Magnetar Adds New Stake in Applied Materials

Magnetar and Applied Materials

In 4Q14, Magnetar Capital established a new position in Applied Materials (AMAT). It purchased 5.8 million shares. The position accounted for 2.66% of the fund’s fourth quarter portfolio.

Magnetar Adds New Stake in Applied Materials

Overview of Applied Materials

Applied Materials provides manufacturing equipment, services, and software to the global semiconductor, flat panel display, solar PV (photovoltaic), and related industries. It operates in the following four segments:

  1. Silicon Systems
  2. Global Services
  3. Display
  4. Energy and Environmental Solutions

Applied Materials’ business is driven by worldwide demand for semiconductors.

Applied Materials to combine with Tokyo Electron

In September 2013, Applied Materials agreed to form a strategic combination with Tokyo Electron—a global supplier of semiconductor and flat panel display production equipment. The combination will form a new company—Eteris.

Tokyo Electron shareholders will receive 3.25 shares of Eteris for every Tokyo Electron share. Applied Materials’ shareholders will receive one share of Eteris for every share of Applied Materials. Applied Materials will own 68% of Eteris.

Shareholders of both companies have approved the transaction. Eteris is expected to initiate a share buyback program. It will be executed within one year after the transaction closes.

Semiconductor manufacturing market

According to Gartner, Applied Materials is the largest maker of semiconductor equipment by revenue. It’s followed by ASML Holding NV (ASML), Lam Research (LRCX), Tokyo Electron, and KLA Tencor (KLAC). In 2013, Applied Materials, ASML, and Lam Research commanded a market share of 16.2%, 15.7%, and 9.4%, respectively.

1Q15 results

In 1Q15, Applied Materials’ net sales were up 4% sequentially and 8% YoY (year-over-year) to $2.4 billion. It was driven by growth in its Global Services and Display segments. Semiconductor technology is constantly changing to create new growth opportunities.

Orders were up 1% sequentially and down 1% YoY to $2.3 billion. Non-GAAP (generally accepted accounting principles) adjusted EPS (earnings per share) grew 17% YoY or flat sequentially to $0.27.

Disappointing 2Q15 earnings forecast

For 2Q15, net sales are expected to increase 0%–2% sequentially. Non-GAAP adjusted diluted EPS is expected to be $0.26–$0.30. It excludes charges related to completed acquisitions of $0.03 per share.

You can invest in Applied Materials by investing in the VanEck Vectors Semiconductor ETF (SMH). Applied Materials accounts for 4.51% of SMH. It also forms 0.84% of the iShares US Technology ETF (IYW).

In the next part of this series, we’ll discuss Magnetar’s increased position in Restaurant Brands International (QSR).