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US Semiconductor Industry

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Title: US Semiconductor Industry


1
US Semiconductor Industry
Vincent Gee - Andy Kong - Mark Wong
2
Agenda
  • Technology overview
  • Industry Overview
  • Industry information
  • Industry trends and outlook
  • Company Analysis
  • Intel (INTC)
  • Advanced Micro Devices (AMD)
  • Applied materials (AMAT)

3
Technology Overview
4
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.

5
How is a Semiconductor Made?
6
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

7
What are Semiconductors Used For?
  • Worldwide semiconductor product breakdown

8
Industry Overview
9
Industry Characteristics
  • Short life cycles
  • Continuous innovation
  • Moores law
  • The number of
  • transistors in an
  • integrated
  • circuit doubles
  • every 18 months

10
Growth of Computation Power
11
Industry Characteristics
  • High Research and Development Costs
  • RD is vital to maintaining competitive advantage
  • RD enables firms to release competitive products

12
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.

13
Industry Characteristics
  • Where are Semiconductors Used?

14
Annual Sales
15
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.

16
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.

17
Industry Leaders
Ticker Name Market Capitalization TTM Sales Employees
MktCap Weighted Average 48,966.738 13,061.236 33276
INTC Intel Corporation 145,774.063 34,209.000 85000
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 STMicroelectronics N.V. (ADR) 15,438.713 8,760.000 45700
AMD Advanced Micro Devices, Inc. 6,349.500 5,001.435 15900
18
Industry Stock Performance
  • Chart Weekly semiconductors vs SP500

19
Industry Outlook
  • Opportunities
  • Expansion into Asia
  • Multi-core processors
  • Network products (wired and wireless)
  • Mobile products
  • Laptops
  • Personal Digital Assistants (PDAs)
  • Cellphones

20
Industry Outlook
  • Increasing Foreign Consumption (sales)

21
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

22
Estimated Future Growth
23
Company Analysis
24
Intel Corporation
Presented by Mark Wong
25
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
26
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.

27
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

28
Recent Developments
  • January 2005 Intel Corporation Announces New
    Centrino Mobile Technology
  • January 2005 Intel Corporation Restructures Into
    Five Units

29
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

30
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

31
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.

32
Business Segments and Products
  • Primary lines of busines
  • Intel Architecture Business
  • Intel Communications Group

33
Business Segments and Products
  • Intel Architecture Business
  • Microprocessors
  • Desktop Platform Pentium 4
  • Mobile Platform Pentium M
  • Enterprise Platform Xeon
  • Chipsets
  • Intel chipsets are compatible with variety of
    industry-accepted specifications
  • Motherboard products

34
Business Segments and Products
  • Intel Communications Group
  • Flash memory
  • Wired and wireless connectivity products
  • Processors for handheld computing devices
  • Cellular baseband chipsets

35
Major Customers
  • Distributors
  • Original Equipment Manufacturers of computer
    systems
  • Retail

36
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)

37
Competitors
  • Intel Communications Group
  • Samsung, TI (Application processors)
  • Spanshion (falsh memory)
  • Qualacom (Cellular baseband chips)

38
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

39
Financial Overview
40
Financial Overview
41
Financial Statement Analysis
42
Fundamental Information
2004 2003 2002 2001 2000
C. Shares
Employees
Insurance of Stock
C. on Hand
New Orders
Revenue
R D
Net Profit
43
Segment Performance
44
Options
45
Options
46
Fundamental Information
RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON
Valuation Ratios Company Industry Sector SP 500
Current Price 23.64
Shares Outstanding 6.323b
Market Capitalization 148.7b
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
47
Management Effectiveness
Management Effectiveness () Company Industry Sector SP 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
48
Stock Buyback
2004 Quarter Shares Purchased (M Shares) Cum. Shares Purchased (M Shares) Millions Cum. Millions
Q4 89.0 2,186.5 2,000.0 41,785.7
Q3 106.3 2,097.5 2,500.0 39,785.7
Q2 56.0 1,991.2 1,511.0 37,285.7
Q1 49.2 1,935.2 1,505.0 35,774.7
2003 Quarter Shares Purchased (M Shares) Cum. 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
49
Price History 52 Weeks
50
Price History vs. SOX 52 Weeks
51
Price History 10 Years
52
Price History vs. SOX 10 Years
53
Value Drivers
  • Market leading research and development
  • Financial strength
  • High brand recognition
  • Economies of scale

54
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

55
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

56
Recommendation
  • Positive
  • Competent and proven management
  • Strong financial performance
  • High profit margins
  • Future growth prospects
  • Negative
  • Size of company limits overall growth

BUY!!
57
Advanced Micro Devices
Presented by Vincent Gee
58
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

59
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.

60
Company Overview
  • March 2005 AMD Supports Fair Trade Commission Of
    Japans (JFTC) Decision To Stop Illegal Business
    Practices By Intel
  • March 2005 AMD Opens New Test, Mark And Pack
    Manufacturing Facility In Suzhou, China

61
Company Overview
  • June 2004 AMD Strengthens Mobile Computing RD
    with New Engineering Lab in Tokyo
  • August 2004 AMD Demonstrates Worlds First X86
    Dual-Core Processor

62
Company Overview
  • October 2004 Spansion Expands System Engineering
    Capabilities at Design Centers Around the Globe
  • December 2004 AMD, IBM Announce Semiconductor
    Manufacturing Technology Breakthrough

63
Executives
Date joined
Hector de J. Ruiz, Ph.D.Chairman of the Board, President and Chief Executive Officer 2000
Dr. Bertrand CambouExecutive 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
64
Executives
Date joined
Patrick MoorheadVice President, Global Marketing, Microprocessor Business Unit, Computation Products Group 2000
Iain MorrisSenior Vice President, Personal Connectivity Solutions Group 2004
Henri RichardExecutive Vice President, Worldwide Sales and Marketing 2002
Robert J. RivetExecutive Vice President and Chief Financial Officer 2000
Marty SeyerCorporate Vice President and General Manager, Microprocessor Business Unit, Computation Products Group 2002
Fred Weber Corporate Vice President and Chief Technical Officer 1995
65
Business Segment and Products
  • Computation products
  • Memory products
  • Personal connectivity solution products

66
Computation products
  • Processors
  • Desktop Sempron, Athlon, Athlon 64
  • Server Opterron Athlon
  • Mobile Turion, Sempron Athlon
  • Workstation Opteron Athlon

67
Memory products
  • From Spansion
  • Flash Memory
  • MirrorBit
  • Floating gate

68
Personal connectivity solution products
  • E86 Embedded Processors
  • AMD Geode Solutions
  • AMD Alchemy Solutions
  • Wired Ethernet

69
Customers
  • Distributors
  • Original Equipment Manufacturers of computer
    systems
  • Resellers
  • Retail

70
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

71
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

72
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

73
Financial Overview
74
Financial Overview
75
Financial Over view
76
Computation products
77
Memory products
78
Financial Overview
  • Segment breakdown

79
Financial Statement Analysis
80
Research and Development
81
Stock Options
82
Stock Options
83
Fundamental Information
RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON
Valuation Ratios Company Industry Sector SP 500
Current Price 16.08
Shares Outstanding 393.89m
Market Capitalization 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
84
Management Effectiveness
Management Effectiveness () Company Industry Sector SP 500
Return On Assets (TTM) 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
Return On Investment - 5 Yr. Avg. -2.39 8.06 9.97 10.50

Return On Equity (TTM) 3.51 15.57 17.73 19.89
Return On Equity - 5 Yr. Avg. -2.77 9.02 13.72 18.69

85
Price History 52 weeks
86
Price History vs. SOX 52 weeks
87
Price History 10 year
88
Price History vs. Sox 10 year
89
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

90
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

91
Recommendation
  • Negative
  • Competes with Intel
  • Inconsistent earnings
  • No Dividends
  • Lots of debt
  • Positive
  • Relatively small and has room for growth
  • Good products (AMD 64)
  • Positive earning for 2004

HOLD!!
92
Applied Materials
Presented by Andy Kong
93
Company Overview
  • History
  • 1967, Applied Material was founded by Michael A.
    McNeilly and others
  • 1972, first public stock offering
  • 1992, became the worlds leading semiconductor
    equipment manufacture
  • From 1971, AMAT has opened office worldwide
    Europe, China (Beijing, Shanghai), Korea, Taiwan,
    Singapore

94
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

95
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

96
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

97
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

98
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

99
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)

100
Business Segments
  • Photolithography
  • A process where a mask, the pattern of chips
    circuitry, is placed in a precise location across
    the wafer
  • Etch
  • Ion Implantation
  • Rapid Thermal Processing (RTP)
  • Interconnects

101
Business Segments
  • Metrology Inspection
  • Defect Inspection
  • Defect Review Scanning Electron Microscopy
    (DR-SEM)
  • Critical Dimension Measurement Scanning Electron
    Microscopy (CDM-SEM)

102
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

103
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!

104
Financial
105
Financial Statement Analysis
106
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
107
Options
108
Options
109
Options
110
Management Effectiveness
Management Effectiveness () Company Industry Sector SP 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
111
Fundamental Information
RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON
Valuation Ratios Company Industry Sector SP 500
Current Price 15.99
Shares Outstanding 1667.82M
Market Capitalization 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
112
Price History 52 weeks
113
Price History vs. SOX 52 weeks
114
Price History 10 years
115
Price History vs SOX 10 years
116
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 RD

117
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

118
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

119
Recommendation
  • Positive
  • Positive
  • Under priced
  • Above industry PM and ROE
  • Industry leader and technology leader
  • Old faces in a long-lasting company
  • Negative
  • Another Adobe case
  • Limited growth due to its size

BUY!!
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