Applied Materials could lose market share across the board in 2013

NEW TRIPOLI, USA: I used to be extremely positive about Applied Materials over the past 28 years since I formed The Information Network. Check every press release or article I wrote over these years and you will see what I mean.

This year, I have done a complete 180 degree turn. This thesis was fortified when I read Applied Materials' Management presents at Citi Global Technology Conference of September 4 2013.

If you've read previous posts and blogs of mine on Seeking Alpha, I pointed out that it is going to be a difficult transition for upper management, used to running a $1 billion company, to now run a $5 billion company.

According to CFO Bob Halliday, who incidentally came from $1 billion VSEA: "So, if you look at it, the company has disinvested aggressively in the solar market, because the market is not a good market, but I think we've cut spending aggressively there and put it into (Inaudible). I think the display, we came in display market and our position was actually more attractive than we realized."

I cannot believe that a company in the display business did not know that it's share was, perhaps relying too much on outside forecasts. Yes, the solar business was obvious, as it is dead, and what tools they have out there are being reverse engineered and copied by the Chinese.

This is what really gets me. According to CFO Halliday, "Sure. So on '13 we've been pretty steady, we're I think we're down 5 percent to 10 percent from '12."

The SEMI mid-2013 consensus, which came out about five weeks ago, is pointing to wafer processing growth of 1.9 percent. Applied Materials is indicating they will be down 5 percent to 10 percent.

Yes, I know that Gartner said in June that wafer fab equipment spending would decline 5.5 percent in 2013. But Gartner also said in December 2012 it would decline 9.7 percent.

Who does one believe, a consensus run by SEMI of leading industry executives, or Gartner. More importantly, is Applied basing its business model on Gartner forecasts or internally do they think revenues will be down 5-10 percent?

Here is another comment by CFO Halliday. "We're gaining share in display, the display market is growing in terms of the size of the market driven by number of TVs, also these TVs are a lot bigger."

What?

According to the latest" global LCD TV brands' shipment report" and "quarterly downstream report" released by WitsView, the display research division of the global market intelligence provider TrendForce, the 2013 LCD TV shipment is revised down to 208.8 million units from earlier-projected 215.5 million units, seeing an only 1.1 percent growth YoY.

So, not only did Applied Materials realize their display market share was bigger than they thought, they attribute it to the WRONG reasons.

I also mentioned in my previous articles and blogs, that Applied seems to have an obsession with its inspection business. If you read my Press Release of August 21, I noted: "For 2013, we expect Applied Materials to gain market share in the metrology/inspection market given the vendetta of CEO/president Gary Dickerson has toward KLA-Tencor for passing over his promotion to CEO when he worked there," added Dr. Castellano. "However, we feel that this emphasis on a patterned wafer inspection market of only $1.8 billion, which represents only 6 percent of the $28 billion wafer processing equipment market, will negatively impact Applied's share in its deposition/etch markets against a combined Lam Research/Novellus powerhouse."

That was before the Citi Conference. Now, when I read the Citi transcript, there is one mention of inspection. According to Halliday: "So, when we looked markets solar, a tough market, disinvest display pretty good market strong position gaining share technology inflections play for us, we kind of like this play better than we realize because we didn't know display markets well. Within semi, which I think is certainly, your implicit first question, the big TAMs we didn't play were etch and inspection when we looked at those products our inspection product was reasonably, it was pretty good product actually but the qualification of it at the fabs we need to put resources in."

Reminds me of the days several years ago when I used to badger Intel over its money-losing Atom processor and they eventually noted at succeeding every conference call, "We're making money on Atom!"

The author is president, The Information Network, USA.