Applied Materials Loots Lam Share, But KLA Customer Heist Foiled
Applied Materials ( AMAT ) filled a Lam Research ( LRCX )-size hole in Q1 market share, but likely didn’t snag a chunk of KLA-Tencor ‘s ( KLAC ) customer base, Semiconductor Advisors analyst Robert Maire said Friday. The “zero sum game” pits Applied Materials against a Lam-KLA combination. Analysts theorize that once Lam and KLA merge — expected later this year — the duo could surpass Applied Materials as the No. 2 chip gear maker. Combined, Lam-KLA would have a $21.5 billion market value to Applied Materials’ $21.4 billion, as of Friday. ASML Holdings ( ASML ) leads with a $37.8 billion. Shares of all four rose Friday on Applied Materials’ Q1 beat and Q2 guidance surprise late Thursday. Applied Materials stock gapped up as much as 10% In early trading on the stock market today , and was up 9%, near 19, in afternoon trading Friday. Shares of Lam and KLA were up 3.5% and 2%, respectively. ASML stock was up more than 2.5%. Collectively, IBD’s 36-company Electronic-Semiconductor Equipment was up nearly 3% Friday afternoon. Applied Materials Results ‘Well Short Of Others’ Maire sees the stock rebound as temporary. Applied Materials’ Q1 was “well short of others in the industry.” Its $2.28 billion in orders and $2.26 billion in sales for the quarter ended Jan. 31 were down 6% and 5%, respectively, from the prior quarter, the analyst notes. Silicon system orders of $1.27 billion and display orders of $183 million fell 12% and 6%, respectively, from the prior quarter. But service orders of $773 million rose 1.5% sequentially and set an all-time quarterly record. Current-quarter guidance for $2.37 billion to $2.49 billion in sales, and 30-34 cents earnings per share ex items, easily topped analyst consensus . Maire expects chipmaking tool orders to rise 25% this quarter, but suggests that 30%-40% sequential growth would be stronger. Lam’s March-quarter guidance was weak, however. “Applied Materials looks to have orders up substantially in the current quarter,” he wrote. The guidance “begs the question of whether there was some shift from Lam to Applied Materials in the current quarter.” Pacific Crest Securities analyst Weston Twigg says the math supports a market share gain by Applied Materials. Wafer fab equipment (WFE) spending fell 4% in 2015 vs. Applied Materials’ 2% year-over-year growth in silicon systems. He models 3% silicon sales growth over 2016 vs. a 2% year-over-year increase in industry-wide WFE sales. Applied Materials, however, says equipment demand will be flat in 2016 vs. 2015. Twigg maintained his overweight rating and 20 price target on Applied Materials stock. OLED Displays Tick Up Calendar 2016 will split between Nand (flash memory) and DRAM (dynamic random-access memory), Applied Materials said. Nand will dominate the first half of 2016, while DRAM, logic and foundry sales will pack the tail end. Service sales continue to “rock and roll” and will likely offset a trough in the tool business cycle, Maire wrote. But Credit Suisse analyst Farhan Ahmad sees Applied Materials’ bounding on its OLED (organic light-emitting diode) investments. OLED displays don’t have a backlight and thus are thinner than traditional LCDs (liquid crystal displays). Ahmad bumped his price target on Applied Materials stock to 23 from 22.50 and reiterated an outperform rating. OLED displays are being adopted into TVs, computer monitors, smartphones and hand-held game systems. Ahmad sees Applied Materials’ investment in OLED technology as driving 10% year-over-year growth in 2016 display sales. Applied Materials CEO Gary Dickerson told analysts during the earnings conference call that the company is “growing beyond the semiconductor.” “It is clear that the industry is becoming highly dependent on materials innovation, especially as they introduce new technologies like OLED,” he said. “This plays to our strengths and significantly expands the market.” OLED expands Applied Materials’ total addressable market by a factor of three vs. LCD, Dickerson said. Combined, OLED and LCD technologies put the display business on track to reach $1 billion in fiscal 2018 revenue, Needham analyst Y. Edwin Mok wrote in a report. Mok upgraded Applied Materials stock to buy from hold and reiterated a 22 price target.