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Is the Industry Flatlining? Where's growth gonna come from?

Robert Maire

Moderator
The fact that is wasn't worse means that it was OK

No Surprises - Like the rest of the industry just finished reporting , Applied reported a more or less In Line Quarter and guided down

In Line report, lowering guidance...
Net sales were $2.37B down 5% sequentially and just shy of street consensus with in line EPS of $0.28 GAAP and $0.29 NonGAAP. The company expects Q1 to be down between 2% and 9% which at the midpoint would be $2.24B with Non GAAP EPS between $0.23 and $0.27 which fits with current already lowered consensus of $0.24 and $2.26B.

Its Bad but not Horrible so its actually Good (for the stock) ......AGS to the rescue
The street was clearly braced for the storm that didn't happen as there was a bit of a relief rally after hours when it turned out that the report, while bad was not a disaster. The SSG (Silicon Systems Group ) is expected to be down 7% to 13% in the quarter while the overall company revenue is expected to be down 2% to 9% (lets call that 5or6%) .

While SSG orders (new tool orders) fell more than 25% dropping from $2.007B to $1.444B , AGS (Applied Global Service) orders grew from $561M to $761M (almost 50%) offsetting the drop in tool orders. In essence the AGS pick up softened and provided cover for the sharp drop in tool orders, which dropped in line with what other companies have already reported ( a range of 15% to 25% drop). This also means that Applied has fared no better than any other tool company as its orders dropped the same and more (so much for the claim of share gains and superiority- if it were the case they wouldn't have dropped as much as everyone else)

Is the Industry Flatlining? Where's growth gonna come from?

2014, 2014 & now 2016 all Flat as a pancake........
On the call AMAT said that original projections of 2015 being up 5-10% were wrong and its now projecting flat and that initial projections for 2016 call for another flat year thats back end loaded. (We would like to point out that back in the beginning of the year and before we were projecting a flattish year). This obviously begs the question as to where growth will come from......

AMAT keeps talking about share gains and organic growth but we don't see it as being enough to move a needle as heavy as AMAT's. Also cost cutting, while nice, is not as sexy as top line growth. We really need some "shot in the arm" good old fashioned in-organic growth to get things going again. If we put a market multiple on earnings of a dollar and change we get a stock that remains firmly entrenched as a teenager forever.

Whats all this I heard about process intensity???
It seems a lot like the theory that process intensity will keep growing WFE spend has a lot of holes in it. Intel has spread out it spend over 3 rather than two years and its unclear if the foundry slowdown is just temporary or a new permanent way of life. The only thing we hear about to pull the industry of of the slow down is 3D NAND spend. Given that memory pricing and spending is a volatile thing at best, it doesn't exactly keep us warm at night.

No comment about M&A...
AMAT was asked several times about questions related to M&A as a way to get growth and did not comment. We would expect that they have to be looking harder than ever given the Lam KLAC announcement. The problem is that there's just not a lot left thats all that attractive or sizable.

Not a lot of positive commentary on growth and gross margin...

Although we heard a lot of talk around potential upside in revenues, market share and gross margin, sooner or later the street is going to want to see it show up in the results. While we have seen some progress we haven't seen all the progress most would hope for or expect given all the talk.

Stock could drift or weaken while waiting on recovery....
It sounds a lot like we have two more ugly quarters before we hope to get going again (assuming we get going again....). A lot can happen in that time and we have the holiday season which could be negative or positive for both long and short term outlooks. Its not like AMAT is going to get to $2 a share in earnings any time soon. While the stock will have a positive relief rally as shareholders exhale with a "Whew..." knowing they dodged a bullet its not like we are out of the woods yet on the longer term. We likely wouldn't want to put new money to work here but have not a lot of reason to take our money off the table in a hurry either. We would expect it to trade within this mid teenage range driven by market ups and downs.


The other stocks
At the very least this will not be a negative for other stocks, and perhaps a small positive as it wasn't a disaster. But overall its really no change as there were zero surprises on the call and nothing exciting to write home about or cause collateral impact.
 
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ippisl

Guest
Virtual reality porn will soon be here,current users really love it, and together with other VR uses, it will create a lot of demand.
 
Automotive will do well. The semiconductor content of cars is increasing dramatically. At ARM TechCon last week there were some amazing new devices. Medical has a very big upside as long as Government regulations doesnt slow innovation down. Robotics is also looking good. Given the the latest terror attack military electronics should stay strong. I'm very positive on semiconductors for 2016, absolutely.
 

Arthur Hanson

Active member
Heath care will be the next big growth area and it dwarfs almost all other segments in size and growth. Apple sees it as the next mega market and has taken the steps to get there. Any company that ignores medical will do so at their own risk. I hope to see more bio foundries like Wuxiapptec which is being taken private by management after a huge growth spurt. I was hoping for a take over by a major tech company that needs a growth driver, but it looks like it won't happen. The only other company that is a bio foundry is Quintiles and they aren't as broad a WX. Q is still small enough to be a take out target for a company with vision. The world medical market is 7 trillion and 3 plus trillion in the US alone. The growth rate in medical dwarfs almost all other areas.
 
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ippisl

Guest
Arthur, intel is moving into the health-foundry field. They have developed the chip healthtell works with to develop a wide array diagnostic platform, and they have some DNA chip platform - which they will talk(and other bio things) in the next ISSCC conference.
 
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