Applied Materials’ (AMAT) inventory gained in after hours following its quarterly and FY earnings announcement. But here is what the corporate did not say:
1. Revenues within the semiconductor sector dropped four.zero% QoQ. The firm uncared for to report and examine its Q3 FY2017 semiconductor revenues within the launch, as a substitute evaluating This autumn 2017 revenues with This autumn 2016 revenues. In truth, AMAT has been eliminating some necessary monetary info in latest quarters. For instance, in Q2 FY2017 the corporate stopped reporting “New Orders” in its monetary launch. And in Q3 FY2017, it stopped reporting QoQ gross sales. I mentioned this in a May 15, 2017 Seeking Alpha article entitled “Applied Materials Lost Market Share To Nearly All Major Competitors In Its Recent FYQ2.”
2. The second factor the corporate did not say, as proven in Table 1, is that whereas revenues dropped four.zero% in Q3, foremost deposition-etch competitor Lam Research (LRCX) elevated 5.7% and metrology/inspection competitor KLA-Tencor (KLAC) elevated 5.7%. Another deposition-etch competitor TEL additionally reported a rise of 19.7%. Ion Implantation competitor Axcelis (ACLS) additionally reported constructive progress QoQ. Indeed, it was solely Japan’s Hitachi High Technologies and Korean gear firms Wonik and TES that exhibited unfavourable progress.
three. The third factor the corporate did not say is that income progress for foremost competitor LRCX was larger for the previous three quarters in comparison with AMAT. I say foremost competitor as a result of the battle between the 2 firms is being fought within the DRAM and NAND market. That’s necessary as a result of firms in these reminiscence sectors, Samsung Electronics (OTC:SSNLF), SK Hynix, and Toshiba aren’t solely experiencing robust income progress, they’re constructing or increasing new fabs. Couple that with three Chinese reminiscence suppliers within the strategy of coming into the market with new fabs and the expansion potential is big. You can learn extra concerning the reminiscence sector in my November 15, 2017 Seeking Alpha article entitled “Micron Technology Needs To Pull Out All Stops To Remain Competitive In 3D NAND”.
four. The fourth factor, and this can be crucial, AMAT is at risk of shedding its number one place within the semiconductor gear market. Data within the desk above are a bit deceiving. It would seem that each LRCX and ASML (ASML) had larger revenues than AMAT in CY2017 Q3. However, AMAT contains service and spare components in its Applied Global Services enterprise section and its revenues listed above are “equipment only”. Instead, each LRCX and ASML, and the remainder of the businesses as properly, embody service and spare components in its revenues. Service and spare components for each firms represents about 20% of kit revenues reported by the businesses.
Investors and merchants have to look deeper into monetary studies from Applied Materials (in addition to all firms), and infrequently the hype surrounding outcomes masks different outcomes that aren’t as constructive. I’ve famous this can be a constant theme with AMAT administration, comparable to eliminating monetary info that might be necessary to traders (see above).
Why is market share necessary? I mentioned this in a August 18, 2017 Seeking Alpha article entitled “Applied Materials Is Facing Headwinds From Competitors And A Waning Semiconductor Equipment Market,” which I spotlight right here:
“Customers, which are semiconductor manufacturers, make equipment purchases based on “best-of-breed” once they transfer from one know-how node to the subsequent (bigger to smaller dimensions). If a buyer chooses one gear provider over one other, one of many main components is the technical capabilities of the gear. With billions of in chip revenues at stake, a semiconductor firm won’t make concessions based mostly on gear gross sales value or how good the gross sales individuals are.
Once the gear for the subsequent know-how node is put in and manufacturing ramps, there might be a time when capability purchases might be made. This means the identical gear and mannequin bought to make extra chips. Thus, that extra gear from the SAME firm might be bought. Looking ahead, market share loses would amplify.”
Another necessary issue for traders is that semiconductor gear revenues progress throughout the board have been dropping for the previous three quarters. I mentioned this challenge in an October 26, 2017 Seeking Alpha article entitled “Semiconductor Revenues Keep Dropping As Stocks Keep Rising,” and I refer the reader to the in-depth evaluation offered there. But it signifies that the heady days of semiconductor gear income progress could also be coming to an finish.
Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours.
I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Seeking Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.
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