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Highfields Capital Management's positions in the fourth quarter

Part 4
Highfields Capital Management's positions in the fourth quarter (Part 4 of 8)

Why did Highfields Capital buy a stake in Applied Materials?

Highfields Capital Management and Applied Materials

Jonathon Jacobson’s Highfields Capital Management’s top new purchases are Air Products & Chemicals, Inc. (APD), Broadcom Corporation (BRCM), Applied Materials, Inc. (AMAT), Royal Dutch Shell (RDS.A), and JPMorgan Chase (JPM). Highfields sold out positions in CBS (CBS) and Hess (HES).

Highfields Capital started a 1.75% new position in chip-making equipment giant Applied Materials, Inc. (AMAT) in the fourth quarter. Applied provides manufacturing equipment, services, and software to the global semiconductor, flat panel display, solar photovoltaic (PV), and related industries.

AMATEnlarge GraphThe company’s profit for the first quarter increased, as its revenue surged due to higher spending by contract chip makers. Revenue was up 39% to $2.19 billion in the first quarter 2014 from $1.57 billion a year earlier. Profit increased to $253 million or $0.21 per share from $34 million or $0.03 per share last year. Applied generated orders of $2.29 billion, up 9% from the prior quarter led by demand for Silicon Systems Group products.

The company expects wafer fab equipment investment levels to be stronger in 2014, up 10% to 20% driven by higher spending in foundry and memory. It also expects robust spending by NAND customers, as mobility supports bit growth demand in the 40% to 50% range, and 3D technology is introduced. Applied Materials said on its earnings call that it is uniquely positioned to apply its differentiated capabilities in precision materials engineering to enable major customer inflections and cost-effective device scaling. This provides the company with a great platform to build momentum for profitable growth. For the second quarter of fiscal 2014, Applied expects net sales to be up 3% to 10% from the previous quarter.

AMAT hedgeEnlarge GraphIn September last year, Applied Materials agreed to buy its third largest rival Tokyo Electron in an all-stock deal, which values the new combined company at approximately $29 billion. The aim is to create a company with an expanded set of capabilities in precision materials engineering and patterning that are strategically important for customers. The companies expect the transaction to close in mid to second half of 2014. The companies expect to achieve $250 million in annualized run-rate operating synergies by the end of the first full fiscal year and $500 million in run-rate operating synergies realized in the third full fiscal year. The new company intends to commence a $3.0 billion stock repurchase program targeted to be executed within 12 months following the close of the transaction.

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