US Semiconductors (Intel, AMD, Applied Materials)

1,040 views

Published on

  • Be the first to comment

  • Be the first to like this

US Semiconductors (Intel, AMD, Applied Materials)

  1. 1. U.S. Semiconductor Jonathan Chao, Jesse Galpin, Kevin Sandhu, June Jiang INTEL, AMD, AMAT
  2. 2. Semiconductor Industry <ul><li>Industry Background </li></ul><ul><li>Industry Profile </li></ul><ul><li>Industry Trend </li></ul><ul><li>Current Environment </li></ul><ul><li>Key Industry Ratios and Statistics </li></ul>
  3. 3. Industry Background <ul><li>From the early 1900s to the 1950s : vacu­um tubes </li></ul><ul><li>Invention of the transistor in 1948 </li></ul><ul><li>In 1958, integrated circuit (IC) </li></ul><ul><li>In 1971, Intel Corp.; Intel 4004 microprocessor, which ran at 108 kilohertz and served as a component in a calculator </li></ul>
  4. 4. Industry Background <ul><li>Ongoing technological advancement </li></ul><ul><li>Rising performance, falling prices </li></ul><ul><li>Moore’s Law describes pace of innovation </li></ul><ul><li>Inherent cyclicality </li></ul><ul><li>Huge capital investments </li></ul><ul><li>Marketing chips: going for the design win </li></ul><ul><li>Targeting the end user </li></ul>
  5. 5. Types of Chips <ul><li>Bipolar technology versus metal oxide technology </li></ul><ul><li>Discrete semiconductors </li></ul><ul><li>Analog semiconductors </li></ul><ul><li>Digital semiconductors </li></ul><ul><ul><li>Microprocessors </li></ul></ul><ul><ul><li>Memory chips </li></ul></ul><ul><ul><li>Logic devices </li></ul></ul><ul><ul><li>Microperipherals </li></ul></ul><ul><ul><li>Microcontrollers </li></ul></ul><ul><ul><li>Standard cell logic </li></ul></ul><ul><ul><li>Optoelectronics. </li></ul></ul><ul><ul><li>Digital signal processors (DSPs) </li></ul></ul>
  6. 6. Types of Chips
  7. 7. How Chips Are Made <ul><li>Semiconductors are produced through a highly advanced and complex manufacturing process. </li></ul><ul><li>The two basic stages in chip production are the “front end” and the “back end.” </li></ul><ul><li>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). </li></ul><ul><li>The back end consists of packaging and final test operations. </li></ul><ul><li>http://www.intel.com/education/makingchips/index.htm </li></ul>
  8. 8. I ndustry Profile 213027 166425 140713 138962 204393 149378 126612 137202 131966 144404 101878 TOTAL 88781 62843 51156 39820 51264 37184 29853 30184 27550 29540 19174 ASIA/PAC 45757 38942 30494 33148 46749 32835 25921 32079 34175 39667 29406 JAPAN 39424 32310 27788 30216 42309 31881 29406 29089 27562 28199 19736 EUR 39065 32330 31275 35778 64071 47478 41432 45850 42679 46998 33562 US 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year Total Semiconductor World Market Sales & Shares (in Millions/$)
  9. 9. I ndustry Profile Source: IC Insights. 26.2 5.69 4.51 10. Philips (Netherlands) 15.5 6.47 5.6 9. NEC (Japan) 30.6 7.65 5.86 8. TSMC (Taiwan) 16 8.53 7.36 7. Toshiba (Japan) 21 8.76 7.24 6. STMicroelectronics (Switz.) 12.9 9 7.97 5. Renesas (Japan) 29.1 9.18 7.11 4. Infineon (Germany) 29.7 10.7 8.25 3. Texas Instruments (US) 52.2 15.83 10.4 2. Samsung (S. Korea) 14.3 30.9 27.03 1. Intel (US) 2003–04 2004 2003 %CHG. REVENUES COMPANY (COUNTRY) (Ranked by 2004 revenues, billions of dollars) LARGEST SEMICONDUCTOR COMPANIES
  10. 10. I ndustry Profile   26,091.00 Total Top 10 revenues 11 1,284.00 10. Canon Inc. 8 1,315.00 9. Hitachi High-Technologies Corp. 7 1,337.00 8. Novellus Systems 9 1,360.00 7. Lam Research 5 1,411.00 6. Nikon Corp. 4 1,892.00 5. KLA-Tencor 6 2,176.00 4. Advantest 3 3,022.00 3. ASML Holding NV 2 4,742.00 2. Tokyo Electron Ltd. 1 7,552.00 1. Applied Materials 2003 RANK 2004 SALES* (MIL. $) COMPANY LEADING SEMICONDUCTOR EQUIPMENT MANUFACTURERS
  11. 11. Industry Trend <ul><li>Semiconductors drive economic productivity </li></ul><ul><li>Lower trend line growth (next slide) </li></ul><ul><li>Evolving corporate strategies </li></ul><ul><li>High-end microprocessors drive the market </li></ul><ul><li>DRAM market especially prone to boom-and-bust cycles </li></ul><ul><li>Automotive chips receive renewed focus </li></ul><ul><li>Outsourcing continues to grow </li></ul>
  12. 12. Industry Trend
  13. 13. Current Environment
  14. 14. Current Environment 26.8% 24.3% 23.9% 20.7% 21.2% 20.1% 20.2% 19.8% 17.8% 20.2% 16.5% OTH   25.6% 27.4% 26.0% 28.1% 28.3% 28.5% 26.4% 28.6% 36.0% 38.9% 40.1% JPN   46.7% 48.3% 50.1% 51.2% 49.9% 51.4% 53.4% 51.6% 46.2% 40.9% 43.4% US TOTAL BASE MKT 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 SHARES Total Semiconductor World Market Shares in %                           100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% TOTAL 41.7% 37.8% 36.4% 28.7% 25.1% 24.9% 23.6% 22.0% 20.9% 20.5% 18.8% ASIA/PAC 21.5% 23.4% 21.7% 23.9% 22.9% 22.0% 20.5% 23.4% 25.9% 27.5% 28.9% JAPAN 18.5% 19.4% 19.7% 21.7% 20.7% 21.3% 23.2% 21.2% 20.9% 19.5% 19.4% EUR 18.3% 19.4% 22.2% 25.7% 31.3% 31.8% 32.7% 33.4% 32.3% 32.5% 32.9% US 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Year Total Semiconductor World Market Sales (in %)
  15. 15. Current Environment <ul><li>Consumer products drive chip demand </li></ul>
  16. 16. Current Environment <ul><li>FASB accounting rule change to phase in </li></ul>34 0.29 0.56 0.85 Xilinx 100 0.43 0.00 0.43 Nvidia Corporation 129 0.31 (0.07) 0.24 Micron Technology 28 0.18 0.47 0.65 Microchip Technology 32 0.38 0.82 1.20 Maxim Integrated Products 23 0.23 0.79 1.02 Linear Technologies 16 0.19 0.98 1.17 Intel 26 0.20 0.58 0.78 Applied Materials 37 0.54 0.91 1.45 Analog Devices 29 0.07 (0.18) 0.25 Advanced Micro Devices Option Expense as a % of Reported EPS Option Expense Pro Forma EPS Reported EPS COMPANY STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES — FISCAL 2004
  17. 17. Key Industry Ratios and Statistics <ul><li>Global Sales Report. </li></ul>
  18. 18. Key Industry Ratios and Statistics <ul><li>Semiconductor equipment book-to-bill ratio </li></ul>
  19. 19. Key Industry Ratios and Statistics <ul><li>Wafer fabrication plant utilization rates </li></ul>
  20. 20. Key Industry Ratios and Statistics <ul><li>Institute for Supply Management ( ISM) Report on Business </li></ul>Source: http://www.ism.ws/ISMReport/PMIndex.cfm
  21. 21. Key Industry Ratios and Statistics <ul><li>US index of leading economic indicators </li></ul><ul><ul><li>Gross domestic product (GDP) </li></ul></ul><ul><ul><li>U.S. Consumer Price Index, CPI </li></ul></ul><ul><ul><li>U.S. Civilian Unemployment Rate </li></ul></ul><ul><ul><li>3 Month U.S. Treasury Securities Yield </li></ul></ul>
  22. 22. INTEL NASDAQ: INTC
  23. 23. Background Agenda <ul><li>History </li></ul><ul><li>Current Events </li></ul><ul><li>Company Overview </li></ul><ul><li>Management </li></ul><ul><li>Business Structure </li></ul><ul><li>Operations </li></ul><ul><li>Products </li></ul><ul><li>Customers </li></ul><ul><li>Competitors </li></ul><ul><li>Financial Analysis </li></ul>
  24. 24. History (1 of 3) <ul><li>1965 </li></ul><ul><ul><li>Moore’s Law: “the number of transistors incorporated in a chip will approximately double every 24 months” </li></ul></ul><ul><li>1968 </li></ul><ul><ul><li>Integrated Electronics (Intel) Corp. is founded by Gordon Moore and Robert Noyce. </li></ul></ul><ul><li>1971 </li></ul><ul><ul><li>Intel goes public </li></ul></ul>
  25. 25. History (2 of 3) Processor Timeline 2003 2002 2001 2000 1999 1997 Pentium M Itanium Xeon Pentium IV Pentium III Pentium II 1995 1992 1990 1987 1984 1978 Pentium Pro Pentium 80486 80386 80286 8086
  26. 26. History (3 of 3) <ul><li>2004 & 2005 </li></ul><ul><ul><li>New technology – Not Processors </li></ul></ul><ul><ul><li>Centrino </li></ul></ul><ul><ul><li>Dual-Core processors </li></ul></ul><ul><ul><li>64-bit architecture </li></ul></ul><ul><ul><li>Hyper threading: </li></ul></ul>
  27. 27. Current Events <ul><li>Intel will make new Apple CPU’s NOT Motorola </li></ul><ul><li>Intel court battles with AMD and MicroUnity </li></ul><ul><li>Intel and RIM collaborate on BlackBerry devices </li></ul><ul><li>Intel will team with Microsoft in support of new DVD format HD DVD by Toshiba not with Sony’s Blu-ray Disc </li></ul><ul><li>Agreement to Acquire Digital Broadcast Technology Assets, Expertise from Zarlink Semiconductor – expand digital home segment </li></ul><ul><li>Earnings (3 rd Quarter) announced Oct. 18, 2005 </li></ul>
  28. 28. Company Overview (1 of 4) <ul><li>Mission </li></ul><ul><ul><li>Do a great job for our customers, employees, and stockholders by being the preeminent building block supplier to the worldwide digital economy </li></ul></ul>
  29. 29. Company Overview (2 of 4) <ul><li>Values </li></ul><ul><ul><li>Customer Orientation </li></ul></ul><ul><ul><li>Results orientation </li></ul></ul><ul><ul><li>Risk taking </li></ul></ul><ul><ul><li>Great Place to work </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Discipline </li></ul></ul>
  30. 30. Company Overview (3 of 4) <ul><li>Objectives </li></ul><ul><ul><li>Extend silicon leadership and manufacturing capability </li></ul></ul><ul><ul><li>Deliver architectural innovation for platforms </li></ul></ul><ul><ul><li>Pursue worldwide opportunities </li></ul></ul>
  31. 31. Company Overview (4 of 4) <ul><li>Strategy </li></ul><ul><ul><li>Utilize core competencies to develop advanced products </li></ul></ul><ul><ul><li>Exercise control over value chain </li></ul></ul><ul><ul><li>Utilize “Intel inside” marketing campaign </li></ul></ul><ul><ul><li>Expand into faster growing complementary businesses </li></ul></ul><ul><ul><li>Invest in companies globally to further strategic objectives (Intel Capital program) </li></ul></ul>
  32. 32. Management (1 of 2) <ul><li>Joined Intel as Technology Development manager in 1974 </li></ul><ul><li>Elected to BoD in 1992 </li></ul><ul><li>Served as COO 1993-1997 </li></ul><ul><li>Intel’s fourth president 1997 </li></ul><ul><li>CEO in 1998 </li></ul><ul><li>Chairman of the Board May 18, 2005 </li></ul><ul><li>Joined Intel in 1974. </li></ul><ul><li>Elected to BoD in 2002 </li></ul><ul><li>Served as president and COO 2002-2005 </li></ul><ul><li>CEO on May 18, 2005 </li></ul>
  33. 33. Management (2 of 2) <ul><li>Andy D. Bryant </li></ul><ul><li>Executive Vice President Chief Financial and Enterprise Services Officer </li></ul><ul><li>Joined Intel in 1981. </li></ul><ul><li>CFO in 1998. </li></ul><ul><li>Chief Financial and Enterprise Services Officer in 1999 </li></ul><ul><li>Sean Maloney </li></ul><ul><li>Executive Vice President General Manager, Mobility Group </li></ul><ul><li>Joined Intel in 1982 </li></ul><ul><li>1999 Senior VP </li></ul><ul><li>2001 Executive VP </li></ul><ul><li>2004 Co-manager of Mobility Group </li></ul>
  34. 34. Business Structure (1 of 2) <ul><li>Past </li></ul><ul><ul><li>Intel Architecture Business </li></ul></ul><ul><ul><li>Intel Communications Group </li></ul></ul><ul><li>Present </li></ul><ul><ul><li>Mobility Group </li></ul></ul><ul><ul><li>Digital Home Group </li></ul></ul><ul><ul><li>Digital Enterprise Group </li></ul></ul><ul><ul><li>Digital Health Group </li></ul></ul><ul><ul><li>Channel Products Group </li></ul></ul>
  35. 35. Business Structure (2 of 2) <ul><li>Mobility Group: </li></ul><ul><ul><li>XScale processors for handheld devices (PDA’s) & Pentium M (Centrino) for notebooks </li></ul></ul><ul><li>Digital Home Group: </li></ul><ul><ul><li>Develop processors for digital entertainment devices in the living room. </li></ul></ul><ul><li>Digital Enterprise Group: </li></ul><ul><ul><li>Develop processors for all corporate systems (PC’s to datasevers) </li></ul></ul><ul><li>Digital Health Group: </li></ul><ul><ul><li>New area of focus - Products such as motion-detecting sensors that could help senior citizens live more independently. </li></ul></ul><ul><li>Channel Products Group: </li></ul><ul><ul><li>develop specific products for local markets around the world. </li></ul></ul>
  36. 36. Operations <ul><li>Manufacturing </li></ul><ul><ul><li>Leader in semiconductor manufacturing and technology </li></ul></ul><ul><ul><li>Competitive advantage through economies of scale, </li></ul></ul><ul><ul><li>11 fabrication facilities </li></ul></ul><ul><ul><li>6 assembly and test facilities worldwide </li></ul></ul><ul><ul><li>2003: $3.7 billion on capital investments Switch from 200mm wafers to 300mm wafers cuts price 30%. </li></ul></ul><ul><li>Research and Development </li></ul><ul><ul><li>2005: $ 5.2 billion on R&D. (3.78b so far this year) </li></ul></ul><ul><ul><li>7,000 researchers and scientists in labs around the world. </li></ul></ul>
  37. 37. Major Products <ul><li>Microprocessors, chipsets, boards, flash memory, application processors used in handheld devices, cellular baseband chipsets. </li></ul><ul><li>Networking and communications products, optical components and network processing components, embedded control chips </li></ul>
  38. 38. Major Customers <ul><li>Distributors </li></ul><ul><li>Original Equipment Manufacturers (OEM) of computer systems and peripherals </li></ul><ul><li>PC users (retail) </li></ul>
  39. 39. Major Competitors <ul><li>AMD </li></ul><ul><li>ATI </li></ul><ul><li>Broadcom </li></ul><ul><li>IBM </li></ul><ul><li>Nvidia </li></ul><ul><li>Qualacom </li></ul><ul><li>Samsung </li></ul><ul><li>SIS </li></ul><ul><li>Spanshion </li></ul><ul><li>Sun Microsystems </li></ul><ul><li>TI </li></ul><ul><li>Transmeta </li></ul><ul><li>Via </li></ul>
  40. 40. Financial Analysis
  41. 41. Financial Analysis A+ (highest) S&P Credit Rating $154 billion Market Cap 230,000 Shareholders 2.36 Beta 1.40% S&P Weight (approx) Semiconductors – Logic - Large Peer Group Semiconductors Sub-Industry Information Technology Sector $0.32 (1.4%) Dividend (Yield) $ 23.10 Price (23/10/2005) NASDAQ Exchange INTC Ticker
  42. 42. Financial Overview
  43. 43. Financial Overview
  44. 44. Financial Overview <ul><li>Regression Line Shows Sales Increasing at $573m </li></ul>
  45. 45. Financial Overview <ul><li>Revenue (pink) v. EPS (blue) </li></ul>
  46. 46. Financial Overview <ul><li>INTC over the past 365 Days </li></ul>
  47. 47. Financial Overview <ul><li>INTC over the past 365 days </li></ul><ul><li>50day/200day moving averages - Suggesting a Sell </li></ul>
  48. 48. Financial Overview <ul><li>INTC over the past 365 days vs </li></ul><ul><li>Semiconductor Industry over the past 365 days </li></ul>
  49. 49. Financial Overview <ul><li>INTC over the past 365 days vs </li></ul><ul><li>AMD over the past 365 days </li></ul>
  50. 50. Financial Overview <ul><li>$49.9 billion spend on 2.5B shares </li></ul><ul><li>constant buyback program ($2.5B each ¼) </li></ul>44285.7 2500 2294.4 107.9 Q1 46785.7 2500 2393.3 98.9 Q2 49285.7 2500 2486.9 93.6 Q3 Cum. $ Millions $Millions Cum. Shares Purchased (M Shares) Shares Purchased (M Shares) 2005 Quarter 35,774.7 1,505.0 1,935.2 49.2 Q1 37,285.7 1,511.0 1,991.2 56.0 Q2 39,785.7 2,500.0 2,097.5 106.3 Q3 41,785.7 2,000.0 2,186.5 89.0 Q4 Cum. $ Millions $Millions Cum. Shares Purchased (M Shares) Shares Purchased (M Shares) 2004 Quarter
  51. 51. Financial Analysis 1 2.2 1 2.3 Quick Ratio 1.5 2.8 1.6 2.9 Current Ratio S&P 500 industry AMD INTC   Internal Liquidity
  52. 52. Financial Analysis 8.1 3.7 2.2 3.8 Inventory turnover 0.3 0.7 0.7 0.8 Asset turnover         Operating Efficiency S&P 500 Industry AMD INTC Operating Performance
  53. 53. Financial Analysis 7.2 12.4 1.96 21.9 Return on Capital 2.6 9.6 1.16 17.9 Return on Assets 15 13.7 3.03 22.2 Return on Equity           7.8 13.3 0.8 21.8 Net Profit Margin 11.6 17.9 -1.9 29.7 Operating Margin 47 60.9 66.5 70.7 Gross Margin         Operating Profitability S&P 500 Industry AMD INTC Operating Performance
  54. 54. Financial Analysis 5.8 1.4 2.7 1.2 Leverage Ratio 3.5 47.5 1 474.3 Interest Coverage 1.07 0.11 0.56 0.01 Debt/Equity Ratio S&P 500 Industry AMD INTC Risk
  55. 55. Financial Analysis 3.87 15.42 - 24.22 Dividends 6.97 - - 9.84 EPS 4.71 5.63 3.15 3.1 Sales S&P 500 Industry AMD INTC Growth (%)
  56. 56. Financial Analysis 12 11.4 6.8 10.8 Price/CF 2.74 3.24 3.09 3.75 Price/BV 1.44 3.14 1.67 3.69 Price/Sales 18.8 24 221.2 17.3 Price/Earnings S&P 500 Industry AMD INTC Price Ratios
  57. 57. Value Drivers <ul><li>Consumer spending/optimism </li></ul><ul><li>Research and development </li></ul><ul><li>Economies of scale – efficient cost </li></ul>
  58. 58. Financial Analysis <ul><li>1. “Functional Factors” </li></ul><ul><ul><li>Production Leader </li></ul></ul><ul><ul><li>Marketing Leader </li></ul></ul><ul><ul><ul><li>“ intel inside” </li></ul></ul></ul><ul><ul><ul><li>“ Pentium M” </li></ul></ul></ul><ul><ul><li>R&D Leader </li></ul></ul><ul><ul><li>Strong Financials </li></ul></ul><ul><li>2. “People Factors” </li></ul><ul><ul><li>Voted best place to work </li></ul></ul><ul><ul><li>Top Executives at Intel for minimum 20 years </li></ul></ul><ul><ul><li>Lost Andrew Grove, founder and former Chairman </li></ul></ul><ul><ul><li>Otellini’s new structure not just cosmetic </li></ul></ul><ul><li>3. “Essential Business Characteristics” </li></ul><ul><ul><li>High barriers to entry </li></ul></ul><ul><ul><li>E of S </li></ul></ul><ul><ul><li>Fragmented competition – ‘Diversified’ </li></ul></ul><ul><li>4. “Value of the Stock” </li></ul><ul><ul><li>Moderate price </li></ul></ul><ul><ul><li>Price Ratios indicate proper pricing </li></ul></ul><ul><li>4 Dimensions of Fisher </li></ul>
  59. 59. Financial Analysis <ul><li>BUY </li></ul>
  60. 60. Advanced Micro Devices
  61. 61. Overview <ul><li>History </li></ul><ul><li>Current Events </li></ul><ul><li>Company Overview </li></ul><ul><li>Management </li></ul><ul><li>Business Structure </li></ul><ul><li>Products </li></ul><ul><li>Customers </li></ul><ul><li>Competitors </li></ul><ul><li>Strategy </li></ul><ul><li>Financial Statement Analysis </li></ul><ul><li>Valuation </li></ul><ul><li>Recommendation </li></ul>
  62. 62. Introduction <ul><li>Advanced Micro Devices, Inc. (AMD): is a manufacturer of integrated circuits based in Sunnyvale, California </li></ul><ul><li>Founded in 1969 and is the second-largest supplier of x86-compatible processors, and a leading supplier of non-volatile flash memory </li></ul><ul><li>It has manufacturing facilities in the U.S., Europe and Asia and sales offices throughout the world </li></ul>
  63. 63. History Advanced Micro Devices May, 1969 <ul><li>The establishment of AMD </li></ul><ul><li>The main goal at the time was to create a successful semiconductor company </li></ul>September, 1969 <ul><li>Opened first headquarters at Sunnyvale CA </li></ul><ul><li>Over the next 5 years AMD grew substantially with 1500 employees and making over 200 products </li></ul>September, 1972 <ul><li>AMD goes public </li></ul><ul><li>NYSE: AMD </li></ul>
  64. 64. Current Events <ul><ul><li>October 27, 2005 </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul><ul><ul><li>October 25, 2005 </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul>
  65. 65. Company Overview (1 of 2) <ul><ul><li>AMD's Purpose, Vision, Mission, and Values </li></ul></ul><ul><ul><li>Purpose </li></ul></ul><ul><ul><li>To empower people everywhere to lead more productive lives </li></ul></ul><ul><ul><li>Vision </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  66. 66. Company Overview (2 of 2) <ul><ul><li>AMD's Purpose, Vision, Mission, and Values </li></ul></ul><ul><ul><li>Mission </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Values </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  67. 67. 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
  68. 68. 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
  69. 69. Business Structure <ul><li>Microprocessor </li></ul><ul><li>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. </li></ul><ul><li>Flash memory </li></ul><ul><li>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 </li></ul>definitions:
  70. 70. Business Structure <ul><li>Microprocessor Market – Computational Products </li></ul><ul><ul><li>Used for control and computing tasks and complementary chipset components, which perform essential logic functions that support the microprocessors </li></ul></ul><ul><li>Flash Memory Market – Memory products </li></ul><ul><ul><li>Used to store data and programming instructions </li></ul></ul><ul><li>Embedded Microprocessor Market </li></ul><ul><ul><li>Personal connectivity devices and specific consumer markets </li></ul></ul>
  71. 71. Products <ul><li>Microprocessor Market </li></ul><ul><ul><li>computation devices, mainly microprocessors </li></ul></ul><ul><ul><li>Desktop & mobile PC </li></ul></ul><ul><ul><li>Server & Workstation </li></ul></ul><ul><ul><li>Dual Core processors & Chipsets </li></ul></ul><ul><li>Flash Memory Market </li></ul><ul><ul><li>flash memory devices. </li></ul></ul><ul><ul><li>Floating Gate Technology </li></ul></ul><ul><ul><li>Mirror Bit Technology </li></ul></ul><ul><li>Embedded Microprocessor Market </li></ul><ul><ul><li>A minor product produced is also the embedded microprocessors for personal connectivity devices </li></ul></ul><ul><ul><li>Personal connectivity devices (PDAs) </li></ul></ul><ul><ul><li>Media players </li></ul></ul><ul><ul><li>Digital TV </li></ul></ul>
  72. 72. Customers <ul><li>Main customers include: </li></ul>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
  73. 73. Competitors (1 of 3) <ul><li>Microprocessor Market: </li></ul><ul><ul><li>Intel has been the industry leader for years and decisions made regarding: </li></ul></ul><ul><ul><ul><ul><ul><li>Price and allocation strategies </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Product mix and new product timing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Impact on industry standards, branding and marketing </li></ul></ul></ul></ul></ul><ul><ul><li>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 </li></ul></ul>
  74. 74. Competitors (2 of 3) <ul><li>Flash Memory Market: </li></ul><ul><ul><ul><ul><ul><li>Intel </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Toshiba </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>STMicroelectronics </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>N.V. Sharp Electronics </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Samsung </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Silicon Storage Technology </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Micronix International </li></ul></ul></ul></ul></ul><ul><ul><li>Competition is expected to increase and intensify in the future when there are more entrants in the industry who compete on price </li></ul></ul>
  75. 75. Competitors (3 of 3) <ul><li>Personal Connectivity Solutions: </li></ul><ul><ul><li>Embedded processors faces competition </li></ul></ul><ul><ul><ul><ul><ul><li>Freescale (formally Motorola Semiconductors </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Hitachi </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Intel </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>NEC Corporation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Toshiba </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Via Technologies . </li></ul></ul></ul></ul></ul><ul><ul><li>AMD expects competition to increase as these competitors focus on low power embedded processor solutions. </li></ul></ul>
  76. 76. Operational Overview <ul><li>Manufacturing: </li></ul><ul><ul><li>Leading semiconductor company with manufacturing plants in United States, Europe and Asia with sales offices throughout the world </li></ul></ul><ul><ul><li>AMD owns 12 manufacturing facilities: </li></ul></ul><ul><ul><ul><li>5 – Wafer Fabrication and 7 – assembly and test facilities </li></ul></ul></ul><ul><ul><li>Research and development is focused on product design and system and on processor development </li></ul></ul><ul><ul><li>R&D for 2002 , 2003 and 2004 : $816M , $852M and $935M </li></ul></ul>
  77. 77. Strategy <ul><li>Leverage the strength of the AMD64 technology based processor to increase market share </li></ul><ul><li>Expand into the flash memory market by emphasizing more on the MirrorBit technology </li></ul><ul><li>Innovative creations of new flash memory and microprocessor technology </li></ul><ul><li>Expand into new growing markets </li></ul>
  78. 78. Financial Statement Analysis AMD Ticker NYSE Exchange $ 22.32 (23/10/2005) Price $0.0 (0.0%) Dividend (Yield) Technology Sector Semiconductors –Broad Line Sub-Industry Semiconductors – Logic - Large Peer Group 398.36 million Shares Outstanding $8.89 billion Market Cap
  79. 79. Financial Overview NET SALES BY YEAR
  80. 80. Financial Overview OPERATING INCOME BY YEAR
  81. 81. Financial Overview STOCK PRICE – 52 Weeks
  82. 82. Financial Overview STOCK PRICE – 52 Weeks VS SOX
  83. 83. Financial Overview STOCK PRICE – 60 Weeks (5 year)
  84. 84. Financial Overview STOCK PRICE – 60 Weeks (5 year) VS SOX
  85. 85. Financial Overview <ul><li>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 </li></ul><ul><li>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 </li></ul>1 2.2 2.3 1.0 Quick Ratio 1.5 2.8 2.9 1.6 Current Ratio S&P 500 Industry INTC AMD   Internal Liquidity
  86. 86. Financial Overview <ul><li>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 </li></ul><ul><li>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. </li></ul>8.1 3.7 3.8 2.2 Inventory turnover 0.3 0.7 0.8 0.7 Asset turnover         Operating Efficiency S&P 500 Industry INTC AMD Operating Performance
  87. 87. Financial Overview <ul><li>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 </li></ul>7.2 12.4 21.9 1.96 Return on Capital 2.6 9.6 17.9 1.16 Return on Assets 15 13.7 22.2 3.03 Return on Equity           7.8 13.3 21.8 0.8 Net Profit Margin 11.6 17.9 29.7 -1.9 Operating Margin 47 60.9 70.7 66.5 Gross Margin         Operating Profitability S&P 500 Industry INTC AMD Operating Performance
  88. 88. Financial Overview <ul><li>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. </li></ul><ul><li>Interest Coverage is much more superior for Intel than AMD showing that it is better able to meet interest payments </li></ul><ul><li>Consistent with the table, the leverage ratio for AMD will be much higher because it has a higher usage of debt </li></ul>5.8 1.4 1.2 2.7 Leverage Ratio 3.5 47.5 474.3 1 Interest Coverage 1.07 0.11 0.01 0.56 Debt/Equity Ratio S&P 500 Industry INTC AMD Risk
  89. 89. Financial Overview <ul><li>AMD does not pay dividends and has a lower EPS. However, Sales for AMD is higher but trails the industry and S&P 500. </li></ul>3.87 15.42 24.22 0.0 Dividends Payout Ratio (%) 6.97 - 1.34 0.10 EPS (Earnings per Share) 4.71 5.63 3.1 3.15 SPS (Sales per Share) S&P 500 Industry INTC AMD Growth (%)
  90. 90. Financial Overview <ul><li>AMD has a high P/E ratio compared to Intel because of earnings. </li></ul>12 11.4 10.8 6.8 Price/CF 2.74 3.24 3.75 3.09 Price/BV 1.44 3.14 3.69 1.67 Price/Sales 18.8 24 17.3 221.2 Price/Earnings S&P 500 Industry INTC AMD Price Ratios
  91. 91. Value Drivers <ul><li>Consistent expenditures on R&D </li></ul><ul><li>Strong potential in the flash memory market - MirrorBit technology (hoping to reverse negative trend in memory market) </li></ul><ul><li>Competitive position in the existing market </li></ul>
  92. 92. Irving Fisher Approach <ul><li>FUNCTIONAL FACTORS: </li></ul><ul><ul><li>Consistent investments for R&D </li></ul></ul><ul><ul><li>Some negative figures </li></ul></ul><ul><li>PEOPLE FACTORS: </li></ul><ul><ul><li>Relatively new management that has yet to build a history with AMD </li></ul></ul>
  93. 93. Irving Fisher Approach <ul><li>ESSENTIAL BUSINESS CHARACTERISTICS: </li></ul><ul><ul><li>High barriers to entry due to R&D </li></ul></ul><ul><ul><li>Diversified competition </li></ul></ul><ul><li>VALUE OF STOCK </li></ul><ul><ul><li>Lower P/CF than INTC & Industry </li></ul></ul><ul><ul><li>High Price </li></ul></ul>
  94. 94. Recommendation <ul><ul><li>PROS: </li></ul></ul><ul><ul><li>Has high growth potential </li></ul></ul><ul><ul><li>Good R&D </li></ul></ul><ul><ul><li>Good technology </li></ul></ul><ul><ul><li>Positive Trend in earnings </li></ul></ul><ul><ul><li>CONS: </li></ul></ul><ul><ul><li>Follower of Intel </li></ul></ul><ul><ul><li>Highly Leveraged </li></ul></ul><ul><ul><li>No Dividends </li></ul></ul><ul><ul><li>Fluctuating Earnings </li></ul></ul>HOLD
  95. 95. Applied Materials
  96. 96. Overview <ul><li>History </li></ul><ul><li>Company Overview </li></ul><ul><li>Management </li></ul><ul><li>Products </li></ul><ul><li>Business Segments </li></ul><ul><li>Customers </li></ul><ul><li>Competitors </li></ul><ul><li>Strategy </li></ul><ul><li>Financial Statement Analysis </li></ul><ul><li>Valuation </li></ul><ul><li>Recommendation </li></ul>
  97. 97. History <ul><li>1967 - Applied Materials founded </li></ul><ul><li>1972 – IPO </li></ul><ul><li>1992 - Officially becomes world’s largest semiconductors manufacturer </li></ul><ul><li>2005 - Declares cash dividend </li></ul>
  98. 98. Company Overview <ul><li>Largest supplier of manufacturing material to global semiconductors industry </li></ul><ul><li>Business model based on Semiconductor Capital Equipment, primarily focusing on: </li></ul><ul><ul><ul><li>Wafer fabrication systems </li></ul></ul></ul><ul><ul><ul><li>Related services </li></ul></ul></ul>
  99. 99. Company Overview <ul><li>Mission </li></ul><ul><ul><ul><li>“ 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.” </li></ul></ul></ul><ul><li>Goal: “ Our customers' business results come first!” </li></ul>
  100. 100. Management <ul><li>James Morgan </li></ul><ul><ul><ul><li>Chairman </li></ul></ul></ul><ul><ul><ul><li>Joined in 1976 </li></ul></ul></ul><ul><ul><ul><li>CEO from 1977 to 2003, Chairman since 1987 </li></ul></ul></ul><ul><ul><ul><li>Prior experience in Venture Capital and Manufacturing environments </li></ul></ul></ul><ul><li>Mike Splinter </li></ul><ul><ul><ul><li>President and CEO </li></ul></ul></ul><ul><ul><ul><li>Joined in 2003 </li></ul></ul></ul><ul><ul><ul><li>Over 30 years experience in semi’s industry and nearly 20 years with Intel </li></ul></ul></ul>
  101. 101. Products <ul><li>Manufactures systems that perform most of the primary steps in the chip fabrication process </li></ul><ul><li>Semiconductor Capital Equipment with 4 platforms: </li></ul><ul><ul><ul><li>the Centura® </li></ul></ul></ul><ul><ul><ul><li>the Endura® </li></ul></ul></ul><ul><ul><ul><li>the Producer® </li></ul></ul></ul><ul><ul><ul><li>the Vantage® </li></ul></ul></ul>
  102. 102. Business Processes <ul><li>Deposition: layer of dielectric or electrically conductive film is deposited, or grown, on a wafer </li></ul><ul><li>Etch </li></ul><ul><li>Ion Implantation </li></ul><ul><li>RTP: Rapid thermal processing </li></ul><ul><li>Wager metrology and inspection </li></ul>
  103. 103. Business Segments <ul><li>Through subsidiary AKT, Inc.: </li></ul><ul><ul><li>Manufactures CVD systems and array testers for making flat panel displays (FPDs) </li></ul></ul><ul><ul><li>FPD products used in notebook computers, desktop computer monitors, Televisions, and other monitors. </li></ul></ul>
  104. 104. Competitors <ul><li>Major Competitors: </li></ul><ul><ul><li>KLAC KLA-Tencor </li></ul></ul><ul><ul><ul><li>Operates in Process Control and Yield Management industies </li></ul></ul></ul><ul><ul><li>LRCX Lam Research </li></ul></ul><ul><ul><ul><li>Design and manufacture semiconductor processing equipment. </li></ul></ul></ul><ul><ul><li>NVLS Novellus Systems </li></ul></ul><ul><ul><ul><li>Develop, manufacture, market and support systems used in the fabrication of integrated circuits </li></ul></ul></ul><ul><ul><li>Many small manufacturers compete with various business lines as well </li></ul></ul>
  105. 105. Competitors
  106. 106. Competitors
  107. 107. Customers <ul><li>Major Customers: </li></ul><ul><ul><li>Intel </li></ul></ul><ul><ul><ul><li>Represent nearly 10% of total sales </li></ul></ul></ul><ul><ul><li>Samsung Electronics </li></ul></ul><ul><ul><ul><li>Represent nearly 10% of total sales </li></ul></ul></ul><ul><ul><li>AMD </li></ul></ul><ul><ul><li>Motorola </li></ul></ul>
  108. 108. Strategy <ul><li>Aiming to: </li></ul><ul><ul><li>Increasing market share in existing markets </li></ul></ul><ul><ul><li>Expand into related markets </li></ul></ul><ul><ul><li>Cultivate new markets and business models </li></ul></ul><ul><li>Expand sales to new </li></ul><ul><li>regions and create </li></ul><ul><li>similarly sized </li></ul><ul><li>global markets </li></ul>Orders By Geography Q3, FY2005
  109. 109. Financial Statement Analysis 14.52% 11.58% 16.33% 19.59% 20.56% 13.13% RD&E 14.67% 21.58% 6.92% 5.31% -33.31% 16.86% Net Income 47.47% 50.77% 44.29% 40.63% 35.84% 46.19% Gross Income 747,675 2,063,552 507,829 269,004 (149,147 ) 1,351,303   Net Income As a % of Sales 2,419,219 4,855,728 3,252,033 2,056,661 1,604,455   3,701,245 Gross Margin 5,096,302 9,564,412 7,343,248 5,062,312   4,477,291   8,013,053   Sales 1999 2000 2001 2002 2003 2004
  110. 110. Financial Statement Analysis 15.60% 12.10% 11.48% 11.27% 13.58% 12.12% 14.49% RD&E 5.30% 18.50% 19.70% 20.65% 16.22% 16.38% 22.65% Net Income 43.47% 46.51% 47.37% 46.62% 44.38% 43.97% 43.94% Gross Income 82,376 373,348 440,571 455,008 288,765 304,830 369,591 Net Income As a % of Sales 676,169 938,641 1,059,232 1,027,203 790,225 818,430 717,089 Gross Margin 1,555,448 2,018,105 2,236,152 2,203,348 1,780,576 1,861,189 1,631,938 Sales ‘ 04 – Q1 ‘ 04 – Q2 ‘ 04 – Q3 ‘ 04 – Q4 ‘ 05 – Q1 ‘ 05 – Q2 ’ 05 – Q3
  111. 111. Management Performance 8,524,456   8,524,456   9,672,463 Total Capital 8,068,034 8,068,034 9,262,027 Book Equity 10,311,622 10,311,622 12,093,445 Assets 269,004 (149,147) 1,351,303 Net Income     3.16% -1.75% 13.97% Return on Invested Capital 3.33% -1.85% 14.59% Return on Book Equity 2.61%   -1.45%   11.17% Return on Assets 2002 2003 2004
  112. 112. Stock Based Compensation $0.58 ($0.32) ($0.03) Diluted $0.60 ($0.32) ($0.03) Basic Pro forma earnings/(loss) per share: $0.78 ($0.09) $0.16 Diluted $0.80 ($0.09) $0.16 Basic Earnings/(loss) per share as reported: $1,005,406 ($538,247) ($47,695) Pro forma net income/(loss) ($345,897) ($389,100) ($316,699) Stock based compensation expense, net of tax $1,351,303 ($149,147) $269,004 Reported net income/(loss) 2004 2003 2002       Fiscal Year
  113. 113. Stock Performance AMAT Stock Performance from Oct. 28, 2004 to Oct. 28, 2005
  114. 114. Stock Performance AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2004 to Oct. 28, 2005
  115. 115. Stock Performance AMAT Stock Performance from Oct. 28, 2000 to Oct. 28, 2005
  116. 116. Stock Performance AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2000 to Oct. 28, 2005
  117. 117. Valuation Market Cap: 26.5B Enterprise Value: 20.8B Trailing P/E (ttm): 19.34 Forward P/E (fye): 19.95 Price/Sales (ttm): 3.55 Price/Book: 2.94 Price/FCF: 19.12 Enterprise Value/Revenue (ttm): 2.78 Enterprise Value/EBITDA (ttm): 10.52 EPS (trailing) $0.846 EPS (forward consensus) $0.820 Dividends Per Share $0.12 Dividend Yield 0.73% Net Cash Per Share $1.13 Sales Per Share $4.50 Book Value Per Share $5.56 Free Cash Flow Per Share $0.86 12 11.4 6.8 10.8 Price/CF 2.74 3.24 3.09 3.75 Price/BV 1.44 3.14 1.67 3.69 Price/Sales 18.8 24 221.2 17.3 Price/Earnings S&P 500 industry AMD INTC Price Ratios
  118. 118. Value Drivers <ul><li>Strong industry position in existing markets </li></ul><ul><ul><ul><li>Largest global supplier of semiconductor manufacturing equipment </li></ul></ul></ul><ul><li>Innovative technologies </li></ul><ul><ul><ul><li>New wafer sizing and use of nanotechnologies </li></ul></ul></ul><ul><li>Consistent dedication R&D Spending </li></ul><ul><ul><ul><li>Nearly $1B in fiscal 2004 (over 13% of revenue) </li></ul></ul></ul>
  119. 119. Fisher Approach <ul><li>Functional Factors: </li></ul><ul><ul><ul><li>Global leader in semiconductor manufacturing equipment production </li></ul></ul></ul><ul><ul><ul><li>Strong customer base with weak competition </li></ul></ul></ul><ul><li>People Factors: </li></ul><ul><ul><ul><li>Experienced managers </li></ul></ul></ul><ul><ul><ul><li>Generous with management compensation (stock options) </li></ul></ul></ul><ul><li>Essential Business Characteristics: </li></ul><ul><ul><ul><li>Strong competitive position </li></ul></ul></ul><ul><ul><ul><li>High growth industry with many applications </li></ul></ul></ul><ul><li>Value of the Stock: </li></ul><ul><ul><ul><li>Mid-point of 52 week range </li></ul></ul></ul><ul><ul><ul><li>High levels of growth priced into stock </li></ul></ul></ul>
  120. 120. Recommendation <ul><li>PROS </li></ul><ul><ul><li>Industry leader </li></ul></ul><ul><ul><li>Commitment to R&D Spending </li></ul></ul><ul><li>CONS </li></ul><ul><ul><li>Poor growth </li></ul></ul><ul><ul><li>Pending Lawsuit with major competitor </li></ul></ul><ul><ul><li>High stock option expensing </li></ul></ul><ul><ul><li>Too Expensive! </li></ul></ul>SELL

×