This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Applied Materials Must Apply Itself

NEW YORK ( TheStreet) -- The last time we talked about Applied Materials (AMAT - Get Report), shares of the semiconductor giant were (then) soaring following the company's all-stock deal to merge with Tokyo Electron. The Street salivated over the idea that Applied Materials, the world's largest chip equipment maker with a $20 billion market cap, was joining forces with the world's third-largest rival in Tokyo Electron.

Even so, I didn't believe Applied Materials' risk/reward ratio was any more attractive than it was before the deal. At least not to the extent that it justified the 10% jump in the stock.

In the October article, I said:

"Applied Materials investors who are now bidding up these shares solely on the basis on this deal don't fully understanding the risks that still remain here. Not only must the company execute to synergize both operations, Lam Research (LRCX) and Ultratech (UTEK) are not going to just sit idle and allow Applied Materials to sort things out. And when you consider that the company just installed a new CEO in Gary Dickerson, the uncertainties begin to pile up."

At the time, investors reacted as if I was dousing their flame with misguided bearishness. But aside from the execution risks, Applied Materials was already suffering weak organic growth due to (among other things) fledgling order levels. For a stock that was already trading on high expectations (its P/E was 55 points higher than the industry average), the Street never could explain with any clarity what this deal achieved beyond Applied Materials picking off a rival.

Arguments were raised that suggesting management was planting its feet even further in areas like China and Japan, where Applied Materials already generates close to 70% of its revenue. But these weren't exactly booming economies. Plus, given the sluggishness and the overall weakness in chip stocks due to slumping ASPs (average selling prices), management could have waited for a better timing. This deal did not fix the company's underlying operational deficits, either.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMAT $15.53 -2.90%
AAPL $92.96 -1.40%
FB $99.74 -1.20%
GOOG $672.11 -1.80%
TSLA $153.53 6.90%


Chart of I:DJI
DOW 15,560.85 -353.89 -2.22%
S&P 500 1,819.97 -31.89 -1.72%
NASDAQ 4,234.2370 -49.3550 -1.15%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs