeseen circumstances, buy and hold for the long run.