Under-estimations abound! After reading several Wall Street analyst reports it is clear that some view the outlook as much more bullish than others. Two of the reports we've read, one from UBS and one from Goldman Sachs, are quite positive. Less favorable views can be found on the EE Times website: Applied posts big quarter, but analysts worry
Overall, Applied’s report was not too bad – particularly when one allows for the fact that it takes a ton of business to move the earnings needle. Now, the stock is acting poorly on the heels of this report and I will go on the record and say that if you are looking to purchase shares of a WFE company, it might be better to focus on Lam, Novellus, Varian, ASML, KLA-Tencor and perhaps even little ol’ Mattson (who appears to be gaining some market share in Etch but at the same time is having a problem procuring components). Along with that I would say some of the ATE houses warrant a view – Teradyne and LTX-Credence are two I personally prefer.
One question that many folks are pondering is whether or not the supply chain is capable of supporting the demand panic that is currently taking place. Over and over we hear that component suppliers are strained and lead times are stretching out. Much of this is due to the attrition, er, decimation, that has taken place in the supply chain over the last seven years.
Innumerable companies have been leaving the semi supply chain - either voluntarily or, simply going out of business. Clearly this has an impact on the ability to ramp tool output. In a roundabout way, this was noted on the AMAT conference call:
Question: Wenge Yang – Oppenheimer
Hi, this is Wenge for Gary. You commented on supply chain constraints and combined with your recent hiring of executive supply chain management. I want to get your opinion on what kind of impact of the supply chain constrained on your costs and operating expenses in terms of overtimes, a higher cost of goods, and also the lead time strategy.
Answer: George Davis – AMAT EVP and CFO
Sure. The major impact that we had from the supply chain difficulty this quarter was seen in higher expediting costs and really the costs of logistics in general were above normal and we are seeing improvements in the supply chain in the second quarter. I think we still have a little bit or work – workout to do, but the – there is no connection really between our decision to hire an external party and the challenges we are having here. As you know, we are going to be building up our capability in Singapore to strengthen our Pan-Asia supply chain and really the recent hire is in connection with that activity.
Ahh… “higher expediting costs”….. We’ve been discussing this on the subscriber/advisory mailing list. To put it mildly, the semi-capital equipment food chain is, once again, in a phase where customers are saying, “We don’t care what it costs, we need it yesterday.” The mere fact that Applied is paying expedite fees speaks volumes. We’ve seen it so many times - those crazy cyclic spikes in business activity.
Some things never change….