Tuesday, January 19, 2010

January 19, 2010 Global Tech Day

January 19, 2010 Global Tech Day

Stocks mentioned: Applied Materials, Citrix Systems, Netflix, TCS, PixArt Imaging, Ralink Technology and TSMC. In addition, synopsis of ‘North America: Software – 2010 Outlook: A Return to Themes and Stockpicking’ and ‘APAC: Taiwan Foundry – Revisiting our Industry Downgrade’, are included. Applied Materials – German Subsidy Cut Implications (AMAT, $14, O/C) Atif Malik / Michael Chu

Our MS global solar team expects a revised German feed-in tariff to be announced later this week that cuts subsidies by 16-17% as early as April, followed by another 10-15% cut in 2011 (see report published today titled, "Climate Change & Policy: Germany Cuts Deeper, France Lightly" for more details).

While recent reports of bigger solar subsidy cuts in Germany, Italy, and France pose near-term headline risk to the stock, we believe the real impact from these events on Applied's solar equipment revenue and earnings over the next 9-12 months could be limited and neutral to our model. With shrinking subsidies and looming risk of poly oversupply putting downward pressure on c-Si module prices, we see little upside for Applied to sign new SunFab contracts for lines that manufacture competing thin-film modules in 2010. However, we remain bullish relative to consensus expectations on its c-Si equipment opportunity, especially in China, where solar manufacturers appear to have less of an issue obtaining financing and capital for capacity expansions and upgrades. Additionally, we see Applied as an indirect beneficiary of declining c-Si solar component prices, as wafer and cell makers will inevitably need to invest in advanced wafer slicing and screen printing tools to drive down costs to remain competitive and ultimately reach grid parity.

AMAT stock looks cheap at 15x our mid-cycle EPS estimate of $0.94 or significantly below 2002-04 cycle multiple of 17x. We expect the stock to grind higher towards our price target of $15 on revenue upside from non-semi markets, particularly display, in the next 6-9 months.


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