Tuesday, November 23, 2010

WaferNEWS Watch: Inside AMAT's 4Q numbers, 2011 outlooks

We take a look at AMAT's fiscal 4Q10 and 2010 numbers and 2011 forecasts, for its own businesses and WFE overall -- where it's made share gains, where it sees strength and softness, and how the pipeline has changed significantly.

AMAT's 4Q10 numbers at a glance:

AMAT topped Wall Street outlooks for its fiscal fourth quarter (ended Oct. 31): $0.35 EPS on $2.89B in sales (15% growth on the latter), vs. $0.31 and $2.59B. Bookings overall were up 11% Q/Q, Sales for the fiscal year were up 90% to $9.55B, with a $938M profit ($0.70 EPS). (Fiscal year results would have been higher without charges related to ramping down its thin-film PV activities.) For its fiscal 1Q11 AMAT sees sales down -8% to -15% ($2.46B-$2.63B), at the floor of Wall Street's $2.63B estimates, with $0.32 EPS right in line with the Street's expectations.

Key takeaways from the AMAT numbers and conference call, highlighted by industry watchers:

-- Bookings and backlog strong, but 1Q soft anyway. DRAM memory spending is down and will continue to be soft, but foundry and log more than made up for it in 4Q10.

AMAT's Mike Splinter pegged 2011 wafer fabrication equipment (WFE) sales at roughly the same dollar figure as 2010, $29B-$30B, plus or minus 10% (this "is now the most aggressive on the street," noted Credit Suisse's Satya Kumar), and the company is now tracking 17 fabs, vs. the 14 it said in July at SEMICON West. Look for a big bounce in NAND spending in 2011, with foundry spending flat or a little up.

WFE flat; NAND up, DRAM's the key. For WFE, and particularly NAND, look for the second half of 2011 to be stronger than the first half, according to AMAT's Splinter. A big driver of NAND spending will be to support tablets and smartphones; he cast out production numbers of 50M and 400M, respectively. "The big pitfall or potential upside is all around DRAM and PC-related demand," Splinter said during the conference call Q&A. "If WFE stays as strong as it is at the beginning of the year we'll have a stronger year."

Share gains in etch, CMP, wafer-level packaging. AMAT believes it has gained 2 percentage points of market share in that sector (roughly equal to $600M in sales), including 4 percentage points in etch (a point it made last quarter too. Barclays' CJ Muse narrows this down to wins at TSMC (CMP, WLP ECP), Samsung (silicon etch, inspection), and Intel (WLP ECP). "We won a lot of share back" in CMP, Splinter noted in the conference call Q&A, and "won basically over 60%" of decisions in wafer-level packaging.

200mm is robust. "Right now we're in a bit of a surge on 200 millimeter capacity," AMAT's Splinter said during the conference call Q&A. The company's AGS (services) business saw its margins dented because of this, due to 200mm shipment issues, admitted CFO George Davis during the Q&A -- as others had warned might happen. A lot of 200mm capacity was taken offline in 2009, but is still and increasingly desirable for things like MEMS, power transistors, analog devices, display drivers, even solar panels and electric cars. Look for 200mm demand to peak "sometime in 2011" and then level off for a few quarters at around 10%-20% rate, Splinter suggested.

Solar still strong, at least c-Si. Softness also is taking hold in the company's displays and EES segment, though crystalline silicon solar continues to be a good business, AMAT says: its EES sales in 1Q11 (c-Si only now) will "eclipse" 4Q levels, and installs could increase nearly 30% in 2011 to 21GWp. (Though this could be the first candidate for overcapacity risk and underperforming orders, warns Deutsche Bank's Peter Kim.) AMAT still has one SunFab factory it's waiting for signoff (~$50M-$75M), and is in talks with other SunFab customers about potential upgrades but with no forecasted business coming at this point.

AMAT's numbers of solar capacity additions are "significantly first-half weighted," noted Credit Suisse's Satya Kumar, and most of that is probably coming in low-cost regions -- e.g. China and Taiwan, which drove 75% of 2010 capacity adds and now encompass 65% of global solar capacity. 85% of AMAT's EES backlog is in c-Si, he added.

It's a new turns-business world. AMAT execs corrected one Wall Street analyst during the conference call Q&A who tried to extrapolate current bookings trends into 2011 shipments and sales. "Our order pattern has dramatically changed from history," Splinter said, and looking at the bookings backlog has become more about "who is ordering them than order of magnitude itself." Customers aren't ordering now for deliveries six months out or more (i.e. into 2H11), it's the "other way around, ordering now for deliveries in this quarter."

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