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U.S. Semiconductor

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Title: U.S. Semiconductor


1
U.S. Semiconductor
INTEL, AMD, AMAT
  • Jonathan Chao, Jesse Galpin, Kevin Sandhu, June
    Jiang

2
Semiconductor Industry
  • Industry Background
  • Industry Profile
  • Industry Trend
  • Current Environment
  • Key Industry Ratios and Statistics

3
Industry Background
  • From the early 1900s to the 1950s vacuum tubes
  • Invention of the transistor in 1948
  • In 1958, integrated circuit (IC)
  • In 1971, Intel Corp. Intel 4004 microprocessor,
    which ran at 108 kilohertz and served as a
    component in a calculator

4
Industry Background
  • Ongoing technological advancement
  • Rising performance, falling prices
  • Moores Law describes pace of innovation
  • Inherent cyclicality
  • Huge capital investments
  • Marketing chips going for the design win
  • Targeting the end user

5
Types of Chips
  • Bipolar technology versus metal oxide technology
  • Discrete semiconductors
  • Analog semiconductors
  • Digital semiconductors
  • Microprocessors
  • Memory chips
  • Logic devices
  • Microperipherals
  • Microcontrollers
  • Standard cell logic
  • Optoelectronics.
  • Digital signal processors (DSPs)

6
Types of Chips
7
How Chips Are Made
  • Semiconductors are produced through a highly
    advanced and complex manufacturing process.
  • The two basic stages in chip production are the
    front end and the back end.
  • The front end involves materials preparation
    (circuit design, photomask making, and
    manufacture of raw wafers) and wafer processing
    (repeated cycles of deposition, etch, doping,
    planarization, and in-process testing).
  • The back end consists of packaging and final test
    operations.
  • http//www.intel.com/education/makingchips/index.h
    tm

8
Industry Profile
Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) Total Semiconductor World Market Sales Shares (in Millions/) 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
9
Industry Profile
Source IC Insights.
LARGEST SEMICONDUCTOR COMPANIES LARGEST SEMICONDUCTOR COMPANIES LARGEST SEMICONDUCTOR COMPANIES LARGEST SEMICONDUCTOR COMPANIES
(Ranked by 2004 revenues, billions of dollars) (Ranked by 2004 revenues, billions of dollars) (Ranked by 2004 revenues, billions of dollars) (Ranked by 2004 revenues, billions of dollars)
COMPANY (COUNTRY) REVENUES REVENUES CHG.
COMPANY (COUNTRY) 2003 2004 200304
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

10
Industry Profile
LEADING SEMICONDUCTOR EQUIPMENT MANUFACTURERS LEADING SEMICONDUCTOR EQUIPMENT MANUFACTURERS LEADING 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  
11
Industry Trend
  • Semiconductors drive economic productivity
  • Lower trend line growth (next slide)
  • Evolving corporate strategies
  • High-end microprocessors drive the market
  • DRAM market especially prone to boom-and-bust
    cycles
  • Automotive chips receive renewed focus
  • Outsourcing continues to grow

12
Industry Trend
13
Current Environment
14
Current Environment
Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in ) Total Semiconductor World Market Sales (in )
Year Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
US US 32.9 32.5 32.3 33.4 32.7 31.8 31.3 25.7 22.2 19.4 18.3
EUR EUR 19.4 19.5 20.9 21.2 23.2 21.3 20.7 21.7 19.7 19.4 18.5
JAPAN 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 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 TOTAL 100 100 100 100 100 100 100 100 100 100 100
                           
Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in Total Semiconductor World Market Shares in
SHARES SHARES SHARES 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
MKT BASE BASE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
TOTAL US US 43.4 40.9 46.2 51.6 53.4 51.4 49.9 51.2 50.1 48.3 46.7
  JPN JPN 40.1 38.9 36.0 28.6 26.4 28.5 28.3 28.1 26.0 27.4 25.6
  OTH OTH 16.5 20.2 17.8 19.8 20.2 20.1 21.2 20.7 23.9 24.3 26.8
15
Current Environment
  • Consumer products drive chip demand

16
Current Environment
  • FASB accounting rule change to phase in

STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES FISCAL 2004 STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES FISCAL 2004 STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES FISCAL 2004 STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES FISCAL 2004 STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES FISCAL 2004
COMPANY Reported EPS Pro Forma EPS Option 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
17
Key Industry Ratios and Statistics
  • Global Sales Report.

18
Key Industry Ratios and Statistics
  • Semiconductor equipment book-to-bill ratio

19
Key Industry Ratios and Statistics
  • Wafer fabrication plant utilization rates

20
Key Industry Ratios and Statistics
  • Institute for Supply Management (ISM) Report on
    Business

Source http//www.ism.ws/ISMReport/PMIndex.cfm
21
Key Industry Ratios and Statistics
  • US index of leading economic indicators
  • Gross domestic product (GDP)
  • U.S. Consumer Price Index, CPI
  • U.S. Civilian Unemployment Rate
  • 3 Month U.S. Treasury Securities Yield

22
INTEL
  • NASDAQ INTC

23
Background Agenda
  • History
  • Current Events
  • Company Overview
  • Management
  • Business Structure
  • Operations
  • Products
  • Customers
  • Competitors
  • Financial Analysis

24
History (1 of 3)
  • 1965
  • Moores Law the number of transistors
    incorporated in a chip will approximately double
    every 24 months
  • 1968
  • Integrated Electronics (Intel) Corp. is founded
    by Gordon Moore and Robert Noyce.
  • 1971
  • Intel goes public

25
History (2 of 3)
Processor Timeline Processor Timeline Processor Timeline Processor Timeline Processor Timeline 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
History (3 of 3)
  • 2004 2005
  • New technology Not Processors
  • Centrino
  • Dual-Core processors
  • 64-bit architecture
  • Hyper threading

27
Current Events
  • Intel will make new Apple CPUs NOT Motorola
  • Intel court battles with AMD and MicroUnity
  • Intel and RIM collaborate on BlackBerry devices
  • Intel will team with Microsoft in support of new
    DVD format HD DVD by Toshiba not with Sonys
    Blu-ray Disc
  • Agreement to Acquire Digital Broadcast Technology
    Assets, Expertise from Zarlink Semiconductor
    expand digital home segment
  • Earnings (3rd Quarter) announced Oct. 18, 2005

28
Company Overview (1 of 4)
  • Mission
  • Do a great job for our customers, employees, and
    stockholders by being the preeminent building
    block supplier to the worldwide digital economy

29
Company Overview (2 of 4)
  • Values
  • Customer Orientation
  • Results orientation
  • Risk taking
  • Great Place to work
  • Quality
  • Discipline

30
Company Overview (3 of 4)
  • Objectives
  • Extend silicon leadership and manufacturing
    capability
  • Deliver architectural innovation for platforms
  • Pursue worldwide opportunities

31
Company Overview (4 of 4)
  • 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)

32
Management (1 of 2)
  • Joined Intel as Technology Development manager in
    1974
  • Elected to BoD in 1992
  • Served as COO 1993-1997
  • Intels 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

33
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

34
Business Structure (1 of 2)
  • Past
  • Intel Architecture Business
  • Intel Communications Group
  • Present
  • Mobility Group
  • Digital Home Group
  • Digital Enterprise Group
  • Digital Health Group
  • Channel Products Group

35
Business Structure (2 of 2)
  • Mobility Group
  • XScale processors for handheld devices (PDAs)
    Pentium M (Centrino) for notebooks
  • Digital Home Group
  • Develop processors for digital entertainment
    devices in the living room.
  • Digital Enterprise Group
  • Develop processors for all corporate systems
    (PCs to datasevers)
  • Digital Health Group
  • New area of focus - Products such as
    motion-detecting sensors that could help senior
    citizens live more independently.
  • Channel Products Group
  • develop specific products for local markets
    around the world.

36
Operations
  • Manufacturing
  • Leader in semiconductor manufacturing and
    technology
  • Competitive advantage through economies of scale,
  • 11 fabrication facilities
  • 6 assembly and test facilities worldwide
  • 2003 3.7 billion on capital investments Switch
    from 200mm wafers to 300mm wafers cuts price 30.
  • Research and Development
  • 2005 5.2 billion on RD. (3.78b so far this
    year)
  • 7,000 researchers and scientists in labs around
    the world.

37
Major Products
  1. Microprocessors, chipsets, boards, flash memory,
    application processors used in handheld devices,
    cellular baseband chipsets.
  2. Networking and communications products, optical
    components and network processing components,
    embedded control chips

38
Major Customers
  1. Distributors
  2. Original Equipment Manufacturers (OEM) of
    computer systems and peripherals
  3. PC users (retail)

39
Major Competitors
  • AMD
  • ATI
  • Broadcom
  • IBM
  • Nvidia
  • Qualacom
  • Samsung
  • SIS
  • Spanshion
  • Sun Microsystems
  • TI
  • Transmeta
  • Via

40
Financial Analysis
41
Financial Analysis
Ticker INTC
Exchange NASDAQ
Price (23/10/2005) 23.10
Dividend (Yield) 0.32 (1.4)
Sector Information Technology
Sub-Industry Semiconductors
Peer Group Semiconductors Logic - Large
SP Weight (approx) 1.40
Beta 2.36
Shareholders 230,000
Market Cap 154 billion
SP Credit Rating A (highest)
42
Financial Overview

43
Financial Overview
44
Financial Overview
  • Regression Line Shows Sales Increasing at 573m

45
Financial Overview
  • Revenue (pink) v. EPS (blue)

46
Financial Overview
  • INTC over the past 365 Days

47
Financial Overview
  • INTC over the past 365 days
  • 50day/200day moving averages - Suggesting a Sell

48
Financial Overview
  • INTC over the past 365 days vs
  • Semiconductor Industry over the past 365 days

49
Financial Overview
  • INTC over the past 365 days vs
  • AMD over the past 365 days

50
Financial Overview
2005 Quarter Shares Purchased (M Shares) Cum. Shares Purchased (M Shares) Millions Cum. 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
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
  • 49.9 billion spend on 2.5B shares
  • constant buyback program (2.5B each ¼)

51
Financial Analysis
  Internal Liquidity INTC AMD industry SP 500
Current Ratio 2.9 1.6 2.8 1.5
Quick Ratio 2.3 1 2.2 1
52
Financial Analysis
Operating Performance INTC AMD Industry SP 500
Operating Efficiency        
Asset turnover 0.8 0.7 0.7 0.3
Inventory turnover 3.8 2.2 3.7 8.1
53
Financial Analysis
Operating Performance INTC AMD Industry SP 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
54
Financial Analysis
Risk INTC AMD Industry SP 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
55
Financial Analysis
Growth () INTC AMD Industry SP 500
Sales 3.1 3.15 5.63 4.71
EPS 9.84 - - 6.97
Dividends 24.22 - 15.42 3.87
56
Financial Analysis
Price Ratios INTC AMD Industry SP 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
57
Value Drivers
  • Consumer spending/optimism
  • Research and development
  • Economies of scale efficient cost

58
Financial Analysis
  • 4 Dimensions of Fisher
  • 2. People Factors
  • Voted best place to work
  • Top Executives at Intel for minimum 20 years
  • Lost Andrew Grove, founder and former Chairman
  • Otellinis new structure not just cosmetic
  • 1. Functional Factors
  • Production Leader
  • Marketing Leader
  • intel inside
  • Pentium M
  • RD Leader
  • Strong Financials
  • 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

59
Financial Analysis
  • BUY

60
  • Advanced Micro Devices

61
Overview
  • History
  • Current Events
  • Company Overview
  • Management
  • Business Structure
  • Products
  • Customers
  • Competitors
  • Strategy
  • Financial Statement Analysis
  • Valuation
  • Recommendation

62
Introduction
  • Advanced Micro Devices, Inc. (AMD) is a
    manufacturer of integrated circuits based in
    Sunnyvale, California
  • Founded in 1969 and is the second-largest
    supplier of x86-compatible processors, and a
    leading supplier of non-volatile flash memory
  • It has manufacturing facilities in the U.S.,
    Europe and Asia and sales offices throughout the
    world

63
History
September, 1969
  • Opened first headquarters at Sunnyvale CA
  • Over the next 5 years AMD grew substantially with
    1500 employees and making over 200 products

Advanced Micro Devices
May, 1969
September, 1972
  • The establishment of AMD
  • The main goal at the time was to create a
    successful semiconductor company
  • AMD goes public
  • NYSE AMD

64
Current Events
  • October 27, 2005
  • AMD announced that the digital backbone of the
    new Lucasfilm Animation Singapore digital
    animation center is powered by AMD64 processor
    technology - the gold standard for 64-bit
    computing
  • October 25, 2005
  • Enterprise and Industrial Designers Turn to AMD
    Geode and AMD Alchemy Solutions for Low-Power,
    High-Performance Processing. AMD embedded
    solutions provide low power consumption which
    gives designers the ability to create efficient
    and versatile devices for a wide variety of
    applications

65
Company Overview (1 of 2)
  • AMD's Purpose, Vision, Mission, and Values

Purpose
  • To empower people everywhere to lead more
    productive lives

Vision
  • 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

66
Company Overview (2 of 2)
  • AMD's Purpose, Vision, Mission, and Values

Mission
  • 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.

Values
  • 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.

67
Management Team (1 of 2)
Hector de J. Ruiz, Ph.D. Chairman of the Board,
President and Chief Executive Officer - Dr. Ruiz
joined AMD in January 2000 was named CEO in April
2002.
Dr. Bertrand Cambou Executive Vice President and
President and CEO, Spansion - Dr. Cambou joined
AMD in January 2002
William T. Edwards, Ph.D. Senior Vice President
and Chief Innovation Officer - Dr. Edwards is
responsible for creating the Office of Strategy
and Technology (OST)
Robert J. Rivet Executive Vice President and
Chief Financial Officer - Bob Rivet joined AMD in
2000 as senior vice president and chief financial
officer
68
Management Team (2 of 2)
Dirk Meyer Executive Vice President, Computation
Products Group - Mr.Meyer joined AMD in 1996 as
the director of engineering for the AMD-K7
microprocessor development program
Thomas M. McCoy Executive Vice President and
Chief Administrative Officer - Mr.McCoy joined
AMD in 1995
Henri Richard Executive Vice President, Worldwide
Sales and Marketing -Mr Richard joined AMD in 2002
Fred Weber Corporate Vice President and Chief
Technical Officer - Mr.Weber joined AMD in 1995
69
Business Structure
definitions
  • Microprocessor
  • A microprocessor is an electronic computer
    component made from tiny transistors and circuit
    elements on a single semiconductor integrated
    circuit (IC). The semiconductor chip is
    controlled by the central processing unit (CPU)
    which is also the most well known microprocessor.
  • Flash memory
  • Flash memory is a form of rewritable memory
    similar to the Random Access Memory (RAM) that
    allows the storage of information without the
    need for a power supply. Examples of Flash
    memory are USB flash drives, MP3 Players, digital
    cameras and cell phones

70
Business Structure
  • Microprocessor Market Computational Products
  • Used for control and computing tasks and
    complementary chipset components, which perform
    essential logic functions that support the
    microprocessors
  • Flash Memory Market Memory products
  • Used to store data and programming instructions
  • Embedded Microprocessor Market
  • Personal connectivity devices and specific
    consumer markets

71
Products
  • 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

72
Customers
Main customers include
1) Original Equipment Manufacturers
(OEM) (Multinationals, Regional Accounts and
Target Market Customers) gtMicroprocessors
Foreign and domestic manufacturers of PCs
and Motherboards. gt Flash Memory Foreign
and domestic manufacturers of mobile phones,
consumer and automotive electronics and
networking equipments 2) Third Party
Distributors Authorized distributors that resell
to sub-distributors and mid sized OEMs and to
electronic manufacturing service providers
73
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 RD
    thus will continue to be an ongoing threat to AMD
    both now and in the future

74
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

75
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.

76
Operational 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
  • RD for 2002, 2003 and 2004 816M, 852M and
    935M

77
Strategy
  • Leverage the strength of the AMD64 technology
    based processor to increase market share
  • Expand into the flash memory market by
    emphasizing more on the MirrorBit technology
  • Innovative creations of new flash memory and
    microprocessor technology
  • Expand into new growing markets

78
Financial 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 Group Semiconductors Logic - Large
Shares Outstanding 398.36 million
Market Cap 8.89 billion


79
Financial Overview
NET SALES BY YEAR
80
Financial Overview
OPERATING INCOME BY YEAR
81
Financial Overview
STOCK PRICE 52 Weeks
82
Financial Overview
STOCK PRICE 52 Weeks VS SOX
83
Financial Overview
STOCK PRICE 60 Weeks (5 year)
84
Financial Overview
STOCK PRICE 60 Weeks (5 year) VS SOX
85
Financial Overview
  Internal Liquidity AMD INTC Industry SP 500
Current Ratio 1.6 2.9 2.8 1.5
Quick Ratio 1.0 2.3 2.2 1
  • 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 SP 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 SP index

86
Financial Overview
Operating Performance AMD INTC Industry SP 500
Operating Efficiency        
Asset turnover 0.7 0.8 0.7 0.3
Inventory turnover 2.2 3.8 3.7 8.1
  • 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 AMDs inventory isnt managed as well
    as Intel and trailing both the Industry and SPs
    index.

87
Financial Overview
Operating Performance AMD INTC Industry SP 500
Operating Profitability        
Gross Margin 66.5 70.7 60.9 47
Operating Margin -1.9 29.7 17.9 11.6
Net Profit Margin 0.8 21.8 13.3 7.8
         
Return on Equity 3.03 22.2 13.7 15
Return on Assets 1.16 17.9 9.6 2.6
Return on Capital 1.96 21.9 12.4 7.2
  • From the above table, Intel outperforms every
    aspect of AMD, and AMD only seems to perform
    better than the industry and SP index in Gross
    Margin

88
Financial Overview
Risk AMD INTC Industry SP 500
Debt/Equity Ratio 0.56 0.01 0.11 1.07
Interest Coverage 1 474.3 47.5 3.5
Leverage Ratio 2.7 1.2 1.4 5.8
  • 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 SP 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

89
Financial Overview
Growth () AMD INTC Industry SP 500
SPS (Sales per Share) 3.15 3.1 5.63 4.71
EPS (Earnings per Share) 0.10 1.34 - 6.97
Dividends Payout Ratio () 0.0 24.22 15.42 3.87
  • AMD does not pay dividends and has a lower EPS.
    However, Sales for AMD is higher but trails the
    industry and SP 500.

90
Financial Overview
Price Ratios AMD INTC Industry SP 500
Price/Earnings 221.2 17.3 24 18.8
Price/Sales 1.67 3.69 3.14 1.44
Price/BV 3.09 3.75 3.24 2.74
Price/CF 6.8 10.8 11.4 12
  • AMD has a high P/E ratio compared to Intel
    because of earnings.

91
Value Drivers
  • Consistent expenditures on RD
  • Strong potential in the flash memory market -
    MirrorBit technology (hoping to reverse negative
    trend in memory market)
  • Competitive position in the existing market

92
Irving Fisher Approach
  • FUNCTIONAL FACTORS
  • Consistent investments for RD
  • Some negative figures
  • PEOPLE FACTORS
  • Relatively new management that has yet to build a
    history with AMD

93
Irving Fisher Approach
  • ESSENTIAL BUSINESS CHARACTERISTICS
  • High barriers to entry due to RD
  • Diversified competition
  • VALUE OF STOCK
  • Lower P/CF than INTC Industry
  • High Price

94
Recommendation
  • PROS
  • Has high growth potential
  • Good RD
  • Good technology
  • Positive Trend in earnings
  • CONS
  • Follower of Intel
  • Highly Leveraged
  • No Dividends
  • Fluctuating Earnings

HOLD
95
Applied Materials
96
Overview
  • History
  • Company Overview
  • Management
  • Products
  • Business Segments
  • Customers
  • Competitors
  • Strategy
  • Financial Statement Analysis
  • Valuation
  • Recommendation

97
History
  • 1967 - Applied Materials founded
  • 1972 IPO
  • 1992 - Officially becomes worlds largest
    semiconductors manufacturer
  • 2005 - Declares cash dividend

98
Company Overview
  • Largest supplier of manufacturing material to
    global semiconductors industry
  • Business model based on Semiconductor Capital
    Equipment, primarily focusing on
  • Wafer fabrication systems
  • Related services

99
Company Overview
  • Mission
  • Applied Materials' mission is to be the leading
    supplier of semiconductor fabrication solutions
    worldwidethrough innovation and enhancement of
    customer productivity with systems and service
    solutions.
  • Goal Our customers' business results come
    first!

100
Management
  • James Morgan
  • Chairman
  • Joined in 1976
  • CEO from 1977 to 2003, Chairman since 1987
  • Prior experience in Venture Capital and
    Manufacturing environments
  • Mike Splinter
  • President and CEO
  • Joined in 2003
  • Over 30 years experience in semis industry and
    nearly 20 years with Intel

101
Products
  • Manufactures systems that perform most of the
    primary steps in the chip fabrication process
  • Semiconductor Capital Equipment with 4 platforms
  • the Centura
  • the Endura
  • the Producer
  • the Vantage

102
Business Processes
  • Deposition layer of dielectric or electrically
    conductive film is deposited, or grown, on a
    wafer
  • Etch
  • Ion Implantation
  • RTP Rapid thermal processing
  • Wager metrology and inspection

103
Business Segments
  • Through subsidiary AKT, Inc.
  • Manufactures CVD systems and array testers for
    making flat panel displays (FPDs)
  • FPD products used in notebook computers, desktop
    computer monitors, Televisions, and other
    monitors.

104
Competitors
  • Major Competitors
  • KLAC KLA-Tencor
  • Operates in Process Control and Yield Management
    industies
  • LRCX Lam Research
  • Design and manufacture semiconductor processing
    equipment.
  • NVLS Novellus Systems
  • Develop, manufacture, market and support systems
    used in the fabrication of integrated circuits
  • Many small manufacturers compete with various
    business lines as well

105
Competitors
106
Competitors
107
Customers
  • Major Customers
  • Intel
  • Represent nearly 10 of total sales
  • Samsung Electronics
  • Represent nearly 10 of total sales
  • AMD
  • Motorola

108
Strategy
  • Aiming to
  • Increasing market share in existing markets
  • Expand into related markets
  • Cultivate new markets and business models
  • Expand sales to new
  • regions and create
  • similarly sized
  • global markets

Orders By Geography Q3, FY2005
109
Financial Statement Analysis
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
RDE 13.13 20.56 19.59 16.33 11.58 14.52
110
Financial Statement Analysis
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
RDE 14.49 12.12 13.58 11.27 11.48 12.10 15.60
111
Management Performance
2004 2003 2002
Return on Assets Return on Assets 11.17   -1.45   2.61
Return on Book Equity Return on Book Equity 14.59 -1.85 3.33
Return on Invested Capital Return on Invested Capital Return on Invested Capital 13.97 -1.75 3.16
   
Net Income 1,351,303 (149,147) 269,004
Assets 12,093,445 10,311,622 10,311,622
Book Equity 9,262,027 8,068,034 8,068,034
Total Capital 9,672,463   8,524,456   8,524,456
112
Stock Based Compensation
Fiscal Year         2002 2003 2004

Reported net income/(loss) Reported net income/(loss) Reported net income/(loss) 269,004 (149,147) 1,351,303
Stock based compensation expense, net of tax Stock based compensation expense, net of tax Stock based compensation expense, net of tax Stock based compensation expense, net of tax Stock based compensation expense, net of tax (316,699) (389,100) (345,897)

Pro forma net income/(loss) Pro forma net income/(loss) Pro forma net income/(loss) (47,695) (538,247) 1,005,406


Earnings/(loss) per share as reported Earnings/(loss) per share as reported Earnings/(loss) per share as reported Earnings/(loss) per share as reported 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 Pro forma earnings/(loss) per share Pro forma earnings/(loss) per share Pro forma earnings/(loss) per share Pro forma earnings/(loss) per share
Basic (0.03) (0.32) 0.60
Diluted (0.03) (0.32) 0.58
113
Stock Performance
AMAT Stock Performance from Oct. 28, 2004 to Oct.
28, 2005
114
Stock Performance
AMAT Stock Performance versus Semiconductors
Index (SOX) from Oct. 28, 2004 to Oct. 28, 2005
115
Stock Performance
AMAT Stock Performance from Oct. 28, 2000 to Oct.
28, 2005
116
Stock Performance
AMAT Stock Performance versus Semiconductors
Index (SOX) from Oct. 28, 2000 to Oct. 28, 2005
117
Valuation
Market Cap 26.5B Enterprise Value
20.8B Trailing P/E (ttm) 19.34 Forward
P/E (fye) 19.95 Price/Sales (ttm)
3.55 Price/Book 2.94 Price/FCF 19.12 Ent
erprise Value/Revenue (ttm) 2.78 Enterprise
Value/EBITDA (ttm) 10.52
EPS (trailing) 0.846 EPS (forward
consensus) 0.820 Dividends Per Share
0.12 Dividend Yield 0.73 Net
Cash Per Share 1.13 Sales Per Share
4.50 Book Value Per Share
5.56 Free Cash Flow Per Share 0.86
Price Ratios INTC AMD industry SP 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
118
Value Drivers
  • Strong industry position in existing markets
  • Largest global supplier of semiconductor
    manufacturing equipment
  • Innovative technologies
  • New wafer sizing and use of nanotechnologies
  • Consistent dedication RD Spending
  • Nearly 1B in fiscal 2004 (over 13 of revenue)

119
Fisher Approach
  • Functional Factors
  • Global leader in semiconductor manufacturing
    equipment production
  • Strong customer base with weak competition
  • People Factors
  • Experienced managers
  • Generous with management compensation (stock
    options)
  • Essential Business Characteristics
  • Strong competitive position
  • High growth industry with many applications
  • Value of the Stock
  • Mid-point of 52 week range
  • High levels of growth priced into stock

120
Recommendation
  • PROS
  • Industry leader
  • Commitment to RD Spending
  • CONS
  • Poor growth
  • Pending Lawsuit with major competitor
  • High stock option expensing
  • Too Expensive!

SELL
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