Applied Materials (AMAT)

[rayrohn]

Standard & Poor's Rating Change

Forecast: Following a 17% revenue decline in FY 08 (Oct.), we see sales falling an additional 25% in FY 09. While we expect flat panel and semiconductor equipment orders to remain muted amid a softening global economic landscape, we project healthy demand for AMAT's solar equipment over the next several quarters. We see solar as a large growth driver but remain wary of the ability of customers to receive financing. We think visibility for DRAM and NAND memory orders will remain weak until economic conditions improve. We project gross margins of 39% in FY 09 compared to 42% in FY 08. While we think margins will be pressured by higher spending to ramp up its solar business, we see AMAT reducing fixed costs in a difficult environment. AMAT recently announced that it plans to reduce its workforce by 12% and we expect multiple factory shutdowns to be implemented. Longer term, we see margins benefiting from AMAT's intent to move certain operations to lower-cost regions.We think customers will be able to reduce their cost/watt to under $1 within the next 3-5 years, using AMAT's large-scale solar panels.