Semiconductors
Presented by
Aman Bansi
Mark Thomlinson
Barnard Choi
Agenda
• Industry overview
• Intel
• AMD
• Applied Materials
A Brief History
• Pre-1950’s - Vacuum tubes
• 1945 - ENIAC is developed for military
•
•
•
•
•
application in WWII
1947 - Bell Telephone Laboratories develops
the transistor
1959 - Texas Instruments and Fairchild
semiconductor separately develop the
integrated circuit
1965 – Moore’s Law
1968 – Intel founded
1970-72 – Intel introduces the 4004, and 8008
processors
Terminology
• Semiconductor
-A material with an electrical conductivity between
that of an insulator and a conductor
Behaves as an insulator at very low temperature,
and conducts electricity at room temperature
-Silicon, germanium, and gallium arsenide
• Integrated Circuit
-A thin chip consisting of at least two
interconnected semiconductor devices
Terminology
• Transistor
-Semiconductor device which can be used for
amplification, switching, voltage stabilization
• Wafer
-A thin (1-3mm) slice of a semiconductor ingot
-The surface on which ICs are manufactured
Business Models
• Foundry
-Manufacturing
-Taiwan Semiconductor
• Fabless
-Development and Marketing
-NEC, hundreds of other firms
• Integrated Device Manufacturer (IDM)
-Development, Manufacturing, Marketing
-Intel, AMD
Moore’s Law
• Moore’s Law states, “Number of transistors on
chip doubles about every two years” this has made
reality by Intel
Use of Semiconductors
% of Semiconductor Use
5%
2%
12%
45%
13%
23%
Computers
Consumer Products
Communications Equipment
Manufactuirng Industries
Automobiles
Military
Semiconductor Industry Profile
• U.S. 2003 Sales=
• Worldwide 2003 Sales=
• % of Sales outside U.S.
$80 Billion
$165 Billion
Market
• Capital Equipment=$10
Billion, 14% of sales
• R & D Investment=$14
Billion, 17% of sales
73%
14%
17%
Global Shipments
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Americas
Europe
Japan
Asia Pacific
Sales by Region
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1994
1996
1998
USA
Europe
2000
Japan
2002
Asia
2004
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
Global Sales
250000
200000
150000
100000
50000
0
Integrated Circuit Production
1600
100
1400
90
1000
800
80
600
400
70
200
0
60
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05
Capacity
Wafer Starts
Utilization
Percent
WSpW x1000
1200
Capacity by Wafer Size
WSpW x1000
(8 inch equivalents)
1500.0
1250.0
1000.0
750.0
500.0
250.0
0.0
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
02 02 03 03 03 03 04 04 04 04 05 05
Fabrication process
Film Desposition
• Layer of insulating or conducting film is deposited or
grown on a wafer
• Four main types of deposition
• Atomic Layer Desposition (ALD)
• Chemical Vapour Desposition (CVD)
• Physical Vapour Desposition (PVD)
• Electro Chemical Plating (ECP)
Photolithography
•
•
•
•
Photolithography
Etch
Ion Implantation
Rapid Thermal Processing
Photolithography
• A layer of light sensitive photo resist is
applied to the previously deposited layer
• A mask (pattern) is placed on top of the
photo resist
• Ultraviolet light is flashed through the
mask, dissolving the exposed photo resist
Etch
• Process to selectively remove material
from the surface of a wafer
• The original film which was under the
photo resist is then dissolved by
microscopic droplets of chemical
• This process leaves the circuit’s pattern
on the wafer
Ion Implantation
• Silicon wafers are bombarded by a beam of ions
that penetrate (implant) the film surface to a
desired depth
• Used during transistor fabrication to change
electrical properties of a material
• Important for enabling the fabrication of smaller
structures with faster transistor performance
• Systems to perform 45 and 65 nm implantation
Rapid Thermal Processing
• Rapid bursts of intense heat
• Room temperature to more than 1,000
degrees Celsius in seconds
• Used for modifying the properties of the
implanted ions
Chemical Mechanical Polishing
• Removes material from a wafer to create a
flat surface
• This process allows subsequent
photolithography patterning steps to occur
with greater accuracy
• Enables film layers to build with minimal
height variations.
Metrology and Wafer Inspection
• Scanning Electron Microscopes
• Imaging of critical dimensions
• Determination of defect’s source
• High speed, laser-based technology
Regulatory Environment
• The U.S. government regulates exports and certain
uses of some types of semiconductors due to their
potential use in military applications
• Intellectual property laws mainly in the area of
patents
• Environmental management has become an
important factor in the production and delivery of
semiconductor components to end users
-reduce emission of PFC's
Semiconductor Trends
• Cost-per-function of ICs will drop long after Moore’s Law is
obsolete, due to various future design and fabrication
innovations
• As Moore's Law assumptions become less valid,
something will have to change
• Future area of cost reduction may be verification, a major
source of bottle neck in IC production
• The methods for achieving higher quality and lower
costs will change
Trends (cont.)
Innovative assembly and packaging of multiple-chip
modules
Power-aware design rules
Design-for-manufacturing (DFM) improvements
Lithography-friendly tools to enable designers to
analyze the effects of manufacturing variability
The integration of physical verification and test to
enhance debugging and improve yields.
A learning curve that will tell us what needs to
happen beyond just shrinking the design rules
Growth segments
• High growth application areas for automotive semiconductors:
• Safety features (airbags, cruise control, collision avoidance)
• Cockpit electronics (phones, entertainment)
• Consumer Electronics
• accounts for 50% of the total sales of semiconductors
• digital cameras, camcorders, DVD players and CD players
• Digital televisions and wireless communication equipment with
wideband data capability
Presented by:
Aman Bansi
Agenda
A Brief history
Underlying Business
Management
Fundamental’s
Financial Analysis
Quarterly Update
Financial Ratios
Value Drivers
Fisher
Recommendation
Corporate Mission, Values,
Objectives
• Our Mission
-Do a great job for our customers, employees, and
stockholders by being the preeminent building block
supplier to the worldwide digital economy
• Our Values
-Customer & Results orientation, risk taking, great
place to work, quality, discipline
• Our Objectives
-Extend silicon leadership and manufacturing capability,
deliver architectural innovation for platforms &
pursue worldwide opportunities
A Brief History
• Founded in 1968 by Bob Noyce & Gordon Moore to
build semiconductor memory products
• 1970-1980
-Introduction of the first microprocessor and initial
public offering
-Microprocessor 8080 introduced, 10 times faster
then previous microprocessors & used in the first
personal computers
-Intel wins the IBM PC account
• 1980-1990
-Intel 386 processor launched, 275k transistors
-Intel enters flash memory business
-Reincorporated in Delaware
Brief History Continued
• 1990-2000
-Bob Noyce passed away of heart attack
-Intel becomes household name & logo begins
appearing on PC’s world wide
-Becomes largest semiconductor supplier in the world
-Introduces Pentium processor, 3.1million transistors
-Intel chips power 85% of all desktops
-Intel celeron processor introduced
• 2000-Present
-Pentium 4 processor introduced, 42-mill. Transistors
-hyper threading technology is introduced
-introduced Intel centrino mobile technology
Business Segments and Products
• Intel Architecture Business
-Microprocessors
-Chipsets
-Motherboard Products
Business Segments and Products
Continued
• Intel Communications Group
-Flash Memory
-Application Processors & Components for Handheld
Computing & Communication Devices
-Wired & Wireless Connectivity Products
-Networked Storage
New Business Segments
•
•
•
•
•
Mobility Group
Digital Enterprise Group
Digital Home Group
Digital Health Group
Channel Platforms Group
Customers
• Original Equipment Manufactures (OEMs) &
Original Design Manufactures (ODMs)
• PC and Network Communication product users
• Other Manufacturers
Intel Architecture Business
Competitors
•
•
•
•
•
•
AMD
IBM
Hewlett-Packard Company
Sun Microsystems
ATI technologies
Silicon Integrated Systems Corporation (SIS)
Intel Communications Group
Competitors
•
•
•
•
•
•
QUALCOMM
Samsung Electronics Company LTD
Spansion LLC (subsidiary of AMD)
Texas Instruments INC
Applied Micro Circuits
Atheros Communications
Future Growth
“Using Core Strengths for Worldwide Growth”
• Manufacturing & Technology
• Architecture & Platforms
• Ecosystem Development
-Intel Capital
• Global Presence
• Our Brand
• Corporate Excellence
Management
• Craig Barrett, chairman of the Board
since May 2005
-Previously CEO (1998-2005)
• Paul Otellini, (CEO) since May 2005
-Previously served as COO & President
(2002-2005)
Management Continued
• Andy D. Bryant, Chief Financial &
Enterprise Services Officer
-Previously CFO (1994-1999)
• Sean Maloney, Executive VP
General manager, Mobility Group
-Previously senior vice president
(1999-2001)
Executive Compensation
Based on Year ending 2004
Name and Principal Position
Craig R. Barrett
CEO now Chairman of Board
Annual Compensation
LT Compensation Awards
Year
Salary ($) Bonus ($)(1) Securities Underlying Options All other Compensation
2004
2003
2002
610000
610000
610000
1844000
1512100
1070400
350000
1350000
584000
170700
134800
134900
2004
2003
2002
450000
350000
350000
1359700
867600
612600
300000
900000
664000
106400
77200
73000
Andy D. Bryant
Chief Financial and Enterprises Officer
2004
2003
2002
305000
290000
280000
913500
746700
532300
200000
200000
1332852
84600
66000
59900
Sean M. Maloney
Executive VP General Manager, Mobility Group
2004
2003
2002
250000
225000
225000
716000
538500
325100
200000
200000
1333707
63600
44100
46500
Paul S. Otellini
President and COO, now CEO
Executive Options
Based on 2004
Name
Craig R. Barrett
Paul S. Otellini
Andy D. Bryant
Sean M. Maloney
Number of Securities Underlying
Unexercised Options
Shares Acquired Value Realized in ($) Exercisable Unexercisable
384,000
10,667,300 2,666,200
3,142,500
192,000
5,356,700 1,608,600
2,345,000
400,000
5,390,100
852,100
1,714,400
0
0
840,600
1,701,800
Value of Unexercised
in-the-money Options
Exercisable
Unexercisable
21,771,000 10,636,800
11,478,500
6,799,500
7,181,800
1,942,800
4,903,200
1,944,200
Fundamental
Trade Date:
TICKER
Recent Price
EPS
P-E Ratio
Dividend Yield
Annual Dividend
Beta (5-Year)
Share Related:
Market Cap (millions)
Shares Outstanding (millions)
10-18-05
INTC
25.30
1.33
18
1.59%
.40
2.08
151509
6029
One Year Stock Performance
Five Year Stock Performance
20 Year Stock Performance
INTC vs. SOX
Financial Analysis
Where the Revenue Comes From
(In Millions)
2004
Intel Architecture Business
Net Revenue
Operating Income
Intel Communications Group
Net Revenue
Operating loss
All Other
Net Revenue
Operting loss
Total
Net Revenue
Operting Income
2003
2002
$ 29,167 $ 26,178 $ 22,347
$ 12,067 $ 10,354 $ 6,498
$ 5,027 $ 3,928 $ 4,288
$ (791) $ (824) $ (817)
$
15 $
35 $
129
$ (1,146) $ (1,997) $ (1,299)
$ 34,209 $ 30,141 $ 26,764
$ 10,130 $ 7,533 $ 4,382
Selected Financial Data
Revenue and Gross Margin
Geographic Breakdown
Revenue Composition
2004
2003
9%
9%
23%
28%
Americas
23%
45%
23%
Americas
Asia-Pacific
Asia-Pacific
Europe
Europe
Japan
Japan
40%
Research and Development
Dividend Summary
2005 Dividends
Declared Date
Record Date
Payable Date
Amount
9/15/2005
7/21/2005
3/24/2005
2/3/2005
11/7/2005
8/7/2005
5/7/2005
2/7/2005
12/1/2005
9/1/2005
6/1/2005
3/1/2005
0.08
0.08
0.08
0.08
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
2004 Dividends
Declared Date
Record Date
Payable Date
Amount
9/9/2004
7/21/2004
3/25/2004
1/21/2004
11/7/2004
8/7/2004
5/7/2004
2/7/2004
12/1/2004
9/1/2004
6/1/2004
3/1/2004
0.04
0.04
0.04
0.04
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
2003 Dividends
Declared Date
Record Date
Payable Date
Amount
9/11/2003
7/23/2003
3/25/2003
1/23/2003
11/7/2003
8/7/2003
5/7/2003
2/7/2003
12/1/2003
9/1/2003
6/1/2003
3/1/2003
0.02
0.02
0.02
0.02
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
2002 Dividends
Declared Date
Record Date
Payable Date
Amount
9/11/2002
7/17/2002
3/26/2002
1/16/2002
11/7/2002
8/7/2002
5/7/2002
2/7/2002
12/1/2002
9/1/2002
6/1/2002
3/1/2002
0.02
0.02
0.02
0.02
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
2001 Dividends
Declared Date
Record Date
Payable Date
Amount
9/17/2001
7/18/2001
3/23/2001
1/18/2001
11/7/2001
8/7/2001
5/7/2001
2/7/2001
12/1/2001
9/1/2001
6/1/2001
3/1/2001
0.02
0.02
0.02
0.02
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
2000 Dividends
Declared Date
Record Date
Payable Date
Amount
9/13/2000
7/17/2000
3/29/2000
1/12/2000
11/7/2000
8/7/2000
5/7/2000
2/7/2000
12/1/2000
9/1/2000
6/1/2000
3/1/2000
0.02
0.02
0.015 †
0.015 †
1999 Dividends
Type
Regular
Regular
Regular
Regular
Cas h
Cas h
Cas h
Cas h
Stock buybacks 2005
Quarter
Cumulativ
e$
millions
Q3
Shares
Cum.
$ Millions
Purchase Shares
(mil)
Purchase
(mil)
93.6
2486.9
2500
Q2
98.9
2393.3
2500
46785.7
Q1
107.9
2294.40
2500
44285.7
49285.7
Stock Buybacks 2004
Quarter
Shares
Cum.
$ Millions
Purchase Shares
(mil)
Purchase
(mil)
Cumulative $
millions
Q4
89
2186.50
2000
41785.70
Q3
106.3
2097.50
2500
39785.70
Q2
56
1991.20
1511
37285.7
Q1
49.2
1935.20
1505
35774.70
Stock Buyback Announcement 2005
• 25% increase in quarterly dividend payout starting
in first quarter of 2006
• Board authorized up to $25 billion in shares of
common stock repurchase
Quarterly Update
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION BY QUARTER
(Dollars in millions, except per share amounts)
Q3 2005
Q2 2005
Q3 2004
Q2 2004
Q1 2004
Q4 2003
Q3 2003
Q2 2003
Q1 2003
Net revenue
Cos t of s ales
$9,960
$4,012
$9,231
$4,028
$8,471
$3,752
$8,049
$3,269
$8,091
$3,221
$8,741
$3,185
$7,833
$3,275
$6,816
$3,348
$6,751
$3,239
Gross Margin
Res earch and developm ent
Marketing, general and adm inis trative
Am ortization and im pairm ent of goodwill
Am ortization and im pairm ent of acquis ition-related
intangibles and cos ts
Purchas ed in-proces s res earch and developm ent
Operating expenses
Operating income
Gains (los s es ) on equity s ecurities , net
Interes t and other
Income before taxes
Incom e taxes
Net income
Basic earnings per share
Diluted earnings per share
Common shares outstanding
Common shares assuming dilution
$5,948
$1,341
$1,478
$0
$5,203
$1,176
$1,342
$0
$4,719
$1,183
$1,123
$0
$4,780
$1,186
$1,170
$0
$4,870
$1,195
$1,141
$0
$5,556
$1,177
$1,141
$611
$4,558
$1,135
$1,046
$0
$3,468
$1,029
$1,073
$6
$3,512
$1,019
$1,018
$0
$29
$0
$2,848
$3,100
($2)
$145
$3,243
$1,248
$1,995
$0.33
$0.32
6,062
6,144
$36
$0
$2,554
$2,649
($22)
$127
$2,754
$716
$2,038
$0.33
$0.33
6,144
6,215
$40
$0
$2,346
$2,373
($10)
$63
$2,426
$520
$1,906
$0.30
$0.30
6,375
6,442
$43
$0
$2,399
$2,381
($8)
$47
$2,420
$663
$1,757
$0.27
$0.27
6,449
6,558
$58
$0
$2,394
$2,476
$19
$49
$2,544
$814
$1,730
$0.27
$0.26
6,480
6,624
$65
$0
$2,994
$2,562
($35)
$53
$2,580
$407
$2,173
$0.33
$0.33
6,512
6,671
$68
$5
$2,254
$2,304
($63)
$34
$2,275
$618
$1,657
$0.25
$0.25
6,517
6,625
$84
$0
$2,192
$1,276
($58)
$53
$1,271
$375
$896
$0.14
$0.14
6,525
6,580
$84
$0
$2,121
$1,391
($127)
$52
$1,316
$401
$915
$0.14
$0.14
6,556
6,610
INCOME:
BALANCE SHEET:
Current assets:
Cas h and s hort-term inves tm ents
Trading as s ets - fixed incom e
Trading as s ets - equities
Trading as s ets - equities offs etting deferred com p.
Total trading as s ets
Accounts receivable
Inventories :
Raw m aterials
Work in proces s
Finis hed goods
Total Inventories
Deferred tax as s ets and other
Total current assets
Property, plant and equipment, net
Marketable strategic equity securities
Other long-term investments
Total long-term investments
Goodwill
Other assets
Total assets
Current liabilities:
Short-term debt
Accounts payable and accrued liabilities
Deferred incom e on s hipm ents to dis tributors
Incom e taxes payable
Total current liabilities
Long-term debt
Deferred tax liabilities
$11,951
$1,632
$0
$350
$1,982
$3,748
$12,600
$1,883
$0
$341
$2,224
$3,448
$13,647
$2,192
$0
$318
$2,510
$3,266
$14,264
$2,390
$0
$318
$2,708
$3,183
$13,146
$2,265
$0
$307
$2,572
$3,374
$13,539
$2,321
$0
$304
$2,625
$2,960
$13,038
$2,118
$0
$284
$2,402
$3,290
$11,202
$2,162
$0
$272
$2,434
$2,850
$10,511
$1,675
$14
$235
$1,924
$2,964
$381
$1,434
$1,000
$2,815
$1,228
$21,724
$16,825
$520
$3,047
$3,567
$3,814
$1,430
$47,360
$384
$1,506
$849
$2,739
$1,179
$22,190
$16,624
$362
$2,247
$2,609
$3,805
$1,285
$46,513
$434
$1,750
$996
$3,180
$1,387
$23,990
$15,924
$461
$2,365
$2,826
$3,734
$1,326
$47,800
$395
$1,912
$916
$3,223
$1,380
$24,758
$16,007
$582
$2,238
$2,820
$3,730
$1,357
$48,672
$355
$1,682
$759
$2,796
$1,203
$23,091
$16,192
$608
$2,043
$2,651
$3,705
$1,449
$47,088
$333
$1,490
$696
$2,519
$1,239
$22,882
$16,661
$514
$1,866
$2,380
$3,705
$1,515
$47,143
$273
$1,247
$688
$2,225
$1,383
$22,338
$17,220
$561
$1,134
$1,695
$4,317
$1,433
$47,003
$245
$1,315
$592
$2,152
$1,464
$20,102
$17,292
$63
$1,219
$1,282
$4,314
$1,475
$44,465
$248
$1,355
$561
$2,164
$1,513
$19,076
$17,589
$44
$1,144
$1,188
$4,328
$1,625
$43,806
$252
$6,654
$692
$1,901
$9,499
$432
$753
$318
$5,425
$707
$1,330
$7,780
$430
$689
$213
$5,514
$652
$1,431
$7,810
$882
$913
$216
$5,253
$640
$1,429
$7,538
$898
$1,643
$296
$4,928
$701
$491
$6,416
$927
$1,635
$224
$5,237
$633
$785
$6,879
$936
$1,482
$352
$4,751
$696
$1,470
$7,269
$882
$1,491
$385
$4,254
$598
$1,462
$6,699
$914
$1,362
$393
$4,061
$532
$1,293
$6,279
$829
$1,297
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Ni n e Mon th s En de d
(In Mi l l i on s, Exce pt Pe r S h are Am ou n ts)
Net revenue
Cost of sales
Gross margin
$
O ctobe r 1,
S e pte m be r 25,
2005
2004
28,625 $
11,876
16,749
24,611
10,242
14,369
Research and development
3,783
3,564
Marketing, general and administrative
Amortization of acquisition-related
intangibles and costs
Operating expenses
Operating income
Gains (losses) on equity securities,
net
Interest and other, net
Income before taxes
Provision for taxes
Net income
4,082
3,434
103
7,968
8,781
141
7,139
7,230
$
(20
387
9,148
2,937
6,211 $
1
159
7,390
1,997
5,393
Basic earnings per common share
Diluted earnings per common share
$
$
1.01 $
1 $
0.84
0.82
Cash dividends declared per common
share
$
0.32 $
0.16
Weighted average common shares
outstanding
Weighted average common shares
outstanding, assuming dilution
6,139
6,435
6,211
6,541
CONS OLIDATED CONDENS ED BALANCE S HEETS (Unaudited)
(In Mi l l i on s )
O ctobe r 1,
De ce m be r 25,
2005
2004
As s ets
Current as s ets :
Cas h and cas h equivalents
Short-term inves tments
Trading as s ets
Accounts receivable, net
Inventories
Deferred tax as s ets
Other current as s ets
Total current as s ets
Property, plant and equipment, net of
accumulated depreciation of $26,303
($24,065 at December 25, 2004)
Mark etable s trategic equity s ecurities
Other long-term inves tments
Goodwill
Other as s ets
Total as s ets
Liabilities and s tock holders ’ equity
Current liabilities :
Short-term debt
Accounts payable
Accrued compens ation and benefits
Accrued advertis
ings hipments to
Deferred
income on
dis tributors
Other accrued liabilities
Income taxes payable
$
$
$
Total current liabilities
Long-term debt
Deferred tax liabilities
Commitments and contingencies
8,857 $
3,094
1,982
3,748
2,815
967
261
21,724
8,407
5,654
3,111
2,999
2,621
979
287
24,058
16,825
520
15,768
656
3,047
3,814
1,430
47,360 $
2,563
3,719
1,379
48,143
252 $
2,077
1,754
995
692
1,828
1,901
201
1,943
1,858
894
592
1,355
1,163
9,499
432
753
8,006
703
855
—
—
6,223
6,143
Stockholders ’ equity:
Preferred s tock
Common s tock and capital in exces s
of par value, 6,028 s hares is s ued and
(6,253 at December 25, 2004)
Acquis ition-related unearned s tock
compens ation
Accumulated other comprehens ive
income
Retained earnings
Total s tock holders ’ equity
Total liabilities and
s tock holders ’ equity
(2 )
$
(4
146
30,309
36,676
152
32,288
38,579
47,360 $
48,143
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
O ctober 1,
(In Millions)
September 25,
2005
Cash and cash equivalents, beginning of period
$
Cash flows provided by (used for) operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization of intangibles and other acquisition-related costs
(Gains) losses on equity securities, net
Net loss on retirements and impairments of property, plant and
equipment
Deferred taxes
Tax benefit from employee equity incentive plans
Changes in assets and liabilities:
Trading assets
Accounts receivable
Inventories
Accounts payable
Accrued compensation and benefits
Income taxes payable
Other assets and liabilities
2004
8,407
$
6,211
5,393
3,295
192
20
3,446
232
(1 )
57
(170 )
284
73
(283 )
277
1,129
(748 )
(193 )
131
(105 )
738
253
Total adjustments
Net cash provided by operating activities
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Purchases of available-for-sale investments
Maturities and sales of available-for-sale investments
Other investing activities
Net cash used for investing activities
Cash flows provided by (used for) financing activities:
Increase in short-term debt, net
Repayments and retirement of debt
Proceeds from sales of shares through employee equity incentive plans
Repurchase and retirement of common stock
Payment of dividends to stockholders
Net cash used for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, end of period
$
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Income taxes, net of refunds
$
$
7,971
133
(306
(660
235
(163
646
(18
4,883
3,611
11,094
9,004
(4,459
(103
(5,426
7,439
(241
(2,790
)
)
)
(2,812
(53
(12,706
10,633
(34
(4,972
)
)
64
—
1,058
(7,500 )
(1,476 )
(7,854 )
450
8,857 $
6
2,084
$
$
30
(7
793
(5,516
(770
(5,470
(1,438
6,533
23
1,362
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Revenue Composition up to Q3
2005
10%
Asia-Pacific
21%
49%
Americas
Europe
Japan
20%
Financial Ratios
Ratios
•
•
•
•
Price to Earnings
Return on Equity
Gross Profit margin
Net Profit Margin
18
19
57
21
Value Drivers
• Leader world wide in Research and
Development
• Cost effective in developing its products
• 18 years of profitability
• Global brand strength
• Unparalleled Industry Commitment
Fishers “Four Dimensions”
Analysis
• “Superiority in production,marketing, research
& financial skills”
-Intel is a low cost producer making them
have competitive advantage in the market
- very good cash position
-Successful R & D in place around the world
• “The People Factor”
-Intel has strong people that have been with
the company for a long time
-Executive team is not looking to be a leader
today but for decades to come
-training programs to help employees develop
Fishers “Four Dimensions” Analysis
Cont’d
• “Investment Characteristics of businesses”
-Intel operates quite efficiently that it creates
barriers to entry
-fragmented competition
• “the price of the investment”
-P/E low
-seems like there is room to grow in the industry
Recommendation
•
•
•
•
Company proven in the market to be a leader
Good financial results
Strong management
Future growth promising worldwide
BUY and HOLD
AMD
Advanced Micro Devices
By Barnard Ki Seong Choi
History



Founded in 1969 by Jerry Sanders
with $100,000 capital
Engineer and former worldwide
marketing director at Fairchild
Semiconductor
Goes public in September 1972
Executives

Hector de J. Ruiz, Ph.D.
Chairman of the Board, President and Chief Executive Officer

Dr. Bertrand Cambou
Executive Vice President and President and CEO, Spansion

Dirk Meyer
President & COO, Microprocessor Solutions Sector

Iain Morris
Senior Vice President, Personal Connectivity Solutions Group

Bob Rivet
Executive Vice President and Chief Financial Officer

The president, top executives in charge of AMD’s product
lines, and the CFO are all outsiders (a negative sign
according to Fisher’s people factors).
Products

Three product/service categories
• Processors

Control and computing tasks
• Flash Memory

Store data and programming instructions
• Connectivity Solutions

Embedded microprocessors for personal connectivity
devices and specific consumer markets
AMD Market Share
Global IC Market Share (%)
Others, 1.4
Intel, 80.8
AMD, 17.8
AMD Market Share (cont.)

Dell is now offering 6 Athlon 64 chips on its
website
• Dell is the last PC maker in the US to
exclusively use Intel processors
• October, AMD surpasses Intel in U.S. retail
stores (excludes sales made by direct sellers)
• 49.8 percent of PCs sold in domestic (US)
stores for the month, compared with Intel's
48.5 percent of the market
Firm Strategy


Leverage the strength of AMD64 technologybased processors to increase its share of the
market, especially in the enterprise segment
Provide customer-driven solutions to high growth
markets through strategic partnerships and the
50x15 Initiative (Goal to deliver Internet
connectivity to 50% of the world’s population by
2015).
• PIC (Personal Internet Communicator)
Regulatory Environment




Intellectual Property and Licensing
As of December 26, 2004, more than 6,500 U.S. patents
and over 2,000 patent applications pending in the U.S.
Patent cross-license agreement with Intel , under which
AMD pays Intel a royalty for certain licensed
microprocessor products sold by AMD and its affiliates
(ends in 2010)
Environmental Regulation
Stock Chart
Stock Chart (cont.)
Most Recent Information (As of Friday, November 18, 2005)
Last Trade: 26.74
Day's Range: 26.25 - 26.95
Trade Time: Nov-18
52wk Range: 14.08 - 26.53
Prev Close: 25.89
Volume: 16,000,100
Open: 26.25
Avg Vol (3m): 10,220,400
1y Target Est: 24.39
Market Cap: 10.80B
P/E (ttm): 393.24
EPS (ttm): 0.07
Div & Yield: N/A (N/A)
Sales Segmentation
2004 Sales by Region
Others
19%
Europe
26%
US
21%
China
9%
Japan
Korea 22%
3%
US
Japan
Korea
China
Europe
Others
Sales Segmentation (cont.)
Product Lines
Sales
Operating Income
Processors
2527.7
303
Memory
2342.5
35
Connectivity
131.22
-72
0
-44
Other
(millions of dollars)
Balance Sheet






Price/Book (mrq):3.35
Total Cash (mrq):1.34B
Total Cash Per Share (mrq):3.322
Total Debt (mrq):2.01B
Total Debt/Equity (mrq):0.676
Current Ratio (mrq):1.565
Income Statement
Revenues and Net Income
$6,000,000.00
$5,000,000.00
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$-$1,000,000.00
-$2,000,000.00
2000
2001
2002
2003
2004
Cash Flow Statement
PERIOD ENDING
26-Dec-04
28-Dec-03
29-Dec-02
Operating cash flow
1,086,521
295,586
(88,910)
Financing cash flow
_
(74,447)
75,727
Investing cash flow
(1,555,784)
83,183
(854,389)
Executive Options Outstanding (End of 2004)
Exercise price
# of shares (000s)
Weighted Average
Years Remaining
$0.01 ~ $9.56
14609
5.41
$9.57 ~ $14.64
15842
7.21
$14.65 ~ $15.5
14653
6.5
$15.55 ~ $45.5
8580
6.03
$0.01 ~ $45.5
53684
6.34
Value Drivers


R&D / speed of innovation
The ability to adjust to post-Moore’s Law
era and to continue the innovation process
will be key to determining company value
Valuation




AMD has negative FCFE
No dividend payout
P/E ratio = 393 (current)
Share price has increased nearly nine
times since its low in late 2002
Recommendation
SELL
• Stock chart shows that the stock is at a 4 year
high

•
•
•
•
•
Share price has increased 8 times from its 2002
lows
Uncertainty in the world after Moore’s Law
AMD has very low profitability
Intel is a formidable competitor
Low industry growth forecast
Top Management is mostly composed of
outsiders
APPLIED MATERIALS
THINK IT
BUILD IT
SCALE IT
APPLY IT
Presented by Marc Tomlinson
Current Stock Information
Symbol: AMAT
Exchange: NASDAQ
52 Week Range: 14.33 – 18.60
Current Price: 17.14
Shares Outstanding: 1.62 B
Market Capitalization: 27.81B
Average Daily Volume: 20.8M
Dividend Yield: $.12 (.7%)
Dividend Date: December 8, 2005
Profile
Largest supplier of machines and services
to the semiconductor industry
Dedicated to innovation to bring
manufacturing technology to customer
who manufacture the world’s most
advanced chips
13,000 employees in 65 offices throughout
the world
“The company that makes the systems
that make the chips that change the world”
Corporate Mission and Goal
Mission Statement

To be the leading supplier of semiconductor
fabrication solutions worldwide—through
innovation and enhancement of customer
productivity with systems and service
solutions
Goal

Our customers' business results come first
Key Executives
James C. Morgan
 Chairman
 Company Service
Chairman of the Board of Directors since 1987
CEO from 1977 to April 2003.
President from 1976 to 1987
Michael R. Splinter
 President, CEO and Director
 Company Service
President and CEO Since April 30, 2003

Prior Service
20 years with Intel
Executive Vice President and Director of Sales and
Marketing
General Manager of Technology and Manufacturing
Key Executives
Nancy H. Handel


Group Vice President and Chief Financial Officer
Company Service
Joined the company in 1985
Group VP and CFO since 2004.
Group VP, Deputy CFO and Controller since 2000
Franz Janker


Senior Vice President, Sales and Marketing
Company Service
Joined the company in 1982
Senior VP of Sales and Marketing since May 2003
Senior VP of Global Operations and Corporate
Marketing in 2002
A Brief History
1967

Applied is founded by Michael McNeilly
1972

Initial public offering
1977

James Morgan becomes CEO
A Brief History
1979-1991

Expansion throughout Asia
1992

Applied becomes the world’s largest
equipment manufacturer
1997-2004

12 acquisitions solidify position and expand
product offerings
One Year Stock Performance
AMAT vs. SOX and S&P
Five Year Stock Performance
AMAT vs. SOX and S&P
20 Year Stock Performance
AMAT vs. SOX and S&P
Platform Portfolio
Endura
Centura
Platform Portfolio
Vantage
Producer
Process Portfolio
Film desposition
Photolithography




Photolithography
Etching
Ion Implantation
Rapid Thermal Processing
Chemical Mechanical Planarization (CMP)
Metrology and Wafer Inspection
Mask Making
Flat Panel Displays
Factory Software
Factory Software
FAB300


MES designed specifically for 300mm wafer
facilities
Provides superior tool automation and factorywide process automation
Applied WorkStream

Provides real-time information and proven
factory control
Flat Panel Displays
Produced by Applied’s subsidiary AKT
Similar manufacturing process for
semiconductors

Difference is the size of the display
Systems for substrates
of up to 2.2 meters
Key Customers
Texas Instruments
Intel
IBM
Motorola (Freescale)
AMD
Taiwan semiconductor
Samsung
LG Philips
Sharp
Toshiba
Note: No single customer accounts for more
than 10% of Applied’s revenue
Major Competitors
Largest competitors
Company
Ticker
Mkt
Cap
Sales
GM
(M)
R&D
(M)
Tokyo
Electron
8035:JP
9.6 B
5.0 B
1,380
N/A
950
18.6
13.3
3.4
Tencor
KLAC
9.8 B
2.1 B
1,220
340
350
14.6
23.5
3.1
LAM
LRCX
5.1 B
1.5 B
764
194
366
26.3
20.7
4.5
Novellus
NVLS
3.3 B
1.4 B
665
252
-154
6.7
26.4
1.7
Teradyne
TER
2.7 B
1.8 B
723
262
-38
-12.0
N/A
2.6
44 smaller, niche market firms

Market Cap of 3.6M to 1.9B
FCF
(Est)
ROE
P/E
P / BV
Tokyo Electron
Second largest equipment supplier
Mirrors Applied’s product line

Including flat panel displays
Distributes other company’s products in
Japan

Including chips, boards, and software
Countries: Japan, USA, Korea, Taiwan,
UK
Tencor
Product Focus

Yield management systems
CMP
Etch
Films
Lithography
Sales by Region
Europe & Israel,
266,177, 13%
USA, 645,328,
30%
Japan, 450,397,
22%
Asia Pacific,
293,492, 14%
Taiwan, 429,759,
21%
LAM Research
Product Focus


Etch
Cleaning systems
72% of sales are from Asia
Sales by Region
United States,
234,112, 16%
Korea,
280,605, 19%
Europe,
184,014, 12%
Japan,
221,689, 15%
Asia Pacific,
582,033, 38%
Novellus
Product Focus

Deposition
Physical vapor
deposition (PVD)
Electrochemical
deposition (ECD)

Interconnect
process
Sales by Region
Europe,
Pacific Rim,
USA,
47,661, 4%
223738, 16%
827,815, 61%
Asia,
258,074, 19%
Teradyne
Product Focus

Automatic test equipment
Industries




Broadband Internet and VOIP
Military and Aerospace
Semiconductors
Automotive
Sales by Region
USA,
477,546, 26%
Singapore,
232,297, 13%
Other,
172,350, 10%
Europe,
275,887, 15%
South East
Asia,
367,598, 21%
Taiwan,
266,202, 15%
Competitor Summary
Applied is the dominant, complete process
supplier
Strong competition from niche suppliers



Yield management (Tencor)
Desposition (Novellus)
Etching (LAM)
Regional competition in Asia

Tokyo Electron, LAM Research
Competition from Teradyne in growth segments

Automotive, Internet
Annual Financial Statement
Analysis
Compensation and Options
Income Statement
Balance Sheet
Cash Flow Statement
Executive Compensation
Type of Compensation
Annual
Year
James C. Morgan
Chairman
Michael R. Splinter
President and CEO
Franz Janker
Executive VP, Sales
and Marketing
Nancy H. Handel
Senior VP and CFO
Joseph R. Bronson
Former Executive VP
and CFO
Salary
Long Term
Bonus
Other
Stock Awards
Options
2004
445,000
0
0
0
9,225
2003
684,615
0
0
600,000
9,000
2002
854,058
0
0
400,000
9,000
2004
900,000
5,000,000
0
1,100,000
47,846
2003
443,077
0
4,125,000
1,200,000
2,077
2004
433,127
1,097,717
0
340,000
9,225
2003
419,799
50,000
0
295,000
9,000
2002
332,508
90,000
0
0
9,000
2004
324,106
596,030
0
210,000
9,225
2003
304,161
54,774
0
100,000
9,000
2002
296,993
0
0
0
8,500
2004
550,000
0
0
405,000
9,225
2003
550,000
0
0
360,000
9,000
2002
516,347
0
0
240,000
9,000
Options Exercised and Granted
Name
Shares
Acquired
Number of Securities
Underlying Unexercised
Options
Realized
Value
Exercisable
James Morgan
Michael Splinter
Franz Janker
Nancy Handel
Joseph Bronson
Value of In-the-Money Options
Unexerciseable
Exercisable
Unexerciseable
960,000
15,870,784
1,920,000
1,400,000
288,000
718,000
0
0
300,000
2,000,000
114,000
342,000
108,000
1,501,319
430,000
775,000
905,218
400,750
60,000
763,770
371,000
425,000
581,796
36,050
225,000
1,980,813
1,000,000
0
72,000
0
Value at Expiration Assuming
Annual Rates of Stock
Appreciation
Number of
Options
% of Total
Granted
Exercise
Price
Expiration
Date
5%
10%
0
N/A
N/A
N/A
0
0
1,100,000
2.97
22.45
12/08/2010
10,053,340
23,428,570
Franz Janker
340,000
0.92
23.74
11/17/10
3,285,964
7,657,650
Nancy Handel
210,000
0.57
23.74
11/17/10
2,029,566
4,729,725
Joseph Bronson
405,000
1.09
22.45
12/08/2010
N/A
N/A
Employee
James Morgan
Michael Splinter
Outstanding Options
2002
Shares
Outstanding BOY
2003
WA
Exercise
Shares
2004
WA
Exercise
Shares
WA
Exercise
301,274
$15.57
268,562
$16.00
252,035
$16.56
8,802
$20.92
52,407
$13.61
37,089
$21.21
Exercised
-19,156
$6.82
-38,480
$6.67
-35,298
$9.85
Canceled
-22,358
$20.06
-30,454
$18.96
-26,238
$20.30
Outstanding EOY
268,562
$16.00
252,035
$16.56
227,588
$17.93
Exercisable EOY
114,188
$11.10
117,491
$15.94
105,252
$18.45
Granted and assumed
Exercise Prices
$ 0.01 - $ 4.99
$ 5.00 - $ 9.99
$10.00 - $19.99
$20.00 - $29.99
$30.00 - $59.99
Total
Options Outstanding
Options Exerciseable
Number
WA
Number
WA
of Shares Exercise WA Life of Shares Exercise
331
$2.67
2
331
$2.67
20,221
$7.27
0.8
20,220
$7.27
123,148
$16.17
4.1
35,274
$17.22
76,305
$21.74
4.2
41,875
$21.61
7,583
$37.31
2.5
7,552
$37.30
227,588
$17.93
3.8
105,252
$18.45
Net sales
CGS
Gross Margin
Operating Expenses
R&D
Marketing and Selling
G&A
Restructuring and Impairments
Litigation Settlements, net
Total Operating Expenses
EBITDA
Interest Expense
Interest Income
non-Recurring Income
EBT
Income Taxes
Income from Continuing Operations
Extraordinary Items
Net income (loss)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
8,013,053 4,477,291 5,062,312 7,343,248 9,564,412 5,096,302 4,041,687 4,074,275 4,144,817 3,061,881
4,311,808 2,872,836 3,005,651 4,091,215 4,708,684 2,677,083 2,178,531 2,173,350 2,195,078 1,652,033
3,701,245 1,604,455 2,056,661 3,252,033 4,855,728 2,419,219 1,863,156 1,900,925 1,949,739 1,409,848
991,873 920,618 1,052,269 1,198,799 1,107,922 740,114 643,852 567,612 481,394
394,376 325,189 385,693 508,214 483,316 340,515 321,606 314,381 313,631
357,245 300,676 323,262 393,710 477,437 354,781 272,109 252,214 226,063
25,100
0
50,915 237,227
40,000
85,479 221,164
167,459 371,754
0
0
0
0
0
0
0
0
26,627
1,937,580 1,918,237 1,846,703 2,321,887 2,108,675 1,486,325 1,474,794 1,134,207 1,046,188
1,763,665 -313,782 209,958 930,146 2,747,053 932,894 388,362 690,900 903,551
20,733
20,705
45,309
47,566
51,375
47,640
49,357
46,875
52,877
39,618
59,726
79,780
118,462 149,101 179,910 221,296 184,008 108,015
30,000
58,158
1,829,250 -211,556 340,511 1,103,802 2,937,844 1,023,343 437,833 798,921 922,436
71,507 328,574 884,292 330,458 148,863 300,447 322,851
-62,409
477,947
1,351,303 -149,147 269,004 775,228 2,053,552 692,885 288,970 498,474 599,585
-58,068
20,996
-267,399
1,351,303 -149,147 269,004 507,829 2,063,552 713,881 230,902 498,474 599,585
389,100
-538,247
316,699
-47,695
217,004 162,817
290,825 1,900,735
88,432
625,449
84,808
146,094
32,079
466,395
9,835
589,750
329,676
223,296
162,944
0
0
715,916
693,932
21,401
26,012
698,543
244,490
454,053
454,053
Proforma Adjustment for Options
Proforma Net Income
345,897
1,005,406
Year end shares outstanding
Change in Shares
EPS
Proforma EPS
1,680,264 1,677,400 1,648,028 1,631,540 1,624,924 1,530,664 1,471,456 1,469,000 1,441,880 1,434,224
7,656
27,120
2,456
59,208
94,260
6,616
16,488
29,372
2,864
0.32
0.418
0.343
0.158
0.498
1.28
0.31
0.16
-0.09
0.8
0.32
0.41
0.32
0.10
0.41
1.17
0.18
-0.03
-0.32
0.60
454,053
Income Statement Highlights
Sales
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
8,013,053
4,477,291
5,062,312
7,343,248
9,564,412
4,859,136
4,041,687
4,074,275
4,144,817
3,061,881
1,659,807
1,080,047
751,383
638,606
567,130
GM
3,701,245
1,604,455
2,056,661
3,252,033
4,855,728
2,321,843
1,863,156
1,900,925
1,949,739
1,409,848
768,295
475,684
308,204
268,581
265,129
R&D
991,873
920,618
1,052,269
1,198,799
1,107,922
681,797
643,852
567,612
481,394
329,676
189,126
140,161
109,196
102,665
97,066
EBITDA
1,763,665
-313,782
209,958
930,146
2,747,053
933,661
388,362
690,900
903,551
693,932
339,237
160,994
68,376
52,688
58,950
Net Income
1,351,303
-149,147
269,004
507,829
2,063,552
746,649
230,902
498,474
599,585
454,053
220,696
99,695
39,480
26,231
34,073
New Orders, Sales, GP, Net Income
14,000.00
Millions of Dollars
12,000.00
10,000.00
8,000.00
New Orders
Sales
6,000.00
Gross Profit
4,000.00
Net Income
2,000.00
0.00
-2,000.00
2000
2001
2002
2003
2004
Year
2000
1.28
Book to Bill Ratio
2001
2002
2003
0.83
1.21
0.96
2004
1.12
Regional Sales Growth
100%
80%
60%
40%
Taiwan
Asia
Japan
North America
Korea
Europe
Total Sales
2004
2,006
1,580
1,417
1,337
879
794
8,013
2003 2002
583 1,238
527
636
827
757
1,179 794,
1,328
10%
666
443
879,
11%
695
660
4,477 5,062
2001
2,131
842
1,876
2,131
449
1,085
8,514
1,337, 17%
100%
20%
80%
0%
2004
2003
Taiwan
Taiwan
Asia
Japan
North America
Korea
Europe
Total Sales
1995-2004
768.4%
2006.7%
79.4%
35.3%
74.4%
68.9%
162.0%
2002
Asia
2004
244%
200%
71%
13%
32%
14%
79%
2001
Japan
2003
-53%
-17%
9%
-11%
50%
5%
-12%
2000
1999
1998
North America
2002
-42%
-24%
-60%
-38%
-1%
-39%
-41%
2001
-8%
22%
24%
-18%
-48%
-24%
-10%
1997
1996
Korea
60%
2000
1999
39% 104%
134% 40%59%
84%
21%
290% -57%
174%
90%
20%
87%
19%
108%
12%
1995
Europe
1998
17%
-4%
-9%
3%
-50%
8%
-1%
1997
71%
-6%
-26%
18%
-41%
-12%
-2%
1996
76%
175%
28%
29%
13%
46%
35%
2004 Regional Sales
Europe
Taiwan
10%
24%
Korea
11%
North America
17%
Asia
20%
Japan
18%
R&D as a Percent of Sales
12,000,000
10,000,000
25%
20%
8,000,000
15%
Sales
R&D
6,000,000
10%
4,000,000
2,000,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0
5%
0%
2004
2003
2002
Current Assets
Cash
Short Term Investments
Total Cash
AR
Inventories
Deferred income taxes
Other Current Assets
Total Current Assets
2,281,844
4,296,152
6,577,996
1,670,153
1,139,368
610,095
283,907
10,281,519
Long Term Assets
PPE
PPE - Gross
Less: AA
PPE - Net
Goodwill, net
Other Assets
Long Term Assets
Total Assets
2,953,130 3,094,427 3,223,133
1,607,602 1,534,597 1,458,196
1,345,528 1,559,830 1,764,937
257,321
223,521
202,290
158,786
64,986
184,745
1,811,926 1,940,849 2,151,972
12,093,445 10,311,622 10,224,765
Liabilities
Current Liabilities
Notes payable
CPLTD
AP and Accrued Expenses
Income Taxes Payable
Current Liabilities
Long Term Liabilities
Long-term debt
Deferred income taxes
Other liabilities
FIT and other Liabilities
Total LT Liabilities
Total Liabilities
Shareholder's Equity
Common stockand Paid in Capital
Retained Earnings
Total Equity
Liabilities and Equity
1,364,857
4,128,349
5,493,206
912,875
950,692
782,823
231,177
8,370,773
1,284,791
3,644,735
4,929,526
1,046,016
1,273,816
565,936
257,499
8,072,793
2001
1,356,304
3,485,088
4,841,392
776,451
1,412,997
551,785
199,549
7,782,174
2000
1999
1998
1997
1996
1995
1,647,604
2,580,435
4,228,039
2,351,379
1,503,751
549,108
206,870
8,839,147
823,272
1,937,179
2,760,451
1,198,069
632,717
324,024
145,200
5,060,461
575,205
1,188,351
1,763,556
764,472
555,881
337,906
97,140
3,518,955
448,043
1,094,912
1,542,955
1,110,885
686,451
324,568
105,498
3,770,357
403,888
633,744
1,037,632
822,384
478,552
281,586
72,915
2,693,069
285,845
483,487
769,332
817,730
427,413
198,888
98,250
2,311,613
3,015,587 2,496,476
1,309,099 1,129,694
1,706,488 1,366,782
111,302
100,335
228,546
239,466
2,046,336 1,706,583
9,828,510 10,545,730
2,158,958
931,221
1,227,737
162,015
256,291
1,646,043
6,706,504
1,998,144
736,624
1,261,520
0
149,217
1,410,737
4,929,692
1,565,755
499,702
1,066,053
0
234,356
1,300,409
5,070,766
1,265,646
346,608
919,038
0
25,880
944,918
3,637,987
859,663
228,917
630,746
0
23,020
653,766
2,965,379
0
45,864
1,895,061
347,056
2,287,981
0
105,292
1,319,471
216,114
1,640,877
40,323
9,453
1,348,156
103,524
1,501,456
0
4,807
1,477,531
50,478
1,532,816
94,676
11,621
2,268,608
384,806
2,759,711
5,789
36,484
1,388,806
238,314
1,669,393
644
7,367
1,041,341
68,974
1,118,326
55,943
10,563
1,157,808
177,774
1,402,088
77,522
22,640
791,897
43,168
935,227
61,748
21,064
659,572
119,347
861,731
410,436
0
0
133,001
543,437
2,831,418
456,422
0
0
146,289
602,711
2,243,588
573,853
0
0
129,807
703,660
2,205,116
564,805
0
0
124,152
688,957
2,221,773
573,126
0
0
108,545
681,671
3,441,382
584,357
33,172
82,980
116,152
700,509
2,369,902
616,572
11,341
62,832
74,173
690,745
1,809,071
623,090
47,177
56,240
103,417
726,507
2,128,595
275,485
11,607
45,243
56,850
332,335
1,267,562
279,807
11,612
28,726
40,338
320,145
1,181,876
1,889,282 1,938,337
5,693,010 5,185,181
7,606,737 7,104,348
9,828,510 10,545,730
1,261,339
3,075,589
4,336,602
6,706,504
795,824
2,328,940
3,120,621
4,929,692
854,574
2,098,038
2,942,171
5,070,766
765,178
1,599,564
2,370,425
3,637,987
761,849
999,979
1,783,503
2,965,379
2,087,536 2,240,327 2,039,026
7,164,170 5,812,867 5,962,014
9,262,027 8,068,034 8,019,649
12,093,445 10,311,622 10,224,765
Balance Sheet Highlights
Cash
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
CA
6,577,996 10,281,519
5,493,206 8,370,773
4,929,526 8,072,793
4,841,392 7,782,174
4,228,039 8,839,147
2,760,451 5,060,461
1,763,556 3,518,955
1,542,955 3,770,357
1,037,632 2,693,069
769,332 2,311,613
442,325 1,230,537
226,180
775,916
222,670
581,797
140,134
434,199
72,016
366,894
PPE - Net Total Assets
1,345,528
1,559,830
1,764,937
1,706,488
1,366,782
1,227,737
1,261,520
1,066,053
919,038
630,746
452,454
327,704
258,521
213,231
181,494
12,093,445
10,311,622
10,224,765
9,828,510
10,545,730
6,706,504
4,929,692
5,070,766
3,637,987
2,965,379
1,702,665
1,120,152
853,822
660,756
558,009
CL
2,287,981
1,640,877
1,501,456
1,532,816
2,759,711
1,669,393
1,118,326
1,402,088
935,227
861,731
496,433
380,528
248,207
199,988
195,238
LT Liabilities
543,437
602,711
703,660
688,957
681,671
700,509
690,745
726,507
332,335
320,145
239,968
140,862
131,504
135,314
62,463
Equity
9,262,027
8,068,034
8,019,649
7,606,737
7,104,348
4,336,602
3,120,621
2,942,171
2,370,425
1,783,503
966,264
598,762
474,111
325,454
300,308
2004
Operating Cash Flow
Net income (loss)
1,351,303
Adjustments
Restructings and Impairments
81,300
Amortization - Deferred Compensation
355,538
Deferred income taxes
78,927
Tax Benefits - Stock Option Plans
100,599
Accounts receivable
-756,193
Inventories
-187,925
AP and Accrued Expenses
586,243
Income taxes payable
130,554
Other liabilities
1,982
Total Adjustments
275,968
Net Operating Cash Flows
1,627,271
Investing Cash Flow
Capital Expenditures
Acquisitions, Net of Cash Acquired
Sales of Short Term Investments
Purchases of ST Investments
Net Change in ST Investments
Net Investing Cash Flows
Financing Cash Flow
Short-term debt borrowings
Short-term debt repayments
Change in ST Debt
Long-term debt borrowings
Long-term debt repayments
Change in LT Debt
Common stock Issuance
Common stock Repurchases
Change in Common Stock
Net Financing Cash Flows
Change in Cash and Equivalents
2003
2002
2001
2000
1999
1998
1997
1996
1995
-149,147
269,004
507,829
2,063,552
747,675
230,902
498,474
599,585
454,053
88,859
381,655
-208,565
124,238
144,369
331,161
-59,923
111,624
20,493
950,901
801,754
27,605
387,526
-161
75,253
-278,387
147,015
-138,552
51,475
-2,383
223,134
492,138
74,218
0
386,971
361,970
88,230
-237,262
106,579
387,478
845,499 -1,086,262
321,164
-788,590
-687,132
835,675
-332,622
138,674
22,014
15,511
1,072,475
-411,737
1,580,304 1,651,815
0
288,409
10,340
151,291
-362,857
-56,314
183,158
164,607
12,329
332,967
1,080,642
0
284,500
-49,400
0
332,249
133,791
-159,471
-106,142
8,504
585,482
816,384
0
219,435
-52,543
0
-332,047
-171,201
352,540
137,560
11,242
203,238
701,712
0
148,865
-85,852
0
-43,789
-60,036
167,346
-73,938
19,662
92,444
692,029
0
83,231
-99,345
0
-442,935
-186,412
304,807
64,246
11,613
-311,354
142,699
-448,607
-339,364
0
-246,333
779,356
664,194
-872,795 -1,125,362
-93,439
-461,168
-574,273 -1,046,865
-452,535
0
707,620
-857,877
-150,257
-602,792
-265,557
0
351,230
-572,712
-221,482
-487,039
-190,577
-265,280
-417,080
-710,620
-383,255
-219,657
-7,400
-13,498
-107,462
-21,017
0
-36,466
3,380,542 1,941,111 2,188,117 2,054,004 2,008,257
961,866
-3,535,327 -2,446,927 -2,356,157 -2,905,680 -2,637,438 -1,710,694
-154,785
-505,816
-168,040
-851,676
-629,181
-748,828
-352,762
-731,273
-692,582 -1,583,313 -1,012,436
-982,337
0
-861
-861
0
-104,553
-104,553
396,610
-650,000
-253,390
-358,804
0
-41,949
-41949
0
-22,456
-22,456
322,721
-249,937
72,784
8,379
41,764
0
41764
21,713
-7,126
14,587
199,486
-124,995
74,491
130,842
-81,209
0
-81209
0
-10,395
-10,395
202,379
-371,400
-169,021
-260,625
86,382
0
86382
0
-36,444
-36,444
276,358
-177,154
99,204
149,142
4,849
0
4849
0
-21,380
-21,380
205,866
-61,913
143,953
127,422
-54,811
0
-54811
0
-9,422
-9,422
94,582
-153,332
-58,750
-122,983
-21,731
0
-21731
407,568
-67,372
340,196
150,446
-78,197
72,249
390,714
22,360
0
22360
29,832
-25,164
4,668
40,381
-37,052
3,329
30,357
18,847
0
18847
134,992
-51,303
83,689
370,353
0
370,353
472,889
916,987
80,066
-71,513
-291,300
779,483
248,067
127,162
44,155
118,043
125,525
Cash Flow Statement Highlights
Operations Investing
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1,627,271 -352,762
801,754 -731,273
492,138 -692,582
1,580,304 -1,583,313
1,651,815 -1,012,436
933,349 -989,274
816,384 -574,273
701,712 -1,046,865
692,029 -602,792
142,699 -487,039
111,024 -295,862
116,958 -184,577
59,151 -109,200
-62,730
39,022
-71,366
42,447
Stock
Repurchases
-253,390
72,784
74,491
-169,021
99,204
317,075
-58,750
72,249
3,329
370,353
134,263
21,566
102,564
6,538
4,451
Financing Net Cash Flow FCF Estimate
-358,804
8,379
130,842
-260,625
149,142
300,544
-122,983
390,714
30,357
472,889
224,181
27,820
83,494
93,852
28,927
916,987
80,066
-71,513
-291,300
779,483
248,067
127,162
44,155
118,043
125,525
40,723
-39,856
34,279
68,057
-309
1,274,509
70,481
-200,444
-3,009
639,379
-55,925
242,111
-345,153
89,237
-344,340
-184,838
-67,619
-50,049
-23,708
-28,919
Key Ratios
2004
2003
2002
2001
14.6%
-1.8%
3.4%
6.7% 29.0% 17.2%
Price to Book
2.92
4.85
3.09
7.19
12.15
27.71
15.56
15.10
16.27
38.80
Cash per Share
3.91
3.27
2.99
2.97
2.60
1.80
1.20
1.05
0.72
0.54
41.84 160.93 210.30
89.15
ROE
Price to Actual Earnings
20.02 -262.38
92.08 107.63
2000
1999
1998
1997
1996
1995
7.4% 16.9% 25.3% 25.5%
64.33 152.41
10-Q Analysis
Income Statement
Balance Sheet
Statement of Cash Flows
Net sales
Cost of products sold
Gross margin
Operating expenses:
R&D
Marketing and selling
General and administrative
Restructuring, asset impairments
and other charges
EBITDA
Interest expense
Interest income
Income before income taxes
Income Taxes
Net income
Earnings per share:
Basic
Diluted
Weighted average number of shares:
Basic
Diluted
August 1,
July 31,
August 1,
July 31,
2004
2005
2004
2005
$ 2,236,152 $ 1,631,938
1,176,920
914,849
1,059,232
717,089
256,781
101,513
87,394
236,448
98,366
79,578
$
—
613,544
13,489
24,869
624,924
184,353
440,571 $
—
302,697
9,338
45,948
339,307
(30,284 )
369,591
$
$
0.26 $
0.26 $
1,696,544
1,721,690
0.23
0.23
1,630,895
1,641,818
$ 5,809,705 $ 5,273,703
3,135,663
2,947,959
2,674,042
2,325,744
743,601
285,886
251,145
703,799
268,644
256,876
167,459
—
1,225,951
1,096,425
36,971
28,425
82,362
123,055
1,271,342
1,191,055
375,047
227,869
$
896,295 $
963,186
$
$
0.53 $
0.52 $
1,689,573
1,727,626
0.58
0.58
1,654,740
1,666,720
October 31
2004
Current assets:
Cash and cash equivalents
Short-term investments
Cash
Accounts receivable, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment
Less: accumulated depreciation and
Net property, plant and equipment
Goodwill, net
Purchased technology and other
Deferred income taxes and other
Total Long-Term Assets
Total assets
Current liabilities:
Current portion of long-term debt
Accounts payable and accrued
expenses
Income taxes payable
Total current liabilities
Long-term debt
Other liabilities
Total Long-Term Liabilities
Total liabilities
Stockholders’ equity:
Common Stock and Paid In
Capital
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’
July 31
2005
$ 1,493,292
5,084,704
6,577,996
1,670,153
1,139,368
610,095
283,907
10,281,519
2,953,130
-1,607,602
$ 1,255,746
4,972,697
6,228,443
1,525,133
1,073,722
627,366
289,805
9,744,469
2,993,156
-1,709,558
1,345,528
257,321
50,291
158,786
1,811,926
$ 12,093,445
1,283,598
337,825
88,601
164,156
1,874,180
$ 11,618,649
$
$
45,864
46,165
1,895,061
347,056
2,287,981
410,436
133,001
543,437
2,831,418
1,703,540
227,614
1,977,319
414,290
155,395
569,685
2,547,004
2,087,536
7,164,170
9,262,027
$ 12,093,445
1,003,289
8,078,026
9,071,645
$ 11,618,649
August 1,
2004
Cash flows from operating activities:
Net income
Adjustments
Depreciation and amortization
Loss on fixed asset retirements
Deferred income taxes
Changes in Operating Accounts
Accounts receivable
Inventories
Other current assets
Other assets
AP
Income taxes payable
Other liabilities
Operating Cash Flow
$
Cash flows from investing activities:
Capital expenditures
Cash paid for acquisitions, net of cash
Sale of Investments
Purchases of Investments
Investing Cash Flow
Cash flows from financing activities:
Repayments of short-term debt and credit
Repayments of long-term debt
Proceeds from common stock issuances
Common stock repurchases
Payments of dividends to stockholders
Financing Cash Flow
Increase/(decrease) in cash and cash
Starting Cash
Ending Cash
$
896,295
July 31,
2005
$
963,186
267,689
18,357
214,050
226,120
17,851
-21,699
-613,439
-199,605
-57,027
-71,165
472,002
107,378
3,590
1,120,197
177,664
91,026
27,483
-44,640
-261,494
-130,237
4,006
1,049,362
-150,273
-7,400
2,030,139
-2,412,887
-540,421
-136,766
-101,793
2,497,677
-2,396,433
-137,315
-861
-2,533
291264)
-150,000
—
137,870
719,412
-13,290
-2,924
165,752
-1,250,000
-49,330
-1,149,792
-237,546
757,400
1,476,812
$
1,493,292
1,255,746
Value Drivers
High R&D investment
Derived demand
Full systems supplier
Economies of scale
Geographic reach
Valuation
Inputs:

K = rf + BE (rp) = 17.8
Where




rf = 4% , BE = 2.3 , rp = 6%
g = 12%
FCF = 1,465
Number of Shares = 1.62B
P0 = [(1,465 B)(1 + g) / (.178 - .12)] / 1.62 B
= $17.46
Fisher’s Opinion
Superiority in production, marketing,
research, and financial skills



Strong cash position, low debt
Track record of innovation
Global sales force
The people factor

Many veterans, with some new faces
Fisher’s Opinion
Investment characteristics




Barriers to entry
Strong niche competitors
Competition is fragmented overall
Diversified customer base
Price

Fairly valued
Recommendation
Pros




Industry leader
Solid financial position
Innovative
In general, long term
management
Cons


Anti trust laws
Internal growth

HOLD
Excessive management
compensation
Applied’s size may limit
future, abnormal growth
Sales driven by highly
cyclical demand