Applied Materials: Results OK; Semiconductor Equip Cycle Appears To Be Bottoming

Applied Materials (NASDAQ:AMAT), the semiconductor equipment powerhouse, appeared to show signs that the semiconductor equipment market is close to bottoming during its quarterly conference call. Equipment orders were guided to be up 2%-7%, a good sign for the industry.

Michael Splinter, AMAT's CEO said the logic, foundry and display businesses should be bottoming during the next few quarters. Splinter sees strong memory purchases as some 20 memory fabs are due to be constructed to meet the growing demand for new products, such as NAND, which are being used more often as a substitute for disk drives.

What is becoming more and more clear as you listen to AMAT's conference calls and meetings with the investment community is just how powerful a company this is: 90% of orders are 300-millimeter, as semiconductor equipment buyers continue to push toward using newer technologies. This allows AMAT to build a bigger and bigger moat to fend-off competition.

AMAT generated free cash flow of $322 million, which is at the lower end of its free-cash-flow generation cycle. AMAT expects free cash flow generation to move higher from here. The stock buyback is large and dividend increases are also up ahead. AMAT is a very powerful company in a very important industry. It is time to start chipping away at this company.

Feburary 15