AMAT Shows Chip Downtrend Over

NEW YORK (TheStreet) -- Applied Materials'(AMAT Quote) quarterly results clearly confirmed that the downturn in the semiconductor-equipment market is over, which I noted on TheStreet.com on July 28, although the overall market will drop 46% in 2009.

To understand how fast the market has turned, Applied's Silicon Systems Group (SSG) had net sales of $498 million, up 91.5% sequentially in the previous quarter ending July. Applied's fiscal quarter ends one month later than competitors, so a comparison with Applied's recent quarter will indicate what happened in the month of July.

Its close competitor in the vacuum space, Novellus Systems(NVLS Quote), reported net sales increased 20.5% in the latest quarter ending June. KLA-Tencor(KLAC Quote), competitor and market leader in the metrology/inspection space, saw net sales decrease 6.3% sequentially. ASM Lithography, not a direct competitor but the number two player in the semiconductor-equipment market, reported net sales increased 50.5% sequentially in the latest quarter.

To further understand if there is a huge ramp in July, which could impact the current quarter for equipment manufacturers, or whether Applied Materials is increasing shares, we need to look closer at overall market share data and increase granularity by looking at the individual sector shares.

Applied Materials led the world in equipment sales beginning in the early 1990s, and has essentially continued to outperform the industry average. The chart below shows how Applied has positioned itself in the market in 1979, 1989, 1999, and 2008.

Applied Materials, Competitors' Sales Trends Source: www.theinformationnet.com

In 1999, Applied had more than double the revenue of its closest competitor, Tokyo Electron. In 2008, the company was only35% ahead of No. 2 player ASML.

Applied competes in the semiconductor equipment market in nearly 20 sectors, significantly more than any other supplier. As a result, there is little overlap in individual sectors between Applied and the other top 10 market leaders.

For example, there is no competition with ASML whereas Applied competes with Tokyo Electron in the plasma etch, deposition, and clean sectors. It competes with KLA-Tencor in the metrology/inspection sectors, and Lam Research(LRCX Quote) in the plasma etch sectors.