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U.S. Semiconductor U.S. Semiconductor Jonathan Chao, Jesse Galpin, Kevin Sandhu, Jonathan Chao, Jesse Galpin, Kevin Sandhu, June Jiang June Jiang INTEL, AMD, AMAT INTEL, AMD, AMAT
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Page 1: US Semiconductors (Intel, AMD, Applied Materials)

U.S. SemiconductorU.S. Semiconductor

Jonathan Chao, Jesse Galpin, Kevin Sandhu, June Jonathan Chao, Jesse Galpin, Kevin Sandhu, June JiangJiang

INTEL, AMD, AMATINTEL, AMD, AMAT

Page 2: US Semiconductors (Intel, AMD, Applied Materials)

Semiconductor IndustrySemiconductor Industry

Industry Background Industry Background Industry ProfileIndustry Profile Industry TrendIndustry Trend Current EnvironmentCurrent Environment Key Industry Ratios and StatisticsKey Industry Ratios and Statistics

Page 3: US Semiconductors (Intel, AMD, Applied Materials)

Industry Background Industry Background

From the early 1900s to the From the early 1900s to the 1950s1950s : : vacu um tubes vacu um tubes

Invention of the transistor in Invention of the transistor in 1948 1948

In 1958, integrated circuit (IC)In 1958, integrated circuit (IC) In 1971, Intel Corp.; Intel 4004 In 1971, Intel Corp.; Intel 4004

microprocessor, which ran at microprocessor, which ran at 108 kilohertz and served as a 108 kilohertz and served as a component in a calculatorcomponent in a calculator

Page 4: US Semiconductors (Intel, AMD, Applied Materials)

Industry BackgroundIndustry Background

Ongoing technological Ongoing technological advancementadvancement

Rising performance, falling Rising performance, falling pricesprices

Moore’s Law describes pace of Moore’s Law describes pace of innovationinnovation

Inherent cyclicalityInherent cyclicality Huge capital investmentsHuge capital investments Marketing chips: going for the Marketing chips: going for the

design windesign win Targeting the end userTargeting the end user

Page 5: US Semiconductors (Intel, AMD, Applied Materials)

Types of ChipsTypes of Chips

Bipolar technologyBipolar technology versus metal oxide versus metal oxide technologytechnology

Discrete semiconductorsDiscrete semiconductors Analog semiconductorsAnalog semiconductors Digital semiconductorsDigital semiconductors

Microprocessors Microprocessors Memory chips Memory chips Logic devices Logic devices Microperipherals Microperipherals Microcontrollers Microcontrollers Standard cell logic Standard cell logic Optoelectronics. Optoelectronics. Digital signal processors (DSPs) Digital signal processors (DSPs)

Page 6: US Semiconductors (Intel, AMD, Applied Materials)

Types of ChipsTypes of Chips

Page 7: US Semiconductors (Intel, AMD, Applied Materials)

How Chips Are MadeHow Chips Are Made

Semiconductors are produced through a highly Semiconductors are produced through a highly advanced and complex manufacturing process.advanced and complex manufacturing process.

The two basic stages in chip production are the The two basic stages in chip production are the “front end” and the “back end.” “front end” and the “back end.”

The front end involves materials preparation (cir The front end involves materials preparation (cir cuit design, photomask making, and manu cuit design, photomask making, and manu facture of raw wafers) and wafer processing facture of raw wafers) and wafer processing (repeated cycles of deposition, etch, doping, (repeated cycles of deposition, etch, doping, planarization, and in-process testing). planarization, and in-process testing).

The back end consists of packaging and final The back end consists of packaging and final test operations.test operations.

http://www.intel.com/education/makingchips/http://www.intel.com/education/makingchips/index.htm index.htm

Page 8: US Semiconductors (Intel, AMD, Applied Materials)

IIndustryndustry Profile ProfileTotal Semiconductor World Market Sales in %.

15%

20%

25%

30%

35%

40%

45%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

%

US EUR JAPAN ASIA/PAC

Total Semiconductor World Market Sales & Shares (in Millions/$) Total Semiconductor World Market Sales & Shares (in Millions/$)

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

TOTAL 101878 144404 131966 137202 126612 149378 204393 138962 140713 166425 213027

Page 9: US Semiconductors (Intel, AMD, Applied Materials)

IIndustryndustry Profile ProfileLARGEST SEMICONDUCTOR COMPANIES

(Ranked by 2004 revenues, billions of dollars)

COMPANY (COUNTRY)

REVENUES %CHG.

2003 2004 2003–04

1. Intel (US) 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

9. NEC (Japan) 5.6 6.47 15.5

10. Philips (Netherlands) 4.51 5.69 26.2

Source: IC Insights.

Page 10: US Semiconductors (Intel, AMD, Applied Materials)

IIndustryndustry Profile ProfileLEADING 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  

Page 11: US Semiconductors (Intel, AMD, Applied Materials)

Industry Trend Industry Trend

Semiconductors drive economic Semiconductors drive economic productivity productivity

Lower trend line growth (next slide)Lower trend line growth (next slide) Evolving corporate strategies Evolving corporate strategies High-end microprocessors drive the High-end microprocessors drive the

market market DRAM market especially prone to DRAM market especially prone to

boom-and-bust cycles boom-and-bust cycles Automotive chips receive renewed Automotive chips receive renewed

focus focus Outsourcing continues to grow Outsourcing continues to grow

Page 12: US Semiconductors (Intel, AMD, Applied Materials)

Industry TrendIndustry Trend

WORLDWIDE SEMICONDUCTOR SALES (Year-to-year % change)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

% c

hang

e

%change

Page 13: US Semiconductors (Intel, AMD, Applied Materials)

Current EnvironmentCurrent Environment

Total Semiconductor World Market Sales

-

50,000

100,000

150,000

200,000

250,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

$ in

Mill

ions

US EUR JAPAN ASIA/PAC TOTAL

Page 14: US Semiconductors (Intel, AMD, Applied Materials)

Current EnvironmentCurrent EnvironmentTotal Semiconductor World Market Sales (in %)

Year199

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 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

MKT BASE

TOTAL US 43.4

%40.9

%46.2

%51.6

%53.4

%51.4

%49.9

%51.2

%50.1

%48.3

%46.7

%

  JPN40.1

%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

%

Page 15: US Semiconductors (Intel, AMD, Applied Materials)

Current EnvironmentCurrent Environment

Consumer products drive chip Consumer products drive chip demanddemand

Page 16: US Semiconductors (Intel, AMD, Applied Materials)

Current EnvironmentCurrent Environment

FASB accounting rule change to phase inFASB accounting rule change to phase in

STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES — FISCAL 2004

COMPANY Reported EPS Pro Forma EPSOption

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

Page 17: US Semiconductors (Intel, AMD, Applied Materials)

Key Industry Ratios and Key Industry Ratios and StatisticsStatistics

Global Sales Report. Global Sales Report.

Total Semiconductor World Market Sales

-

50,000

100,000

150,000

200,000

250,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

$ in

Mill

ions

US EUR JAPAN ASIA/PAC TOTAL

Page 18: US Semiconductors (Intel, AMD, Applied Materials)

Key Industry Ratios and Key Industry Ratios and StatisticsStatistics

Semiconductor equipment book-to-bill Semiconductor equipment book-to-bill ratio ratio

Semiconductor Equipment Book-to-Bill Ratio

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Jan

-97

May

-97

Sep

-97

Jan

-98

May

-98

Sep

-98

Jan

-99

May

-99

Sep

-99

Jan

-00

May

-00

Sep

-00

Jan

-01

May

-01

Sep

-01

Jan

-02

May

-02

Sep

-02

Jan

-03

May

-03

Sep

-03

Jan

-04

May

-04

Sep

-04

Jan

-05

May

-05

Book-to-Bill Ratio

Page 19: US Semiconductors (Intel, AMD, Applied Materials)

Key Industry Ratios and Key Industry Ratios and StatisticsStatistics

Wafer fabrication plant utilization Wafer fabrication plant utilization ratesrates TOTAL IC's Utilization(%)

60.0

70.0

80.0

90.0

100.0

TOTAL IC's

Page 20: US Semiconductors (Intel, AMD, Applied Materials)

Key Industry Ratios and Key Industry Ratios and StatisticsStatistics

Institute for Supply Management Institute for Supply Management ((ISM) Report on Business ISM) Report on Business

PMI (%)

35

40

45

50

55

60

65

Source: http://www.ism.ws/ISMReport/PMIndex.cfm

Page 21: US Semiconductors (Intel, AMD, Applied Materials)

Key Industry Ratios and Key Industry Ratios and StatisticsStatistics

US index of leading economic US index of leading economic indicators indicators Gross domestic product (GDP)Gross domestic product (GDP) U.S. Consumer Price Index, CPIU.S. Consumer Price Index, CPI U.S. Civilian Unemployment RateU.S. Civilian Unemployment Rate 3 Month U.S. Treasury Securities 3 Month U.S. Treasury Securities

YieldYield

Page 22: US Semiconductors (Intel, AMD, Applied Materials)

INTELINTEL

NASDAQ: INTCNASDAQ: INTC

Page 23: US Semiconductors (Intel, AMD, Applied Materials)

Background AgendaBackground Agenda HistoryHistory Current EventsCurrent Events Company OverviewCompany Overview ManagementManagement Business StructureBusiness Structure OperationsOperations ProductsProducts CustomersCustomers CompetitorsCompetitors Financial AnalysisFinancial Analysis

Page 24: US Semiconductors (Intel, AMD, Applied Materials)

History (1 of 3)History (1 of 3)

19651965 Moore’s Law: “the number of transistors Moore’s Law: “the number of transistors

incorporated in a chip will incorporated in a chip will approximately double every 24 months”approximately double every 24 months”

19681968 Integrated Electronics (Intel) Corp. is Integrated Electronics (Intel) Corp. is

founded by Gordon Moore and Robert founded by Gordon Moore and Robert Noyce.Noyce.

19711971 Intel goes publicIntel goes public

Page 25: US Semiconductors (Intel, AMD, Applied Materials)

History (2 of 3)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

Page 26: US Semiconductors (Intel, AMD, Applied Materials)

History (3 of 3)History (3 of 3)

2004 & 20052004 & 2005 New technology – Not ProcessorsNew technology – Not Processors

CentrinoCentrino

Dual-Core processorsDual-Core processors

64-bit architecture64-bit architecture

Hyper threading:Hyper threading:

Page 27: US Semiconductors (Intel, AMD, Applied Materials)

Current EventsCurrent Events

Intel will make new Apple CPU’s NOT MotorolaIntel will make new Apple CPU’s NOT Motorola Intel court battles with AMD and MicroUnityIntel court battles with AMD and MicroUnity Intel and RIM collaborate on BlackBerry devicesIntel and RIM collaborate on BlackBerry devices Intel will team with Microsoft in support of new Intel will team with Microsoft in support of new

DVD format HD DVD by Toshiba not with Sony’s DVD format HD DVD by Toshiba not with Sony’s Blu-ray DiscBlu-ray Disc

Agreement to Acquire Digital Broadcast Agreement to Acquire Digital Broadcast Technology Assets, Expertise from Zarlink Technology Assets, Expertise from Zarlink Semiconductor – expand digital home segmentSemiconductor – expand digital home segment

Earnings (3Earnings (3rdrd Quarter) announced Oct. 18, 2005 Quarter) announced Oct. 18, 2005

Page 28: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (1 of 4)Company Overview (1 of 4)

MissionMission Do a great job for our customers, Do a great job for our customers,

employees, and stockholders by being employees, and stockholders by being the preeminent building block supplier the preeminent building block supplier to the worldwide digital economyto the worldwide digital economy

Page 29: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (2 of 4)Company Overview (2 of 4)

ValuesValues Customer OrientationCustomer Orientation Results orientationResults orientation Risk takingRisk taking Great Place to workGreat Place to work QualityQuality DisciplineDiscipline

Page 30: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (3 of 4)Company Overview (3 of 4)

ObjectivesObjectives Extend silicon leadership and Extend silicon leadership and

manufacturing capabilitymanufacturing capability Deliver architectural innovation for Deliver architectural innovation for

platformsplatforms Pursue worldwide opportunitiesPursue worldwide opportunities

Page 31: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (4 of 4)Company Overview (4 of 4)

StrategyStrategy Utilize core competencies to develop Utilize core competencies to develop

advanced productsadvanced products Exercise control over value chainExercise control over value chain Utilize “Intel inside” marketing Utilize “Intel inside” marketing

campaigncampaign Expand into faster growing Expand into faster growing

complementary businessescomplementary businesses Invest in companies globally to further Invest in companies globally to further

strategic objectives (Intel Capital strategic objectives (Intel Capital program)program)

Page 32: US Semiconductors (Intel, AMD, Applied Materials)

Management (1 of 2)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

Page 33: US Semiconductors (Intel, AMD, Applied Materials)

Management (2 of 2)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

Page 34: US Semiconductors (Intel, AMD, Applied Materials)

Business Structure (1 of 2)Business Structure (1 of 2)

PastPast1.1. Intel Intel

Architecture Architecture BusinessBusiness

2.2. Intel Intel CommunicatioCommunications Groupns Group

PresentPresent1.1. Mobility GroupMobility Group2.2. Digital Home Digital Home

GroupGroup3.3. Digital Enterprise Digital Enterprise

GroupGroup4.4. Digital Health Digital Health

GroupGroup5.5. Channel Products Channel Products

GroupGroup

Page 35: US Semiconductors (Intel, AMD, Applied Materials)

Business Structure (2 of 2)Business Structure (2 of 2) Mobility Group: Mobility Group:

XScale processors for handheld devices (PDA’s) & XScale processors for handheld devices (PDA’s) & Pentium M (Centrino) for notebooksPentium M (Centrino) for notebooks

Digital Home Group: Digital Home Group: Develop processors for digital entertainment devices in Develop processors for digital entertainment devices in

the living room.the living room. Digital Enterprise Group:Digital Enterprise Group:

Develop processors for all corporate systems (PC’s to Develop processors for all corporate systems (PC’s to datasevers)datasevers)

Digital Health Group:Digital Health Group: New area of focus - Products such as motion-detecting New area of focus - Products such as motion-detecting

sensors that could help sensors that could help senior citizens live more senior citizens live more independently.independently.

Channel Products Group:Channel Products Group: develop specific products for local markets around the develop specific products for local markets around the

world.world.

Page 36: US Semiconductors (Intel, AMD, Applied Materials)

OperationsOperations ManufacturingManufacturing

Leader in semiconductor manufacturing and Leader in semiconductor manufacturing and technologytechnology

Competitive advantage through economies of Competitive advantage through economies of scale,scale,

11 fabrication facilities11 fabrication facilities 6 assembly and test facilities worldwide6 assembly and test facilities worldwide 2003: $3.7 billion on capital investments Switch 2003: $3.7 billion on capital investments Switch

from 200mm wafers to 300mm wafers cuts price from 200mm wafers to 300mm wafers cuts price 30%.30%.

Research and DevelopmentResearch and Development 2005: $ 5.2 billion on R&D. (3.78b so far this 2005: $ 5.2 billion on R&D. (3.78b so far this

year)year) 7,000 researchers and scientists in labs around 7,000 researchers and scientists in labs around

the world.the world.

Page 37: US Semiconductors (Intel, AMD, Applied Materials)

Major ProductsMajor Products

1.1. Microprocessors, chipsets, boards, Microprocessors, chipsets, boards, flash memory, application flash memory, application processors used in handheld processors used in handheld devices, cellular baseband devices, cellular baseband chipsets.chipsets.

2.2. Networking and communications Networking and communications products, optical components and products, optical components and network processing components, network processing components, embedded control chipsembedded control chips

Page 38: US Semiconductors (Intel, AMD, Applied Materials)

Major CustomersMajor Customers

1.1. DistributorsDistributors

2.2. Original Equipment Manufacturers Original Equipment Manufacturers (OEM) of computer systems and (OEM) of computer systems and peripheralsperipherals

3.3. PC users (retail)PC users (retail)

Page 39: US Semiconductors (Intel, AMD, Applied Materials)

Major CompetitorsMajor Competitors AMDAMD ATIATI BroadcomBroadcom IBMIBM NvidiaNvidia QualacomQualacom SamsungSamsung SISSIS SpanshionSpanshion Sun MicrosystemsSun Microsystems TITI TransmetaTransmeta ViaVia

Page 40: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

Page 41: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial AnalysisTicker INTC

Exchange NASDAQ

Price (23/10/2005) $ 23.10

Dividend (Yield) $0.32 (1.4%)

Sector Information Technology

Sub-Industry Semiconductors

Peer GroupSemiconductors – Logic -

Large

S&P Weight (approx) 1.40%

Beta 2.36

Shareholders 230,000

Market Cap $154 billion

S&P Credit Rating A+ (highest)

Page 42: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Page 43: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Page 44: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Sales Revenue

6.75 6.82

7.838.74

9.43 9.239.96

y = 0.5732x + 6.1014

0

2

4

6

8

10

12

2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3

Sal

es (

Mil

lio

ns)

Regression Line Shows Sales Increasing at Regression Line Shows Sales Increasing at $573m$573m

Page 45: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

0

2

4

6

8

10

12

2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Revenue (pink)Revenue (pink) v. v. EPS (blue)EPS (blue)

Page 46: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

INTC over the past 365 DaysINTC over the past 365 Days

Page 47: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

INTC over the past 365 daysINTC over the past 365 days

50day/200day moving averages - Suggesting a 50day/200day moving averages - Suggesting a SellSell

Page 48: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

INTC over the past 365 daysINTC over the past 365 daysvsvs

Semiconductor Industry over the past 365 daysSemiconductor Industry over the past 365 days

Page 49: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

INTC over the past 365 daysINTC over the past 365 daysvsvs

AMD over the past 365 daysAMD over the past 365 days

Page 50: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

2005Quarter

Shares Purchased

(M Shares)

Cum. Shares Purchased (M Shares)

$MillionsCum. $ 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

2004Quarter

Shares Purchased

(M Shares)

Cum. Shares Purchased (M Shares)

$MillionsCum. $ 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$49.9 billion spend on 2.5B shares

constant buyback program ($2.5B constant buyback program ($2.5B each ¼)each ¼)

Page 51: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

  Internal Liquidity INTC

AMD industry S&P 500

Current Ratio 2.9 1.6 2.8 1.5

Quick Ratio 2.3 1 2.2 1

Page 52: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

Operating PerformanceINT

C AMD Industry S&P 500

Operating Efficiency        

Asset turnover 0.8 0.7 0.7 0.3

Inventory turnover 3.8 2.2 3.7 8.1

Page 53: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

Operating PerformanceINT

C 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

Page 54: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial 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

Page 55: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial 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

Page 56: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial 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

Page 57: US Semiconductors (Intel, AMD, Applied Materials)

Value DriversValue Drivers

Consumer spending/optimismConsumer spending/optimism Research and developmentResearch and development Economies of scale – efficient costEconomies of scale – efficient cost

Page 58: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

1. “Functional Factors” Production Leader Marketing Leader

“intel inside” “Pentium M”

R&D Leader Strong Financials

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

3. “Essential Business Characteristics” High barriers to entry E of S Fragmented competition

– ‘Diversified’

4. “Value of the Stock” Moderate price Price Ratios

indicate proper pricing

4 Dimensions of Fisher4 Dimensions of Fisher

Page 59: US Semiconductors (Intel, AMD, Applied Materials)

Financial AnalysisFinancial Analysis

BUYBUY

Page 60: US Semiconductors (Intel, AMD, Applied Materials)

Advanced Micro DevicesAdvanced Micro Devices

Page 61: US Semiconductors (Intel, AMD, Applied Materials)

OverviewOverview HistoryHistory Current EventsCurrent Events Company OverviewCompany Overview ManagementManagement Business Structure Business Structure ProductsProducts CustomersCustomers CompetitorsCompetitors StrategyStrategy Financial Statement AnalysisFinancial Statement Analysis ValuationValuation RecommendationRecommendation

Page 62: US Semiconductors (Intel, AMD, Applied Materials)

IntroductionIntroduction

Advanced Micro Devices, Inc. (AMD): is a Advanced Micro Devices, Inc. (AMD): is a manufacturer of integrated circuits based in manufacturer of integrated circuits based in Sunnyvale, CaliforniaSunnyvale, California

Founded in 1969 and is the second-largest Founded in 1969 and is the second-largest supplier of x86-compatible processors, and a supplier of x86-compatible processors, and a leading supplier of non-volatile flash memoryleading supplier of non-volatile flash memory

It has manufacturing facilities in the U.S., Europe It has manufacturing facilities in the U.S., Europe

and Asia and sales offices throughout the worldand Asia and sales offices throughout the world

Page 63: US Semiconductors (Intel, AMD, Applied Materials)

HistoryHistory

Advanced Micro Devices

May, 1969•The establishment of AMD

•The main goal at the time was to create a successful semiconductor company

September, 1969•Opened first headquarters at

Sunnyvale CA

•Over the next 5 years AMD grew substantially with 1500 employees and making over 200 products

September, 1972•AMD goes public

•NYSE: AMD

Page 64: US Semiconductors (Intel, AMD, Applied Materials)

Current EventsCurrent Events

October 27, 2005October 27, 2005 AMD announced that the digital backbone of AMD announced that the digital backbone of

the new Lucasfilm Animation Singapore digital the new Lucasfilm Animation Singapore digital animation center is powered by AMD64 animation center is powered by AMD64 processor technology - the gold standard for processor technology - the gold standard for 64-bit computing 64-bit computing

October 25, 2005October 25, 2005 Enterprise and Industrial Designers Turn to Enterprise and Industrial Designers Turn to

AMD Geode and AMD Alchemy Solutions for AMD Geode and AMD Alchemy Solutions for Low-Power, High-Performance Processing. Low-Power, High-Performance Processing. AMD AMD embedded solutions provide low power embedded solutions provide low power consumption which gives designers the ability consumption which gives designers the ability to create efficient and versatile devices for a to create efficient and versatile devices for a wide variety of applicationswide variety of applications

Page 65: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (1 of 2)Company Overview (1 of 2)

AMD's Purpose, Vision, Mission, and ValuesAMD's Purpose, Vision, Mission, and Values

PurposePurpose

•To empower people everywhere to lead more productive lives

VisionVision

•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

Page 66: US Semiconductors (Intel, AMD, Applied Materials)

Company Overview (2 of 2)Company Overview (2 of 2)

AMD's Purpose, Vision, Mission, and ValuesAMD's Purpose, Vision, Mission, and Values

MissionMission•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.

ValuesValues•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.

Page 67: US Semiconductors (Intel, AMD, Applied Materials)

Management Team (1 of 2)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 CambouExecutive 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. RivetExecutive Vice President and Chief Financial Officer- Bob Rivet joined AMD in 2000 as senior vice president and chief financial officer

Page 68: US Semiconductors (Intel, AMD, Applied Materials)

Management Team (2 of 2)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 RichardExecutive Vice President, Worldwide Sales and Marketing

-Mr Richard joined AMD in 2002Fred Weber Corporate Vice President and Chief Technical Officer - Mr.Weber joined AMD in 1995

Page 69: US Semiconductors (Intel, AMD, Applied Materials)

Business StructureBusiness Structure

MicroprocessorMicroprocessorA microprocessor is an electronic computer component made from tiny transistors and circuit 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 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.central processing unit (CPU) which is also the most well known microprocessor.

Flash memoryFlash memoryFlash memory is a form of rewritable memory similar to the Random Access Memory (RAM) that allows 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 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 phonesflash drives, MP3 Players, digital cameras and cell phones

definitionsdefinitions::

Page 70: US Semiconductors (Intel, AMD, Applied Materials)

Business StructureBusiness Structure

Microprocessor Market – Computational Microprocessor Market – Computational ProductsProducts Used for control and computing tasks and Used for control and computing tasks and

complementary chipset components, which complementary chipset components, which perform essential logic functions that support perform essential logic functions that support the microprocessorsthe microprocessors

Flash Memory Market – Memory productsFlash Memory Market – Memory products Used to store data and programming Used to store data and programming

instructionsinstructions Embedded Microprocessor MarketEmbedded Microprocessor Market

Personal connectivity devices and specific Personal connectivity devices and specific consumer marketsconsumer markets

Page 71: US Semiconductors (Intel, AMD, Applied Materials)

ProductsProducts 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

Page 72: US Semiconductors (Intel, AMD, Applied Materials)

CustomersCustomers

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 DistributorsAuthorized distributors that resell to sub-distributors and mid sized OEMs and to electronic manufacturing service providers

Page 73: US Semiconductors (Intel, AMD, Applied Materials)

Competitors (1 of 3)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

Page 74: US Semiconductors (Intel, AMD, Applied Materials)

Competitors (2 of 3)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

Page 75: US Semiconductors (Intel, AMD, Applied Materials)

Competitors (3 of 3)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.

Page 76: US Semiconductors (Intel, AMD, Applied Materials)

Operational OverviewOperational 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

Page 77: US Semiconductors (Intel, AMD, Applied Materials)

StrategyStrategy

Leverage the strength of the AMD64 Leverage the strength of the AMD64 technology based processor to technology based processor to increase market shareincrease market share

Expand into the flash memory market Expand into the flash memory market by emphasizing more on the MirrorBit by emphasizing more on the MirrorBit technologytechnology

Innovative creations of new flash Innovative creations of new flash memory and microprocessor memory and microprocessor technologytechnology

Expand into new growing marketsExpand into new growing markets

Page 78: US Semiconductors (Intel, AMD, Applied Materials)

Financial Statement AnalysisFinancial Statement Analysis

Ticker AMD

Exchange NYSE

Price $ 22.32 (23/10/2005)

Dividend (Yield) $0.0 (0.0%)

Sector Technology

Sub-Industry Semiconductors –Broad Line

Peer GroupSemiconductors – Logic -

Large

Shares Outstanding 398.36 million

Market Cap $8.89 billion

Page 79: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

SALES REVENUE

0

4.6443.892

2.6973.519

5.001

0

1

2

3

4

5

6

Year 2000 2001 2002 2003 2004 YEAR

NE

T R

EV

EN

UE

NET SALES BY YEAR

Page 80: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

OPERATING INCOME

-1000

-500

0

500

1000

Year 2000 2001 2002 2003 2004

YEAR

OPERATING INCOME BY YEAR

Page 81: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

STOCK PRICE – 52 Weeks

Page 82: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

STOCK PRICE – 52 Weeks VS SOX

Page 83: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

STOCK PRICE – 60 Weeks (5 year)

Page 84: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

STOCK PRICE – 60 Weeks (5 year) VS SOX

Page 85: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

    Internal LiquidityInternal Liquidity AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

Current RatioCurrent Ratio 1.61.6 2.92.9 2.82.8 1.51.5

Quick RatioQuick Ratio 1.01.0 2.32.3 2.22.2 11

•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

Page 86: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Operating Operating PerformancePerformance AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

Operating EfficiencyOperating Efficiency            

Asset turnoverAsset turnover 0.70.7 0.80.8 0.70.7 0.30.3

Inventory turnoverInventory turnover 2.22.2 3.83.8 3.73.7 8.18.1

•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.

Page 87: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Operating PerformanceOperating Performance AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

Operating ProfitabilityOperating Profitability            

Gross MarginGross Margin 66.566.5 70.770.7 60.960.9 4747

Operating MarginOperating Margin -1.9-1.9 29.729.7 17.917.9 11.611.6

Net Profit MarginNet Profit Margin 0.80.8 21.821.8 13.313.3 7.87.8

              

Return on EquityReturn on Equity 3.033.03 22.222.2 13.713.7 1515

Return on AssetsReturn on Assets 1.161.16 17.917.9 9.69.6 2.62.6

Return on CapitalReturn on Capital 1.961.96 21.921.9 12.412.4 7.27.2

•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

Page 88: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

•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

RiskRisk AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

Debt/Equity RatioDebt/Equity Ratio 0.560.56 0.010.01 0.110.11 1.071.07

Interest Coverage Interest Coverage 11 474.3474.3 47.547.5 3.53.5

Leverage RatioLeverage Ratio 2.72.7 1.21.2 1.41.4 5.85.8

Page 89: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

•AMD does not pay dividends and has a lower EPS. However, Sales for AMD is higher but trails the industry and S&P 500.

Growth (%)Growth (%) AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

SPS (Sales SPS (Sales per Share)per Share) 3.153.15 3.13.1 5.635.63 4.714.71

EPS (Earnings EPS (Earnings per Share)per Share) 0.100.10 1.341.34 -- 6.976.97

Dividends Dividends Payout Payout Ratio (%)Ratio (%) 0.00.0 24.2224.22 15.4215.42 3.873.87

Page 90: US Semiconductors (Intel, AMD, Applied Materials)

Financial OverviewFinancial Overview

Price RatiosPrice Ratios AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500

Price/EarningsPrice/Earnings 221.2221.2 17.317.3 2424 18.818.8

Price/Sales Price/Sales 1.671.67 3.693.69 3.143.14 1.441.44

Price/BVPrice/BV 3.093.09 3.753.75 3.243.24 2.742.74

Price/CFPrice/CF 6.86.8 10.810.8 11.411.4 1212

•AMD has a high P/E ratio compared to Intel because of earnings.

Page 91: US Semiconductors (Intel, AMD, Applied Materials)

Value DriversValue 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

Page 92: US Semiconductors (Intel, AMD, Applied Materials)

Irving Fisher ApproachIrving 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

Page 93: US Semiconductors (Intel, AMD, Applied Materials)

Irving Fisher ApproachIrving Fisher Approach

ESSENTIAL BUSINESS CHARACTERISTICS:High barriers to entry due to R&D

Diversified competitionVALUE OF STOCK

Lower P/CF than INTC & IndustryHigh Price

Page 94: US Semiconductors (Intel, AMD, Applied Materials)

RecommendationRecommendation

PROS:PROS: Has high growth Has high growth

potentialpotential Good R&DGood R&D Good technologyGood technology Positive Trend in Positive Trend in

earningsearnings

CONS:CONS: Follower of IntelFollower of Intel

Highly LeveragedHighly Leveraged No DividendsNo Dividends

Fluctuating Fluctuating EarningsEarnings

HOLDHOLD

Page 95: US Semiconductors (Intel, AMD, Applied Materials)

Applied MaterialsApplied Materials

Page 96: US Semiconductors (Intel, AMD, Applied Materials)

OverviewOverview

HistoryHistory Company OverviewCompany Overview ManagementManagement ProductsProducts Business SegmentsBusiness Segments CustomersCustomers CompetitorsCompetitors StrategyStrategy Financial Statement AnalysisFinancial Statement Analysis ValuationValuation RecommendationRecommendation

Page 97: US Semiconductors (Intel, AMD, Applied Materials)

HistoryHistory

1967 - Applied Materials founded 1967 - Applied Materials founded

1972 – IPO1972 – IPO

1992 - Officially becomes world’s 1992 - Officially becomes world’s largest largest semiconductors semiconductors manufacturermanufacturer

2005 - Declares cash dividend2005 - Declares cash dividend

Page 98: US Semiconductors (Intel, AMD, Applied Materials)

Company OverviewCompany Overview

Largest supplier of manufacturing Largest supplier of manufacturing material to global semiconductors material to global semiconductors industryindustry

Business model based on Business model based on Semiconductor Capital Equipment, Semiconductor Capital Equipment, primarily focusing on:primarily focusing on:

Wafer fabrication systemsWafer fabrication systems Related servicesRelated services

Page 99: US Semiconductors (Intel, AMD, Applied Materials)

Company OverviewCompany Overview

MissionMission ““Applied Materials' mission is to be the Applied Materials' mission is to be the

leading supplier of semiconductor leading supplier of semiconductor fabrication solutions worldwide—through fabrication solutions worldwide—through innovation and enhancement of customer innovation and enhancement of customer productivity with systems and service productivity with systems and service solutions.”solutions.”

Goal: “Goal: “OurOur customers' business customers' business results come first!”results come first!”

Page 100: US Semiconductors (Intel, AMD, Applied Materials)

ManagementManagement

James MorganJames Morgan ChairmanChairman Joined in 1976Joined in 1976 CEO from 1977 to 2003, Chairman since CEO from 1977 to 2003, Chairman since

19871987 Prior experience in Venture Capital and Prior experience in Venture Capital and

Manufacturing environmentsManufacturing environments

Mike SplinterMike Splinter President and CEOPresident and CEO Joined in 2003Joined in 2003 Over 30 years experience in semi’s Over 30 years experience in semi’s

industry and nearly 20 years with Intelindustry and nearly 20 years with Intel

Page 101: US Semiconductors (Intel, AMD, Applied Materials)

ProductsProducts

Manufactures systems that perform Manufactures systems that perform most of the primary steps in the most of the primary steps in the chip fabrication processchip fabrication process

Semiconductor Capital Equipment Semiconductor Capital Equipment with 4 platforms:with 4 platforms:

the Centura®the Centura® the Endura®the Endura® the Producer®the Producer® the Vantage®the Vantage®

Page 102: US Semiconductors (Intel, AMD, Applied Materials)

Business ProcessesBusiness Processes

Deposition: layer of dielectric or Deposition: layer of dielectric or electrically conductive film is electrically conductive film is deposited, or grown, on a waferdeposited, or grown, on a wafer

EtchEtch Ion ImplantationIon Implantation RTP: Rapid thermal processing RTP: Rapid thermal processing Wager metrology and inspectionWager metrology and inspection

Page 103: US Semiconductors (Intel, AMD, Applied Materials)

Business SegmentsBusiness Segments

Through subsidiary AKT, Inc.:Through subsidiary AKT, Inc.: Manufactures CVD systems and Manufactures CVD systems and

array testers for making flat panel array testers for making flat panel displays (FPDs)displays (FPDs)

FPD products used in notebook FPD products used in notebook computers, desktop computer computers, desktop computer monitors, Televisions, and other monitors, Televisions, and other monitors.monitors.

Page 104: US Semiconductors (Intel, AMD, Applied Materials)

CompetitorsCompetitors

Major Competitors:Major Competitors: KLACKLAC KLA-Tencor KLA-Tencor

Operates in Process Control and Yield Operates in Process Control and Yield Management industiesManagement industies

LRCXLRCX Lam Research Lam Research Design and manufacture semiconductor Design and manufacture semiconductor

processing equipment.processing equipment. NVLSNVLS Novellus Systems Novellus Systems

Develop, manufacture, market and support Develop, manufacture, market and support systems used in the fabrication of integrated systems used in the fabrication of integrated circuitscircuits

Many small manufacturers compete with Many small manufacturers compete with various business lines as wellvarious business lines as well

Page 105: US Semiconductors (Intel, AMD, Applied Materials)

CompetitorsCompetitors

Semiconducter Sales

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

2003 2004 2005

AMAT

KLAC

LRCX

Novellus

Page 106: US Semiconductors (Intel, AMD, Applied Materials)

CompetitorsCompetitors

Semiconductor Earnings

$(300,000)

$(100,000)

$100,000

$300,000

$500,000

$700,000

$900,000

$1,100,000

$1,300,000

$1,500,000

2003 2004 2005

AMAT

KLAC

LRCX

NVLS

Page 107: US Semiconductors (Intel, AMD, Applied Materials)

CustomersCustomers

Major Customers:Major Customers: Intel Intel

Represent nearly 10% of total salesRepresent nearly 10% of total sales Samsung ElectronicsSamsung Electronics

Represent nearly 10% of total salesRepresent nearly 10% of total sales AMDAMD MotorolaMotorola

Page 108: US Semiconductors (Intel, AMD, Applied Materials)

StrategyStrategy

Aiming to: Aiming to: Increasing market share in existing marketsIncreasing market share in existing markets Expand into related marketsExpand into related markets Cultivate new markets and business models Cultivate new markets and business models

Expand sales to new Expand sales to new regions regions and create and create similarly sized similarly sized global marketsglobal markets

Orders By GeographyQ3, FY2005

Page 109: US Semiconductors (Intel, AMD, Applied Materials)

Financial Statement Financial Statement AnalysisAnalysis

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

As a % of Sales

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%

Page 110: US Semiconductors (Intel, AMD, Applied Materials)

Financial Statement Financial Statement AnalysisAnalysis

’05 – Q3

‘05 – Q2

‘05 – Q1

‘04 – Q4

‘04 – Q3

‘04 – Q2

‘04 – Q1

Sales 1,631,938

1,861,189

1,780,576

2,203,348

2,236,152

2,018,105

1,555,448

Gross Margin

717,089 818,430 790,225 1,027,203

1,059,232

938,641 676,169

Net Income

As a % of Sales

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%

Page 111: US Semiconductors (Intel, AMD, Applied Materials)

Management PerformanceManagement 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

1,351,3

03

(149,14

7)

269,00

4

Assets

12,093,

445

10,311,

622

10,311,

622

Book Equity

9,262,0

27

8,068,0

34

8,068,0

34

Total Capital

9,672,4

63  

8,524,4

56  

8,524,4

56

Page 112: US Semiconductors (Intel, AMD, Applied Materials)

Stock Based CompensationStock Based Compensation

Fiscal Year       2002 2003 2004

Reported net income/(loss) $269,004 ($149,147

)$1,351,30

3

Stock based compensation expense, net of tax

($316,699)

($389,100) ($345,897)

Pro forma net income/(loss) ($47,695)($538,247

)$1,005,40

6

Earnings/(loss) per share as reported:

Basic $0.16 ($0.09) $0.80

Diluted $0.16 ($0.09) $0.78

Pro forma earnings/(loss) per share:

Basic ($0.03) ($0.32) $0.60

Diluted ($0.03) ($0.32) $0.58

Page 113: US Semiconductors (Intel, AMD, Applied Materials)

Stock PerformanceStock Performance

AMAT Stock Performance from Oct. 28, 2004 to Oct. 28, 2005

Page 114: US Semiconductors (Intel, AMD, Applied Materials)

Stock PerformanceStock Performance

AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2004 to Oct. 28, 2005

Page 115: US Semiconductors (Intel, AMD, Applied Materials)

Stock PerformanceStock Performance

AMAT Stock Performance from Oct. 28, 2000 to Oct. 28, 2005

Page 116: US Semiconductors (Intel, AMD, Applied Materials)

Stock PerformanceStock Performance

AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2000 to Oct. 28, 2005

Page 117: US Semiconductors (Intel, AMD, Applied Materials)

ValuationValuationMarket Cap: 26.5BEnterprise Value: 20.8B

Trailing P/E (ttm): 19.34Forward P/E (fye): 19.95

Price/Sales (ttm): 3.55Price/Book: 2.94Price/FCF: 19.12

Enterprise Value/Revenue (ttm): 2.78Enterprise Value/EBITDA (ttm): 10.52

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

EPS (trailing) $0.846EPS (forward consensus) $0.820

Dividends Per Share $0.12Dividend Yield 0.73%

Net Cash Per Share $1.13Sales Per Share $4.50Book Value Per Share $5.56Free Cash Flow Per Share $0.86

Page 118: US Semiconductors (Intel, AMD, Applied Materials)

Value DriversValue Drivers

Strong industry position in existing Strong industry position in existing marketsmarkets

Largest global supplier of semiconductor Largest global supplier of semiconductor manufacturing equipmentmanufacturing equipment

Innovative technologiesInnovative technologies New wafer sizing and use of nanotechnologiesNew wafer sizing and use of nanotechnologies

Consistent dedication R&D SpendingConsistent dedication R&D Spending Nearly $1B in fiscal 2004 (over 13% of revenue)Nearly $1B in fiscal 2004 (over 13% of revenue)

Page 119: US Semiconductors (Intel, AMD, Applied Materials)

Fisher ApproachFisher Approach

1.1. Functional Factors:Functional Factors: Global leader in semiconductor manufacturing Global leader in semiconductor manufacturing

equipment productionequipment production Strong customer base with weak competitionStrong customer base with weak competition

2.2. People Factors:People Factors: Experienced managersExperienced managers Generous with management compensation (stock Generous with management compensation (stock

options)options)

3.3. Essential Business Characteristics:Essential Business Characteristics: Strong competitive positionStrong competitive position High growth industry with many applicationsHigh growth industry with many applications

4.4. Value of the Stock:Value of the Stock: Mid-point of 52 week rangeMid-point of 52 week range High levels of growth priced into stockHigh levels of growth priced into stock

Page 120: US Semiconductors (Intel, AMD, Applied Materials)

RecommendationRecommendation

PROSPROS Industry Industry

leaderleader

Commitment Commitment to R&D to R&D SpendingSpending

CONSCONS Poor growthPoor growth Pending Lawsuit Pending Lawsuit

with major with major competitorcompetitor

High stock High stock option expensingoption expensing

Too Expensive!Too Expensive!

SELLSELL