RBC Capital’s Mahesh Sanganeria this morning raised his rating on shares of Applied Materials (AMAT) to Outperform from Sector Perform, with a $15 price target, up from $12 previously, writing that the company should outperform peers based a shift in the kinds of “front-end” wafer processing equipment being bought this year.
Basically, stuff such as “chemical vapor deposition” (CVD) equipment, in steep decline last year, should fare better this year, he thinks:
PVD, CVD, etch, and CMP market share of overall WFE declined significantly in 2011, causing a headwind for Applied Materials last year as significant revenues are derived from these segments. Applied Materials� SSG revenue declined 12% y/y while overall capex increased ~15% by our estimate. We expect a reversion in WFE mix in 2012. As a result, we expect SSG revenue to decline significantly less (-5%) compared to our expectation of overall capex decline of 18% y/y excluding contribution from Varian.
And Applied should also benefit as more semi makers pursue the leading edge of transistor innovation:
Innovation has accelerated in transistor fabrication since 65nm due to high-K metal gate, 3D transistor, multiple Vt transistors, raised source/drain, and strained channel. We expect AMAT to benefit from this trend because of significant market share in selective epitaxy, Si/Ge epitaxy, metal gate deposition, atomic layer deposition, rapid thermal processing and implantation.
Applied shares today are up 36 cents, or 3%, at $11.86.
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