us semiconductors (intel, amd, applied materials)
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U.S. SemiconductorU.S. Semiconductor
Jonathan Chao, Jesse Galpin, Kevin Sandhu, June Jonathan Chao, Jesse Galpin, Kevin Sandhu, June JiangJiang
INTEL, AMD, AMATINTEL, AMD, AMAT
Semiconductor IndustrySemiconductor Industry
Industry Background Industry Background Industry ProfileIndustry Profile Industry TrendIndustry Trend Current EnvironmentCurrent Environment Key Industry Ratios and StatisticsKey Industry Ratios and Statistics
Industry Background Industry Background
From the early 1900s to the From the early 1900s to the 1950s1950s : : vacu um tubes vacu um tubes
Invention of the transistor in Invention of the transistor in 1948 1948
In 1958, integrated circuit (IC)In 1958, integrated circuit (IC) In 1971, Intel Corp.; Intel 4004 In 1971, Intel Corp.; Intel 4004
microprocessor, which ran at microprocessor, which ran at 108 kilohertz and served as a 108 kilohertz and served as a component in a calculatorcomponent in a calculator
Industry BackgroundIndustry Background
Ongoing technological Ongoing technological advancementadvancement
Rising performance, falling Rising performance, falling pricesprices
Moore’s Law describes pace of Moore’s Law describes pace of innovationinnovation
Inherent cyclicalityInherent cyclicality Huge capital investmentsHuge capital investments Marketing chips: going for the Marketing chips: going for the
design windesign win Targeting the end userTargeting the end user
Types of ChipsTypes of Chips
Bipolar technologyBipolar technology versus metal oxide versus metal oxide technologytechnology
Discrete semiconductorsDiscrete semiconductors Analog semiconductorsAnalog semiconductors Digital semiconductorsDigital semiconductors
Microprocessors Microprocessors Memory chips Memory chips Logic devices Logic devices Microperipherals Microperipherals Microcontrollers Microcontrollers Standard cell logic Standard cell logic Optoelectronics. Optoelectronics. Digital signal processors (DSPs) Digital signal processors (DSPs)
Types of ChipsTypes of Chips
How Chips Are MadeHow Chips Are Made
Semiconductors are produced through a highly Semiconductors are produced through a highly advanced and complex manufacturing process.advanced and complex manufacturing process.
The two basic stages in chip production are the The two basic stages in chip production are the “front end” and the “back end.” “front end” and the “back end.”
The front end involves materials preparation (cir The front end involves materials preparation (cir cuit design, photomask making, and manu cuit design, photomask making, and manu facture of raw wafers) and wafer processing facture of raw wafers) and wafer processing (repeated cycles of deposition, etch, doping, (repeated cycles of deposition, etch, doping, planarization, and in-process testing). planarization, and in-process testing).
The back end consists of packaging and final The back end consists of packaging and final test operations.test operations.
http://www.intel.com/education/makingchips/http://www.intel.com/education/makingchips/index.htm index.htm
IIndustryndustry Profile ProfileTotal Semiconductor World Market Sales in %.
15%
20%
25%
30%
35%
40%
45%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
%
US EUR JAPAN ASIA/PAC
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
IIndustryndustry Profile ProfileLARGEST SEMICONDUCTOR COMPANIES
(Ranked by 2004 revenues, billions of dollars)
COMPANY (COUNTRY)
REVENUES %CHG.
2003 2004 2003–04
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
Source: IC Insights.
IIndustryndustry Profile ProfileLEADING 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
Industry Trend Industry Trend
Semiconductors drive economic Semiconductors drive economic productivity productivity
Lower trend line growth (next slide)Lower trend line growth (next slide) Evolving corporate strategies Evolving corporate strategies High-end microprocessors drive the High-end microprocessors drive the
market market DRAM market especially prone to DRAM market especially prone to
boom-and-bust cycles boom-and-bust cycles Automotive chips receive renewed Automotive chips receive renewed
focus focus Outsourcing continues to grow Outsourcing continues to grow
Industry TrendIndustry Trend
WORLDWIDE SEMICONDUCTOR SALES (Year-to-year % change)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
% c
hang
e
%change
Current EnvironmentCurrent Environment
Total Semiconductor World Market Sales
-
50,000
100,000
150,000
200,000
250,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
$ in
Mill
ions
US EUR JAPAN ASIA/PAC TOTAL
Current EnvironmentCurrent EnvironmentTotal Semiconductor World Market Sales (in %)
Year199
4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
US 32.9%
32.5%
32.3%
33.4%
32.7%
31.8%
31.3%
25.7%
22.2%
19.4%
18.3%
EUR 19.4%
19.5%
20.9%
21.2%
23.2%
21.3%
20.7%
21.7%
19.7%
19.4%
18.5%
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 18.8%
20.5%
20.9%
22.0%
23.6%
24.9%
25.1%
28.7%
36.4%
37.8%
41.7%
TOTAL 100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Total Semiconductor World Market Shares in %
SHARES 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
MKT BASE
TOTAL US 43.4
%40.9
%46.2
%51.6
%53.4
%51.4
%49.9
%51.2
%50.1
%48.3
%46.7
%
JPN40.1
%38.9
%36.0
%28.6
%26.4
%28.5
%28.3
%28.1
%26.0
%27.4
%25.6
%
OTH 16.5
%20.2
%17.8
%19.8
%20.2
%20.1
%21.2
%20.7
%23.9
%24.3
%26.8
%
Current EnvironmentCurrent Environment
Consumer products drive chip Consumer products drive chip demanddemand
Current EnvironmentCurrent Environment
FASB accounting rule change to phase inFASB accounting rule change to phase in
STOCK OPTIONS EXPENSE AT SELECT SEMICONDUCTOR COMPANIES — FISCAL 2004
COMPANY Reported EPS Pro Forma EPSOption
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
Key Industry Ratios and Key Industry Ratios and StatisticsStatistics
Global Sales Report. Global Sales Report.
Total Semiconductor World Market Sales
-
50,000
100,000
150,000
200,000
250,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
$ in
Mill
ions
US EUR JAPAN ASIA/PAC TOTAL
Key Industry Ratios and Key Industry Ratios and StatisticsStatistics
Semiconductor equipment book-to-bill Semiconductor equipment book-to-bill ratio ratio
Semiconductor Equipment Book-to-Bill Ratio
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jan
-97
May
-97
Sep
-97
Jan
-98
May
-98
Sep
-98
Jan
-99
May
-99
Sep
-99
Jan
-00
May
-00
Sep
-00
Jan
-01
May
-01
Sep
-01
Jan
-02
May
-02
Sep
-02
Jan
-03
May
-03
Sep
-03
Jan
-04
May
-04
Sep
-04
Jan
-05
May
-05
Book-to-Bill Ratio
Key Industry Ratios and Key Industry Ratios and StatisticsStatistics
Wafer fabrication plant utilization Wafer fabrication plant utilization ratesrates TOTAL IC's Utilization(%)
60.0
70.0
80.0
90.0
100.0
TOTAL IC's
Key Industry Ratios and Key Industry Ratios and StatisticsStatistics
Institute for Supply Management Institute for Supply Management ((ISM) Report on Business ISM) Report on Business
PMI (%)
35
40
45
50
55
60
65
Source: http://www.ism.ws/ISMReport/PMIndex.cfm
Key Industry Ratios and Key Industry Ratios and StatisticsStatistics
US index of leading economic US index of leading economic indicators indicators Gross domestic product (GDP)Gross domestic product (GDP) U.S. Consumer Price Index, CPIU.S. Consumer Price Index, CPI U.S. Civilian Unemployment RateU.S. Civilian Unemployment Rate 3 Month U.S. Treasury Securities 3 Month U.S. Treasury Securities
YieldYield
INTELINTEL
NASDAQ: INTCNASDAQ: INTC
Background AgendaBackground Agenda HistoryHistory Current EventsCurrent Events Company OverviewCompany Overview ManagementManagement Business StructureBusiness Structure OperationsOperations ProductsProducts CustomersCustomers CompetitorsCompetitors Financial AnalysisFinancial Analysis
History (1 of 3)History (1 of 3)
19651965 Moore’s Law: “the number of transistors Moore’s Law: “the number of transistors
incorporated in a chip will incorporated in a chip will approximately double every 24 months”approximately double every 24 months”
19681968 Integrated Electronics (Intel) Corp. is Integrated Electronics (Intel) Corp. is
founded by Gordon Moore and Robert founded by Gordon Moore and Robert Noyce.Noyce.
19711971 Intel goes publicIntel goes public
History (2 of 3)History (2 of 3)
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
History (3 of 3)History (3 of 3)
2004 & 20052004 & 2005 New technology – Not ProcessorsNew technology – Not Processors
CentrinoCentrino
Dual-Core processorsDual-Core processors
64-bit architecture64-bit architecture
Hyper threading:Hyper threading:
Current EventsCurrent Events
Intel will make new Apple CPU’s NOT MotorolaIntel will make new Apple CPU’s NOT Motorola Intel court battles with AMD and MicroUnityIntel court battles with AMD and MicroUnity Intel and RIM collaborate on BlackBerry devicesIntel and RIM collaborate on BlackBerry devices Intel will team with Microsoft in support of new Intel will team with Microsoft in support of new
DVD format HD DVD by Toshiba not with Sony’s DVD format HD DVD by Toshiba not with Sony’s Blu-ray DiscBlu-ray Disc
Agreement to Acquire Digital Broadcast Agreement to Acquire Digital Broadcast Technology Assets, Expertise from Zarlink Technology Assets, Expertise from Zarlink Semiconductor – expand digital home segmentSemiconductor – expand digital home segment
Earnings (3Earnings (3rdrd Quarter) announced Oct. 18, 2005 Quarter) announced Oct. 18, 2005
Company Overview (1 of 4)Company Overview (1 of 4)
MissionMission Do a great job for our customers, Do a great job for our customers,
employees, and stockholders by being employees, and stockholders by being the preeminent building block supplier the preeminent building block supplier to the worldwide digital economyto the worldwide digital economy
Company Overview (2 of 4)Company Overview (2 of 4)
ValuesValues Customer OrientationCustomer Orientation Results orientationResults orientation Risk takingRisk taking Great Place to workGreat Place to work QualityQuality DisciplineDiscipline
Company Overview (3 of 4)Company Overview (3 of 4)
ObjectivesObjectives Extend silicon leadership and Extend silicon leadership and
manufacturing capabilitymanufacturing capability Deliver architectural innovation for Deliver architectural innovation for
platformsplatforms Pursue worldwide opportunitiesPursue worldwide opportunities
Company Overview (4 of 4)Company Overview (4 of 4)
StrategyStrategy Utilize core competencies to develop Utilize core competencies to develop
advanced productsadvanced products Exercise control over value chainExercise control over value chain Utilize “Intel inside” marketing Utilize “Intel inside” marketing
campaigncampaign Expand into faster growing Expand into faster growing
complementary businessescomplementary businesses Invest in companies globally to further Invest in companies globally to further
strategic objectives (Intel Capital strategic objectives (Intel Capital program)program)
Management (1 of 2)Management (1 of 2) Joined Intel as Technology
Development manager in 1974 Elected to BoD in 1992 Served as COO 1993-1997 Intel’s 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
Management (2 of 2)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
Business Structure (1 of 2)Business Structure (1 of 2)
PastPast1.1. Intel Intel
Architecture Architecture BusinessBusiness
2.2. Intel Intel CommunicatioCommunications Groupns Group
PresentPresent1.1. Mobility GroupMobility Group2.2. Digital Home Digital Home
GroupGroup3.3. Digital Enterprise Digital Enterprise
GroupGroup4.4. Digital Health Digital Health
GroupGroup5.5. Channel Products Channel Products
GroupGroup
Business Structure (2 of 2)Business Structure (2 of 2) Mobility Group: Mobility Group:
XScale processors for handheld devices (PDA’s) & XScale processors for handheld devices (PDA’s) & Pentium M (Centrino) for notebooksPentium M (Centrino) for notebooks
Digital Home Group: Digital Home Group: Develop processors for digital entertainment devices in Develop processors for digital entertainment devices in
the living room.the living room. Digital Enterprise Group:Digital Enterprise Group:
Develop processors for all corporate systems (PC’s to Develop processors for all corporate systems (PC’s to datasevers)datasevers)
Digital Health Group:Digital Health Group: New area of focus - Products such as motion-detecting New area of focus - Products such as motion-detecting
sensors that could help sensors that could help senior citizens live more senior citizens live more independently.independently.
Channel Products Group:Channel Products Group: develop specific products for local markets around the develop specific products for local markets around the
world.world.
OperationsOperations ManufacturingManufacturing
Leader in semiconductor manufacturing and Leader in semiconductor manufacturing and technologytechnology
Competitive advantage through economies of Competitive advantage through economies of scale,scale,
11 fabrication facilities11 fabrication facilities 6 assembly and test facilities worldwide6 assembly and test facilities worldwide 2003: $3.7 billion on capital investments Switch 2003: $3.7 billion on capital investments Switch
from 200mm wafers to 300mm wafers cuts price from 200mm wafers to 300mm wafers cuts price 30%.30%.
Research and DevelopmentResearch and Development 2005: $ 5.2 billion on R&D. (3.78b so far this 2005: $ 5.2 billion on R&D. (3.78b so far this
year)year) 7,000 researchers and scientists in labs around 7,000 researchers and scientists in labs around
the world.the world.
Major ProductsMajor Products
1.1. Microprocessors, chipsets, boards, Microprocessors, chipsets, boards, flash memory, application flash memory, application processors used in handheld processors used in handheld devices, cellular baseband devices, cellular baseband chipsets.chipsets.
2.2. Networking and communications Networking and communications products, optical components and products, optical components and network processing components, network processing components, embedded control chipsembedded control chips
Major CustomersMajor Customers
1.1. DistributorsDistributors
2.2. Original Equipment Manufacturers Original Equipment Manufacturers (OEM) of computer systems and (OEM) of computer systems and peripheralsperipherals
3.3. PC users (retail)PC users (retail)
Major CompetitorsMajor Competitors AMDAMD ATIATI BroadcomBroadcom IBMIBM NvidiaNvidia QualacomQualacom SamsungSamsung SISSIS SpanshionSpanshion Sun MicrosystemsSun Microsystems TITI TransmetaTransmeta ViaVia
Financial AnalysisFinancial Analysis
Financial AnalysisFinancial AnalysisTicker INTC
Exchange NASDAQ
Price (23/10/2005) $ 23.10
Dividend (Yield) $0.32 (1.4%)
Sector Information Technology
Sub-Industry Semiconductors
Peer GroupSemiconductors – Logic -
Large
S&P Weight (approx) 1.40%
Beta 2.36
Shareholders 230,000
Market Cap $154 billion
S&P Credit Rating A+ (highest)
Financial OverviewFinancial Overview
Financial OverviewFinancial Overview
Financial OverviewFinancial Overview
Sales Revenue
6.75 6.82
7.838.74
9.43 9.239.96
y = 0.5732x + 6.1014
0
2
4
6
8
10
12
2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3
Sal
es (
Mil
lio
ns)
Regression Line Shows Sales Increasing at Regression Line Shows Sales Increasing at $573m$573m
Financial OverviewFinancial Overview
0
2
4
6
8
10
12
2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Revenue (pink)Revenue (pink) v. v. EPS (blue)EPS (blue)
Financial OverviewFinancial Overview
INTC over the past 365 DaysINTC over the past 365 Days
Financial OverviewFinancial Overview
INTC over the past 365 daysINTC over the past 365 days
50day/200day moving averages - Suggesting a 50day/200day moving averages - Suggesting a SellSell
Financial OverviewFinancial Overview
INTC over the past 365 daysINTC over the past 365 daysvsvs
Semiconductor Industry over the past 365 daysSemiconductor Industry over the past 365 days
Financial OverviewFinancial Overview
INTC over the past 365 daysINTC over the past 365 daysvsvs
AMD over the past 365 daysAMD over the past 365 days
Financial OverviewFinancial Overview
2005Quarter
Shares Purchased
(M Shares)
Cum. Shares Purchased (M Shares)
$MillionsCum. $ 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
2004Quarter
Shares Purchased
(M Shares)
Cum. Shares Purchased (M Shares)
$MillionsCum. $ 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$49.9 billion spend on 2.5B shares
constant buyback program ($2.5B constant buyback program ($2.5B each ¼)each ¼)
Financial AnalysisFinancial Analysis
Internal Liquidity INTC
AMD industry S&P 500
Current Ratio 2.9 1.6 2.8 1.5
Quick Ratio 2.3 1 2.2 1
Financial AnalysisFinancial Analysis
Operating PerformanceINT
C AMD Industry S&P 500
Operating Efficiency
Asset turnover 0.8 0.7 0.7 0.3
Inventory turnover 3.8 2.2 3.7 8.1
Financial AnalysisFinancial Analysis
Operating PerformanceINT
C AMD Industry S&P 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
Financial AnalysisFinancial Analysis
Risk INTC AMD Industry S&P 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
Financial AnalysisFinancial Analysis
Growth (%) INTC AMD Industry S&P 500
Sales 3.1 3.15 5.63 4.71
EPS 9.84 - - 6.97
Dividends 24.22 - 15.42 3.87
Financial AnalysisFinancial Analysis
Price Ratios INTC AMD Industry S&P 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
Value DriversValue Drivers
Consumer spending/optimismConsumer spending/optimism Research and developmentResearch and development Economies of scale – efficient costEconomies of scale – efficient cost
Financial AnalysisFinancial Analysis
1. “Functional Factors” Production Leader Marketing Leader
“intel inside” “Pentium M”
R&D Leader Strong Financials
2. “People Factors” Voted best place to work Top Executives at Intel for
minimum 20 years Lost Andrew Grove,
founder and former Chairman
Otellini’s new structure not just cosmetic
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
4 Dimensions of Fisher4 Dimensions of Fisher
Financial AnalysisFinancial Analysis
BUYBUY
Advanced Micro DevicesAdvanced Micro Devices
OverviewOverview HistoryHistory Current EventsCurrent Events Company OverviewCompany Overview ManagementManagement Business Structure Business Structure ProductsProducts CustomersCustomers CompetitorsCompetitors StrategyStrategy Financial Statement AnalysisFinancial Statement Analysis ValuationValuation RecommendationRecommendation
IntroductionIntroduction
Advanced Micro Devices, Inc. (AMD): is a Advanced Micro Devices, Inc. (AMD): is a manufacturer of integrated circuits based in manufacturer of integrated circuits based in Sunnyvale, CaliforniaSunnyvale, California
Founded in 1969 and is the second-largest Founded in 1969 and is the second-largest supplier of x86-compatible processors, and a supplier of x86-compatible processors, and a leading supplier of non-volatile flash memoryleading supplier of non-volatile flash memory
It has manufacturing facilities in the U.S., Europe It has manufacturing facilities in the U.S., Europe
and Asia and sales offices throughout the worldand Asia and sales offices throughout the world
HistoryHistory
Advanced Micro Devices
May, 1969•The establishment of AMD
•The main goal at the time was to create a successful semiconductor company
September, 1969•Opened first headquarters at
Sunnyvale CA
•Over the next 5 years AMD grew substantially with 1500 employees and making over 200 products
September, 1972•AMD goes public
•NYSE: AMD
Current EventsCurrent Events
October 27, 2005October 27, 2005 AMD announced that the digital backbone of AMD announced that the digital backbone of
the new Lucasfilm Animation Singapore digital the new Lucasfilm Animation Singapore digital animation center is powered by AMD64 animation center is powered by AMD64 processor technology - the gold standard for processor technology - the gold standard for 64-bit computing 64-bit computing
October 25, 2005October 25, 2005 Enterprise and Industrial Designers Turn to Enterprise and Industrial Designers Turn to
AMD Geode and AMD Alchemy Solutions for AMD Geode and AMD Alchemy Solutions for Low-Power, High-Performance Processing. Low-Power, High-Performance Processing. AMD AMD embedded solutions provide low power embedded solutions provide low power consumption which gives designers the ability consumption which gives designers the ability to create efficient and versatile devices for a to create efficient and versatile devices for a wide variety of applicationswide variety of applications
Company Overview (1 of 2)Company Overview (1 of 2)
AMD's Purpose, Vision, Mission, and ValuesAMD's Purpose, Vision, Mission, and Values
PurposePurpose
•To empower people everywhere to lead more productive lives
VisionVision
•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
Company Overview (2 of 2)Company Overview (2 of 2)
AMD's Purpose, Vision, Mission, and ValuesAMD's Purpose, Vision, Mission, and Values
MissionMission•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.
ValuesValues•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.
Management Team (1 of 2)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 CambouExecutive 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. RivetExecutive Vice President and Chief Financial Officer- Bob Rivet joined AMD in 2000 as senior vice president and chief financial officer
Management Team (2 of 2)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 RichardExecutive Vice President, Worldwide Sales and Marketing
-Mr Richard joined AMD in 2002Fred Weber Corporate Vice President and Chief Technical Officer - Mr.Weber joined AMD in 1995
Business StructureBusiness Structure
MicroprocessorMicroprocessorA microprocessor is an electronic computer component made from tiny transistors and circuit 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 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.central processing unit (CPU) which is also the most well known microprocessor.
Flash memoryFlash memoryFlash memory is a form of rewritable memory similar to the Random Access Memory (RAM) that allows 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 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 phonesflash drives, MP3 Players, digital cameras and cell phones
definitionsdefinitions::
Business StructureBusiness Structure
Microprocessor Market – Computational Microprocessor Market – Computational ProductsProducts Used for control and computing tasks and Used for control and computing tasks and
complementary chipset components, which complementary chipset components, which perform essential logic functions that support perform essential logic functions that support the microprocessorsthe microprocessors
Flash Memory Market – Memory productsFlash Memory Market – Memory products Used to store data and programming Used to store data and programming
instructionsinstructions Embedded Microprocessor MarketEmbedded Microprocessor Market
Personal connectivity devices and specific Personal connectivity devices and specific consumer marketsconsumer markets
ProductsProducts 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
CustomersCustomers
Main customers include:
1) Original Equipment Manufacturers (OEM)(Multinationals, Regional Accounts and Target Market Customers)
>Microprocessors: Foreign and domestic manufacturers of PCs and Motherboards.> Flash Memory: Foreign and domestic manufacturers of mobile phones, consumer and automotive electronics and networking equipments
2) Third Party DistributorsAuthorized distributors that resell to sub-distributors and mid sized OEMs and to electronic manufacturing service providers
Competitors (1 of 3)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 R&D thus will continue to be an ongoing threat to AMD both now and in the future
Competitors (2 of 3)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
Competitors (3 of 3)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.
Operational OverviewOperational 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 R&D for 2002, 2003 and 2004: $816M, $852M and
$935M
StrategyStrategy
Leverage the strength of the AMD64 Leverage the strength of the AMD64 technology based processor to technology based processor to increase market shareincrease market share
Expand into the flash memory market Expand into the flash memory market by emphasizing more on the MirrorBit by emphasizing more on the MirrorBit technologytechnology
Innovative creations of new flash Innovative creations of new flash memory and microprocessor memory and microprocessor technologytechnology
Expand into new growing marketsExpand into new growing markets
Financial Statement AnalysisFinancial 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 GroupSemiconductors – Logic -
Large
Shares Outstanding 398.36 million
Market Cap $8.89 billion
Financial OverviewFinancial Overview
SALES REVENUE
0
4.6443.892
2.6973.519
5.001
0
1
2
3
4
5
6
Year 2000 2001 2002 2003 2004 YEAR
NE
T R
EV
EN
UE
NET SALES BY YEAR
Financial OverviewFinancial Overview
OPERATING INCOME
-1000
-500
0
500
1000
Year 2000 2001 2002 2003 2004
YEAR
OPERATING INCOME BY YEAR
Financial OverviewFinancial Overview
STOCK PRICE – 52 Weeks
Financial OverviewFinancial Overview
STOCK PRICE – 52 Weeks VS SOX
Financial OverviewFinancial Overview
STOCK PRICE – 60 Weeks (5 year)
Financial OverviewFinancial Overview
STOCK PRICE – 60 Weeks (5 year) VS SOX
Financial OverviewFinancial Overview
Internal LiquidityInternal Liquidity AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
Current RatioCurrent Ratio 1.61.6 2.92.9 2.82.8 1.51.5
Quick RatioQuick Ratio 1.01.0 2.32.3 2.22.2 11
•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 S&P 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 S&P index
Financial OverviewFinancial Overview
Operating Operating PerformancePerformance AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
Operating EfficiencyOperating Efficiency
Asset turnoverAsset turnover 0.70.7 0.80.8 0.70.7 0.30.3
Inventory turnoverInventory turnover 2.22.2 3.83.8 3.73.7 8.18.1
•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 AMD’s inventory isn’t managed as well as Intel and trailing both the Industry and S&P’s index.
Financial OverviewFinancial Overview
Operating PerformanceOperating Performance AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
Operating ProfitabilityOperating Profitability
Gross MarginGross Margin 66.566.5 70.770.7 60.960.9 4747
Operating MarginOperating Margin -1.9-1.9 29.729.7 17.917.9 11.611.6
Net Profit MarginNet Profit Margin 0.80.8 21.821.8 13.313.3 7.87.8
Return on EquityReturn on Equity 3.033.03 22.222.2 13.713.7 1515
Return on AssetsReturn on Assets 1.161.16 17.917.9 9.69.6 2.62.6
Return on CapitalReturn on Capital 1.961.96 21.921.9 12.412.4 7.27.2
•From the above table, Intel outperforms every aspect of AMD, and AMD only seems to perform better than the industry and S&P index in Gross Margin
Financial OverviewFinancial Overview
•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 S&P 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
RiskRisk AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
Debt/Equity RatioDebt/Equity Ratio 0.560.56 0.010.01 0.110.11 1.071.07
Interest Coverage Interest Coverage 11 474.3474.3 47.547.5 3.53.5
Leverage RatioLeverage Ratio 2.72.7 1.21.2 1.41.4 5.85.8
Financial OverviewFinancial Overview
•AMD does not pay dividends and has a lower EPS. However, Sales for AMD is higher but trails the industry and S&P 500.
Growth (%)Growth (%) AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
SPS (Sales SPS (Sales per Share)per Share) 3.153.15 3.13.1 5.635.63 4.714.71
EPS (Earnings EPS (Earnings per Share)per Share) 0.100.10 1.341.34 -- 6.976.97
Dividends Dividends Payout Payout Ratio (%)Ratio (%) 0.00.0 24.2224.22 15.4215.42 3.873.87
Financial OverviewFinancial Overview
Price RatiosPrice Ratios AMDAMD INTCINTC IndustryIndustry S&P 500S&P 500
Price/EarningsPrice/Earnings 221.2221.2 17.317.3 2424 18.818.8
Price/Sales Price/Sales 1.671.67 3.693.69 3.143.14 1.441.44
Price/BVPrice/BV 3.093.09 3.753.75 3.243.24 2.742.74
Price/CFPrice/CF 6.86.8 10.810.8 11.411.4 1212
•AMD has a high P/E ratio compared to Intel because of earnings.
Value DriversValue Drivers
Consistent expenditures on R&D Strong potential in the flash
memory market - MirrorBit technology (hoping to reverse negative trend in memory market)
Competitive position in the existing market
Irving Fisher ApproachIrving Fisher Approach
FUNCTIONAL FACTORS:Consistent investments for R&D
Some negative figures PEOPLE FACTORS:
Relatively new management that has yet to build a history with AMD
Irving Fisher ApproachIrving Fisher Approach
ESSENTIAL BUSINESS CHARACTERISTICS:High barriers to entry due to R&D
Diversified competitionVALUE OF STOCK
Lower P/CF than INTC & IndustryHigh Price
RecommendationRecommendation
PROS:PROS: Has high growth Has high growth
potentialpotential Good R&DGood R&D Good technologyGood technology Positive Trend in Positive Trend in
earningsearnings
CONS:CONS: Follower of IntelFollower of Intel
Highly LeveragedHighly Leveraged No DividendsNo Dividends
Fluctuating Fluctuating EarningsEarnings
HOLDHOLD
Applied MaterialsApplied Materials
OverviewOverview
HistoryHistory Company OverviewCompany Overview ManagementManagement ProductsProducts Business SegmentsBusiness Segments CustomersCustomers CompetitorsCompetitors StrategyStrategy Financial Statement AnalysisFinancial Statement Analysis ValuationValuation RecommendationRecommendation
HistoryHistory
1967 - Applied Materials founded 1967 - Applied Materials founded
1972 – IPO1972 – IPO
1992 - Officially becomes world’s 1992 - Officially becomes world’s largest largest semiconductors semiconductors manufacturermanufacturer
2005 - Declares cash dividend2005 - Declares cash dividend
Company OverviewCompany Overview
Largest supplier of manufacturing Largest supplier of manufacturing material to global semiconductors material to global semiconductors industryindustry
Business model based on Business model based on Semiconductor Capital Equipment, Semiconductor Capital Equipment, primarily focusing on:primarily focusing on:
Wafer fabrication systemsWafer fabrication systems Related servicesRelated services
Company OverviewCompany Overview
MissionMission ““Applied Materials' mission is to be the Applied Materials' mission is to be the
leading supplier of semiconductor leading supplier of semiconductor fabrication solutions worldwide—through fabrication solutions worldwide—through innovation and enhancement of customer innovation and enhancement of customer productivity with systems and service productivity with systems and service solutions.”solutions.”
Goal: “Goal: “OurOur customers' business customers' business results come first!”results come first!”
ManagementManagement
James MorganJames Morgan ChairmanChairman Joined in 1976Joined in 1976 CEO from 1977 to 2003, Chairman since CEO from 1977 to 2003, Chairman since
19871987 Prior experience in Venture Capital and Prior experience in Venture Capital and
Manufacturing environmentsManufacturing environments
Mike SplinterMike Splinter President and CEOPresident and CEO Joined in 2003Joined in 2003 Over 30 years experience in semi’s Over 30 years experience in semi’s
industry and nearly 20 years with Intelindustry and nearly 20 years with Intel
ProductsProducts
Manufactures systems that perform Manufactures systems that perform most of the primary steps in the most of the primary steps in the chip fabrication processchip fabrication process
Semiconductor Capital Equipment Semiconductor Capital Equipment with 4 platforms:with 4 platforms:
the Centura®the Centura® the Endura®the Endura® the Producer®the Producer® the Vantage®the Vantage®
Business ProcessesBusiness Processes
Deposition: layer of dielectric or Deposition: layer of dielectric or electrically conductive film is electrically conductive film is deposited, or grown, on a waferdeposited, or grown, on a wafer
EtchEtch Ion ImplantationIon Implantation RTP: Rapid thermal processing RTP: Rapid thermal processing Wager metrology and inspectionWager metrology and inspection
Business SegmentsBusiness Segments
Through subsidiary AKT, Inc.:Through subsidiary AKT, Inc.: Manufactures CVD systems and Manufactures CVD systems and
array testers for making flat panel array testers for making flat panel displays (FPDs)displays (FPDs)
FPD products used in notebook FPD products used in notebook computers, desktop computer computers, desktop computer monitors, Televisions, and other monitors, Televisions, and other monitors.monitors.
CompetitorsCompetitors
Major Competitors:Major Competitors: KLACKLAC KLA-Tencor KLA-Tencor
Operates in Process Control and Yield Operates in Process Control and Yield Management industiesManagement industies
LRCXLRCX Lam Research Lam Research Design and manufacture semiconductor Design and manufacture semiconductor
processing equipment.processing equipment. NVLSNVLS Novellus Systems Novellus Systems
Develop, manufacture, market and support Develop, manufacture, market and support systems used in the fabrication of integrated systems used in the fabrication of integrated circuitscircuits
Many small manufacturers compete with Many small manufacturers compete with various business lines as wellvarious business lines as well
CompetitorsCompetitors
Semiconducter Sales
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
2003 2004 2005
AMAT
KLAC
LRCX
Novellus
CompetitorsCompetitors
Semiconductor Earnings
$(300,000)
$(100,000)
$100,000
$300,000
$500,000
$700,000
$900,000
$1,100,000
$1,300,000
$1,500,000
2003 2004 2005
AMAT
KLAC
LRCX
NVLS
CustomersCustomers
Major Customers:Major Customers: Intel Intel
Represent nearly 10% of total salesRepresent nearly 10% of total sales Samsung ElectronicsSamsung Electronics
Represent nearly 10% of total salesRepresent nearly 10% of total sales AMDAMD MotorolaMotorola
StrategyStrategy
Aiming to: Aiming to: Increasing market share in existing marketsIncreasing market share in existing markets Expand into related marketsExpand into related markets Cultivate new markets and business models Cultivate new markets and business models
Expand sales to new Expand sales to new regions regions and create and create similarly sized similarly sized global marketsglobal markets
Orders By GeographyQ3, FY2005
Financial Statement Financial Statement AnalysisAnalysis
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%
RD&E 13.13% 20.56% 19.59% 16.33% 11.58% 14.52%
Financial Statement Financial Statement AnalysisAnalysis
’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%
RD&E 14.49% 12.12% 13.58% 11.27% 11.48% 12.10% 15.60%
Management PerformanceManagement Performance
2004 2003 2002
Return on Assets 11.17% -1.45% 2.61%
Return on Book Equity 14.59% -1.85% 3.33%
Return on Invested Capital 13.97% -1.75% 3.16%
Net Income
1,351,3
03
(149,14
7)
269,00
4
Assets
12,093,
445
10,311,
622
10,311,
622
Book Equity
9,262,0
27
8,068,0
34
8,068,0
34
Total Capital
9,672,4
63
8,524,4
56
8,524,4
56
Stock Based CompensationStock Based Compensation
Fiscal Year 2002 2003 2004
Reported net income/(loss) $269,004 ($149,147
)$1,351,30
3
Stock based compensation expense, net of tax
($316,699)
($389,100) ($345,897)
Pro forma net income/(loss) ($47,695)($538,247
)$1,005,40
6
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:
Basic ($0.03) ($0.32) $0.60
Diluted ($0.03) ($0.32) $0.58
Stock PerformanceStock Performance
AMAT Stock Performance from Oct. 28, 2004 to Oct. 28, 2005
Stock PerformanceStock Performance
AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2004 to Oct. 28, 2005
Stock PerformanceStock Performance
AMAT Stock Performance from Oct. 28, 2000 to Oct. 28, 2005
Stock PerformanceStock Performance
AMAT Stock Performance versus Semiconductors Index (SOX) from Oct. 28, 2000 to Oct. 28, 2005
ValuationValuationMarket Cap: 26.5BEnterprise Value: 20.8B
Trailing P/E (ttm): 19.34Forward P/E (fye): 19.95
Price/Sales (ttm): 3.55Price/Book: 2.94Price/FCF: 19.12
Enterprise Value/Revenue (ttm): 2.78Enterprise Value/EBITDA (ttm): 10.52
Price Ratios INTC AMD industry S&P 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
EPS (trailing) $0.846EPS (forward consensus) $0.820
Dividends Per Share $0.12Dividend Yield 0.73%
Net Cash Per Share $1.13Sales Per Share $4.50Book Value Per Share $5.56Free Cash Flow Per Share $0.86
Value DriversValue Drivers
Strong industry position in existing Strong industry position in existing marketsmarkets
Largest global supplier of semiconductor Largest global supplier of semiconductor manufacturing equipmentmanufacturing equipment
Innovative technologiesInnovative technologies New wafer sizing and use of nanotechnologiesNew wafer sizing and use of nanotechnologies
Consistent dedication R&D SpendingConsistent dedication R&D Spending Nearly $1B in fiscal 2004 (over 13% of revenue)Nearly $1B in fiscal 2004 (over 13% of revenue)
Fisher ApproachFisher Approach
1.1. Functional Factors:Functional Factors: Global leader in semiconductor manufacturing Global leader in semiconductor manufacturing
equipment productionequipment production Strong customer base with weak competitionStrong customer base with weak competition
2.2. People Factors:People Factors: Experienced managersExperienced managers Generous with management compensation (stock Generous with management compensation (stock
options)options)
3.3. Essential Business Characteristics:Essential Business Characteristics: Strong competitive positionStrong competitive position High growth industry with many applicationsHigh growth industry with many applications
4.4. Value of the Stock:Value of the Stock: Mid-point of 52 week rangeMid-point of 52 week range High levels of growth priced into stockHigh levels of growth priced into stock
RecommendationRecommendation
PROSPROS Industry Industry
leaderleader
Commitment Commitment to R&D to R&D SpendingSpending
CONSCONS Poor growthPoor growth Pending Lawsuit Pending Lawsuit
with major with major competitorcompetitor
High stock High stock option expensingoption expensing
Too Expensive!Too Expensive!
SELLSELL