Q. Are the prospects still strong for my shares of Applied Materials Inc.? - CG, via the Internet

A. The world's largest supplier of the manufacturing equipment used in semiconductor fabrication is subject to the uncertainties of its industry and the overall economy.

Its positives, however, are the prospects for a pick-up in demand for its chip equipment and flat-panel display products. There is also optimism about the future of the solar-power industry in which it is expanding its manufacturing-tool line.

Chipmakers can choose from the company's broad range of products used for etching, vapor disposition, polishing, inspection and measurement.

Yet the impressive run of tech stocks over the past year means investors become deeply disappointed on less-than-upbeat news.

Applied Materials shares are down 12 percent this year following last year's 40 percent gain. Earnings were down 40 percent in its most recent fiscal quarter and it is cutting up to 1,500 jobs to lower its cost structure.

A leader and innovator in its industry, the firm is in excellent financial shape with lots of cash and a strong balance sheet. This allows it to make acquisitions, buy back stock and invest in high-quality research and development.

The consensus rating of Applied Materials among Wall Street analysts is "buy", according to Thomson Reuters. That consists of five "strong buys", eight "buys", 11 "holds" and one "sell".

Michael Splinter, an Intel Inc. veteran before becoming Allied Materials president and CEO in 2003, has maintained its long-time dominance in chip-making equipment and directed its steps into solar.

The company has completed a $360 million acquisition of rival Semitool Inc., a leader in the wafer-cleaning and copper-plating businesses.

Earnings are expected to increase more than 1,000 percent in fiscal 2010 that ends in October, according to Thomson Reuters. Next year's growth is forecast at 63 percent. The five-year annualised return projection of eight percent compares to 12 percent expected for the semiconductor equipment and materials industry.

The company's board has added a "clawback" policy in which an executive whose misconduct leads to restatement of financial results must give up a portion of bonus or performance-based pay.

Several executives in Applied Materials' South Korea unit were recently arrested by the Seoul prosecutor's office in connection with "alleged improper receipt and use of a customer's confidential information." The company said that it has a strong defence against those charges.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N Central Ave., Suite 302, Phoenix, Arizona 85004-1248, or by e-mail at andrewinv@aol.com

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