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1
Agenda
• Technology overview
• Industry Overview
– Industry information
– Industry trends and outlook
• Company Analysis
– Intel (INTC)
– Advanced Micro Devices (AMD)
– Applied materials (AMAT)
2
3
What is a Semiconductor?
• A semiconductor is a substance, usually a
solid chemical element or compound,
that can conduct electricity under some
conditions but not others, making it a
good medium for the control of electrical
current.
• The most common semiconductor
materials are silicon and germanium.
4
How is a Semiconductor Made?
5
What are Semiconductors Used For?
• Integrated Circuits
– 89.7% of market
– CPU and PC memory (DRAM, SRAM, Flash
Memory)
• Discrete Devices
– Transistors, diodes, resistors
• Optoelectrics
– LED, Optical coupler, laser diode
6
What are Semiconductors Used For?
• Worldwide semiconductor product breakdown
7
8
Industry Characteristics
• Short life cycles
– Continuous innovation
– Moore’s law:
The number of
transistors in an
integrated
circuit doubles
every 18 months
9
Growth of Computation Power
10
Industry Characteristics
• High Research and Development Costs
– R&D is vital to maintaining competitive
advantage
– R&D enables firms to release competitive
products
11
Industry Characteristics
• The sector is highly cyclical with peaks
(2000) closely followed by troughs (2001).
• While there are numerous strong
competitors in this sector, over 64% of
the sector remains relatively fragmented.
• Intel leads the semiconductor sector,
generating $28 billion in revenues, giving
the company a 17% sector share.
12
Industry Characteristics
• Where are Semiconductors Used?
Manufacturing
Industries
12%
Automobiles Military
2%
5%
Computers
45%
Communications
Equipment
13%
Consumer products
23%
13
Annual Sales
Annual Industry Sales 1994-2004
250000
200000
150000
100000
50000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
14
2004 Recap
• Market Value
– The global semiconductors industry sector
grew by 28% in 2004 to reach a value of $213
billion.
• Market Value Forecast
– In 2008 the global semiconductors industry
sector is forecast to have a value of $314
billion, an increase of 87.1% since 2003.
15
2004 Recap
• Market Segmentation I
– By far the leading source of revenue for the
semiconductors industry sector is the IC segment,
which generates 89.7% of the sector's value.
• Market Segmentation II
– The largest market globally for the semiconductors
industry sector is the Asia-Pacific region, which
generates 56.8% of the sector's value.
• Market Share
– The leading company in the semiconductors industry
sector is Intel, which generates 16.7% of the sector's
value.
16
Industry Leaders
Ticker
Name
MktCap
Weighted
Average
Market Capitalization
TTM Sales $
Employees
48,966.738
13,061.236
33276
145,774.063
34,209.000
85000
INTC
Intel Corporation
TXN
Texas
Instruments
Incorporated
44,134.445
12,580.000
35472
TSM
Taiwan
Semiconductor
Mfg. Co. Ltd.
(ADR)
39,977.859
NA
16529
AMAT
Applied
Materials, Inc.
26,968.701
8,238.181
12191
STM
STMicroelectroni
cs N.V. (ADR)
15,438.713
8,760.000
45700
AMD
Advanced Micro
Devices, Inc.
6,349.500
5,001.435
15900
17
Industry Stock Performance
• Chart: Weekly semiconductors vs SP500
18
Industry Outlook
• Opportunities
–
–
–
–
Expansion into Asia
Multi-core processors
Network products (wired and wireless)
Mobile products
• Laptops
• Personal Digital Assistants (PDAs)
• Cellphones
19
Industry Outlook
• Increasing Foreign Consumption (sales)
20
Estimated Future Growth
• 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
21
Estimated Future Growth
22
23
24
History
• Incorporated in California in 1968
– Initially supplied DRAM and EPROMS
– Success of memory chip sales funded the
microprocessor development
• 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
25
Company Overview
• Mission statement:
“ Do a great job for our customers,
employees and stockholders by being the
preeminent building block supplier to the
worldwide digital economy. ”
26
Recent Developments
• March 2005: Intel Corporation Raises Low
End of Q1 2005 Revenue Guidance Above
Analysts' Estimates
• February 2005: Intel Corporation Desktop
Processors Get 64-Bit Support
27
Recent Developments
• January 2005: Intel Corporation
Announces New Centrino Mobile
Technology
• January 2005: Intel Corporation
Restructures Into Five Units
28
Recent Developments
• November 2004: Intel Corporation Board
Elects Paul Otellini Intel Chief Executive
Officer; Craig Barrett to Become Intel
Chairman
• November 2004: Intel Corporation
Doubles Cash Dividend and Authorizes
Repurchase of 500 Million Shares of Intel
Common Stock
29
Recent Developments
• September 2004: Intel Corporation
Invests in Five Companies Developing
Technologies for the Digital Home
• March 2004: Intel Corporation May Cut
China Sales Due To Rule
30
Management
Andrew Grove (Chairman)
• Founder (1968)
Craig Barret (CEO)
• Joined Intel in 1974. Voted into BOD in 1992.
Paul Otellini (President and COO)
• Joined Intel in 1974, became president in
2002.
Andy Bryant (Executive VP, CFO)
• Joined Intel in 1981. Became CFO in 1994.
31
Business Segments and Products
• Primary lines of busines:
– Intel Architecture Business
– Intel Communications Group
32
Business Segments and Products
• Intel Architecture Business
– Microprocessors
• Desktop Platform
• Mobile Platform
• Enterprise Platform
Pentium 4
Pentium M
Xeon
– Chipsets
• Intel chipsets are compatible with variety of
industry-accepted specifications
– Motherboard products
33
Business Segments and Products
• Intel Communications Group
–
–
–
–
Flash memory
Wired and wireless connectivity products
Processors for handheld computing devices
Cellular baseband chipsets
34
Major Customers
• Distributors
• Original Equipment Manufacturers of
computer systems
• Retail
35
Competitors
• Intel Architecture Business
– Advanced Micro Devices (Desktop, mobile
platform)
– IBM (Desktop, mobile platform)
– ATI, Broadcom, SIS, Via (Chipsets)
– Nvidia, ATI (Chipsets/Motherboards)
– Transmeta (Mobile platform)
– Sun Microsystems (Enterprise platform)
36
Competitors
• Intel Communications Group
– Samsung, TI (Application processors)
– Spanshion (falsh memory)
– Qualacom (Cellular baseband chips)
37
Strategy
• 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)
• Objectives:
– Extend silicon leadership and manufacturing capability
– Deliver architectural innovation for all platforms
– Pursue worldwide opportunities
38
Financial Overview
39
Financial Overview
40
Financial Statement Analysis
41
Segment Performance
43
Options
44
Options
45
Fundamental Information
RATIO COMPARISON
Valuation Ratios
Company
Current Price
23.64
Shares
Outstanding
6.323b
Market
Capitalization
148.7b
Industry
Sector
S&P 500
EPS
2.45
Cash per share
1.329
Gross Margin
57.72
53.16
53.32
46.26
Operating
Margin
29.61
22.69
18.60
21.96
P/E Ratio (TTM)
20.88
25.62
28.50
21.62
Price/Book Ratio
(MRQ)
3.92
3.71
5.40
4.01
% Owned
Institutions
56.11
58.33
46.49
65.39
46
Management Effectiveness
Management
Effectiveness (%)
Company
Industry
Sector
S&P 500
Return On Assets
(TTM)
15.73
12.19
10.43
7.59
Return On Assets 5 Yr. Avg.
12.18
6.80
6.60
6.63
Return On
Investment (TTM)
18.59
14.44
14.23
11.41
Return On
Investment - 5 Yr.
Avg.
14.50
8.06
9.97
10.50
Return On Equity
(TTM)
19.64
15.57
17.73
19.89
Return On Equity 5 Yr. Avg.
15.50
9.02
13.72
18.69
47
Stock Buyback
2004
Quarter
Shares Purchased
(M Shares)
Q4
89.0
Q3
Cum. Shares
Purchased
(M Shares)
$Millions
Cum. $ Millions
2,186.5
2,000.0
41,785.7
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
2003
Quarter
Shares Purchased
(M Shares)
$Millions
Cum. $ Millions
Q4
61.4
1,886.0
2,003.2
34,269.7
Q3
0.0
1,824.6
0.0
32,266.5
Q2
51.8
1,824.6
1,005.1
32,266.5
Q1
62.6
1,772.8
1,003.5
31,261.4
2002
Quarter
Shares Purchased
(M Shares)
Cum. Shares
Purchased
(M Shares)
$Millions
Cum. $ Millions
Q4
58.8
1,710.2
1,005.9
30,258.0
Q3
56.6
1,651.4
1,001.3
29,252.0
Q2
37.2
1,594.8
1,001.7
28,250.8
Q1
30.9
1,557.6
1,004.6
27,249.1
Cum. Shares
Purchased
(M Shares)
48
Price History – 52 Weeks
49
Price History vs. SOX – 52 Weeks
50
Price History – 10 Years
51
Price History vs. SOX – 10 Years
52
Value Drivers
•
•
•
•
Market leading research and development
Financial strength
High brand recognition
Economies of scale
53
What Would Fisher Say?
1. “Superiority in production, marketing,
research and financial skills”
– Market leader in production
– Strong “intel inside” marketing campaign
– Solid financial base
2. “The people factor”
– All top executives have been with the firm
for over 20 years
54
What Would Fisher Say?
3. “Investment characteristics of some
businesses”
– High barriers to entry
– Fragmented competition
4. “The price of the investment”
– Moderate price
– Low P/E ratio relative to industry
55
Recommendation
Positive:
• Competent and proven
management
• Strong financial
performance
• High profit margins
• Future growth prospects
Negative:
• Size of company limits
overall growth
BUY!!
56
57
History
• Founded in 1969 and based in Sunnyvale,
California, AMD provides microprocessors,
Flash memory devices, and silicon-based
solutions for customers in the
communications and computer industries
worldwide.
• Facilities in US, Europe, and Asia
58
Company Overview
• Purpose: " We empower people everywhere to lead
more productive lives."
• Mission: To achieve success, AMD combines 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.
59
Company Overview
• March 2005: AMD Supports Fair Trade
Commission Of Japan’s (JFTC) Decision To
Stop Illegal Business Practices By Intel
• March 2005: AMD Opens New Test, Mark
And Pack Manufacturing Facility In
Suzhou, China
60
Company Overview
• June 2004: AMD Strengthens Mobile
Computing R&D with New Engineering Lab
in Tokyo
• August 2004: AMD Demonstrates World’s
First X86 Dual-Core Processor
61
Company Overview
• October 2004: Spansion Expands System
Engineering Capabilities at Design
Centers Around the Globe
• December 2004: AMD, IBM Announce
Semiconductor Manufacturing Technology
Breakthrough
62
Executives
Date
joined
Hector de J. Ruiz, Ph.D.
Chairman of the Board, President and Chief Executive
Officer
2000
Dr. Bertrand Cambou
Executive Vice President and President and CEO, Spansion
2002
William T. Edwards, Ph.D.
Senior Vice President and Chief Strategy Officer
2004
Thomas M. McCoy
Executive Vice President and Chief Administrative Officer
1995
Dirk Meyer
Executive Vice President, Computation Products Group
1996
63
Executives
Date
joined
Patrick Moorhead
Vice President, Global Marketing, Microprocessor Business
Unit, Computation Products Group
2000
Iain Morris
Senior Vice President, Personal Connectivity Solutions
Group
2004
Henri Richard
Executive Vice President, Worldwide Sales and Marketing
2002
Robert J. Rivet
Executive Vice President and Chief Financial Officer
2000
Marty Seyer
Corporate Vice President and General Manager,
Microprocessor Business Unit, Computation Products Group
2002
Fred Weber
Corporate Vice President and Chief Technical Officer
1995
64
Business Segment and Products
• Computation products
• Memory products
• Personal connectivity solution products
65
Computation products
• Processors
–
–
–
–
Desktop
Server
Mobile
Workstation
Sempron, Athlon, Athlon 64
Opterron & Athlon
Turion, Sempron Athlon
Opteron & Athlon
66
Memory products
• From Spansion
– Flash Memory
• MirrorBit
• Floating gate
67
Personal connectivity solution products
• E86™ Embedded Processors
– AMD Geode™ Solutions
– AMD Alchemy™ Solutions
• Wired Ethernet
68
Customers
• Distributors
• Original Equipment Manufacturers of
computer systems
• Resellers
• Retail
69
Competitors
• Computation Products
– Intel
• Memory Products
– Intel, Samsung, Toshiba, Sharp,
STMicroelectronics, Silicon Storage
Technology and Macronix International
• Personal connectivity solution products
– Freescale (formerly Motorola
Semiconductor), Hitachi, Intel, NEC
Corporation, Toshiba and Via Technologies
70
Strategic Partners
• Fujitsu
– Spansion (manufacturing flash memory)
• Microsoft
– Developing and operating system that works
with AMD64 technology
• IBM
– Joint development agreement to develop
new process technologies
71
Strategy
• Expand position in the enterprise
segment through AMD64 based processors
• Expand position in the Flash memory
market
– Increase adoption of MirrorBit technology
• Developing new microprocessor and Flash
memory products
• Expanding to high growth global markets
– China, Latin America, India and Europe
72
Financial Overview
73
Financial Overview
74
Financial Over view
75
Computation products
76
Memory products
77
Financial Overview
Segment breakdown
78
Financial Statement Analysis
79
Research and Development
80
Stock Options
81
Stock Options
82
Fundamental Information
RATIO COMPARISON
Valuation Ratios
Current Price
Shares
Outstanding
Market
Capitalization
Company
Industry
Sector
S&P 500
16.08
393.89m
6.349b
EPS
.245
Cash per share
2.332
Gross Margin
39.37
53.16
53.32
46.26
Operating Margin
4.44
22.69
18.60
21.96
P/E Ratio (TTM)
67.88
25.62
28.50
21.62
Price/Book Ratio
(MRQ)
2.13
3.71
5.40
4.01
% Owned
Institutions
73.9
58.33
46.49
65.39
83
Management Effectiveness
Management Effectiveness (%)
Return On Assets (TTM)
Company
Industry
Sector
S&P 500
1.00
12.19
10.43
7.59
Return On Assets - 5 Yr. Avg.
-1.79
6.80
6.60
6.63
Return On Investment (TTM)
1.28
14.44
14.23
11.41
-2.39
8.06
9.97
10.50
3.51
15.57
17.73
19.89
-2.77
9.02
Return On Investment - 5 Yr. Avg.
Return On Equity (TTM)
Return On Equity - 5 Yr. Avg.
13.72 18.69
84
Price History – 52 weeks
85
Price History vs. SOX – 52 weeks
86
Price History – 10 year
87
Price History vs. Sox – 10 year
88
What would Fisher say
1. “Superiority in production, marketing,
research and financial skills”
– Heavy investment in research and
development
– Lots of negative figures
2. “The people factor”
– Only 2 of the top executive have been with
the company more than 10 years
89
What would Fisher say
3. “Investment characteristics of some
businesses”
– High barriers to entry
– Fragmented competition
4. “The price of the investment”
– Moderate price
– High P/E ratio relative to industry
90
Recommendation
Positive:
Negative:
• Relatively small and has
room for growth
• Good products (AMD 64)
• Positive earning for 2004
•
•
•
•
Competes with Intel
Inconsistent earnings
No Dividends
Lots of debt
HOLD!!
91
92
Company Overview
• History
– 1967, Applied Material was founded by
Michael A. McNeilly and others
– 1972, first public stock offering
– 1992, became the world’s leading
semiconductor equipment manufacture
– From 1971, AMAT has opened office
worldwide: Europe, China (Beijing,
Shanghai), Korea, Taiwan, Singapore
93
Company Overview
• Acquisition
– 1997, Opal, Inc. and Orbot Instruments
• Process diagnostic and control technology
– 1998, Consilium, Inc.
• Manufacturing Execution System Software
– 2000, Etec Syetems, Inc.
• Mask pattern generation
– 2004, TORREX
• Transistor Fabrication Technologies
94
Company Overview
• Mission Statement
– “to be the leading supplier of semiconductor
fabrication solutions worldwide – through
innovation and enhancement of customer
productivity with systems and service
solutions”
95
Company Overview
• Current
– Largest supplier of manufacturing systems
and related service to the globe semicon
industry
– 2004
• First 65-nm X Architecture Interconnect Test Chip
Produced at Maydan Technology Center
• ASIA, the source of more than 70% of revenue
96
Management
Mike Splinter
– President and CEO
– Joined AMAT at 2003
– 30 yr veteran of the semiconductor industry
• Intel
• Rockwell
James Morgan
– Chairman of the Board
– Joined AMAT at 1976
• CEO from 1977-2003
• Chairman since 1987
97
Management
• Dan Maydan (1980)
– President Emeritus
• Franz Janker (1982)
– Executive V.P., Sales and
Marketing
• David N.K. Wong (1980)
– Executive V.P., Applied
Materials Asia
• Nancy Handel (1985)
– Senior V.P., CFO
• Manfred Kerschbaum (2004)
– Senior V.P., GM Applied Global
Service
• Farhad Moghadam (1999)
– Senior V.P., GM Thin Film
Product Business Group and
Foundation Engineering
• Mark Pinto (2004)
– CTO, Senior V.P. New Business
and New Product Group
• Ashon K. Sinha (1990)
– Senior V.P, GM Etch Product
Business Group
98
Business Segments
• Film Deposition
– A process where a thin, uniform layer of
material is created (deposited) on the wafer
surface
• Chemical Vapor Deposition (CVD)
• Physical Vapor Deposition (PVD)
• Electro Chemical Plating (ECP)
• Atomic Layer Deposition (ALD)
• Chemical Mechanical Polishing (CMP)
99
Business Segments
• Photolithography
– A process where a mask, the pattern of chip’s
circuitry, is placed in a precise location
across the wafer
• Etch
• Ion Implantation
• Rapid Thermal Processing (RTP)
• Interconnects
100
Business Segments
• Metrology & Inspection
– Defect Inspection
– Defect Review Scanning Electron Microscopy
(DR-SEM)
– Critical Dimension Measurement Scanning
Electron Microscopy (CDM-SEM)
101
Company Overview
• Major Customers
–
–
–
–
Intel
Samsung Electronics
AMD
Freescale (Motorola)
• Top Competitors
– KLA-Tencor (8.9B)
• Supplier of process
control and yield
management solutions
– Lam Research (3.8B)
• Designs, manufactures,
markets, and services
semicon process equip.
– Tokyo Electronic
• LCD Inspection equip
102
Strategy
• Strategy
– “Early leaders win.”
– “…Close to the Customer, Mutual Trust and
Respect, World-Class Performance…”
– “Attract, retain, and develop the best
people…”
• Objectives
– “Our customers' business results come first! “
103
Financial
104
Financial Statement Analysis
105
Fundamental Information
2004
2003
2002
2001
2000
C. Shares
1680
1677
1648
1631
1624
Employees
12191
12050
16077
17365
19220
Insurance of
Stock
253.4
72.8
74.5
169.0
99.2
C. on Hand
2282
1365
1283
1356
1647
New Orders
8.98B
4.32B
6.14B
6.10B
12.3B
Revenue
8013
4477
6052
7343
9564
R&D
991.9
920.6
1052
1199
1107
Net Profit
1351
149
269
507
2063
106
Options
107
Options
108
Options
109
Management Effectiveness
Management
Effectiveness (%)
Company
Industry
Sector
S&P 500
Return On Assets
(TTM)
13.44
12.19
10.43
7.59
Return On Assets 5 Yr. Avg.
8.88
6.80
6.60
6.63
Return On
Investment (TTM)
16.41
14.44
14.23
11.41
Return On
Investment - 5 Yr.
Avg.
11.46
8.06
9.97
10.50
Return On Equity
(TTM)
17.49
15.57
17.73
19.89
Return On Equity 5 Yr. Avg.
12.61
9.02
13.72
18.69
110
Fundamental Information
RATIO COMPARISON
Valuation Ratios
Company
Current Price
15.99
Shares
Outstanding
1667.82M
Market
Capitalization
Industry
Sector
S&P 500
26.668B
EPS
.91
Cash per share
1.24
Gross Margin
46.31
53.16
53.32
46.26
Operating
Margin
24.87
22.69
18.60
21.96
P/E Ratio (TTM)
18.02
25.62
28.50
21.62
Price/Book Ratio
(MRQ)
2.94
3.71
5.40
4.01
% Owned
Institutions
67.33
58.33
46.49
65.39
111
Price History – 52 weeks
112
Price History vs. SOX– 52 weeks
113
Price History – 10 years
114
Price History vs SOX – 10 years
115
Value Drivers
• Product Momentum
– Increasing Market Share in Existing Product
– Delivering Products for the Nanometer Era
– Entering New Markets
• Solution for a Changing Industry
– Larger size wafers with nanotechnology
• Inventing the Future w/ Breakthrough
Technology
– $992 millions in R&D
116
What Would Fisher Say?
1. “Superiority in production, marketing,
research and financial skills”
– Market leader
– Solid financial base
2. “The people factor”
– 6/10 executives joined AMAT prior 1990
117
What Would Fisher Say?
3. “Investment characteristic of some
businesses”
– Unique, hard to duplicate
– Embedded growth factor
4. “The price of the investment”
– At the low end of past 52 weeks
118
Recommendation
Positive:
• Positive
Negative:
– Under priced
• Above industry PM and
ROE
– Another Adobe case
– Limited growth due to
its size
– Industry leader and
technology leader
– Old faces in a longlasting company
BUY!!
119