Demand Analysis

KEY DEMAND FACTORS

• Price and Volume – OK but volume has not increased along with price
• Institutions and Mutual Funds – Fair as 78% ownership leaves some room for growth
• Inside Ownership – Neutral since there are a lot of options issued and no purchases

Ratio Comparison

	ACTUALS				4 Year Averages
	2004	2005	2006	2007	Actual	Projection
Valuation
P/E Ratio	21.2	24.0	18.8	15.5	19.89	21.81
Price to Sales	3.6	4.2	3.1	2.7	3.39	4.46
Price to EBITDA	12.8	15.2	11.5	9.6	12.28	13.87
Management Effectiveness
Return on Investment	13.78	12.73	21.53	21.98	17.50	16.78
Return on Equity	14.59	13.55	22.80	23.25	18.55	17.91
Financial Condition
Total Debt to Equity	0.06	0.02	0.09	0.09	0.06	0.07
Interest Coverage	35.59	42.82	61.03	64.31	50.94	68.98
Profitability
Gross Profit Margin	50.63	48.43	49.77	48.90	49.43	51.31
EBITDA Margin	27.93	27.46	26.98	28.19	27.64	31.95
Net Profit Margin	16.86	17.30	16.54	17.49	17.05	20.31
Dividend
Dividend Yield	0.00	0.34	0.88	1.11	0.58	0.76
Payout Ratio	0.00	0.08	0.17	0.17	0.10	0.16
Growth
P/E/G					0.31	2.44

COMPARISONS

• Valuation –projected ratios are in line with past four years
• Management Effectiveness – these ratios are also near historical
• Financial Condition – projected debt will stay at a very low level
• Profitability – projections are slightly higher than historical ratios
• Dividend – payouts are also near current levels
• Growth – P/E/G is over 2.0 due to conservative growth estimates

Earnings Projections

Applied Materials (AMAT)
Earnings Model ($MM)
	2007	2008E	2009E	2010E	2011E	2012E	Forecast
Revenue
Silicon	6,667	7,000	7,350	7,718	8,104	8,509	5.0%
Fab Solutions	2,165	2,360	2,573	2,804	3,057	3,332	9.0%
Display	854	973	1,109	1,265	1,442	1,644	14.0%
Adjacent Technologies	138	179	233	303	394	512	30.0%
Total Revenues	9,824	10,513	11,265	12,089	12,996	13,996	7.3%
- COGS	5,020	5,296	5,587	5,895	6,219	6,561	5.5%
Gross Profit	4,804	5,217	5,678	6,195	6,777	7,435	9.1%
Less Expenses & Items
Marketing and Selling	447	460	474	488	503	518	3.0%
General and Administrative	501	546	595	648	707	770	9.0%
Total Depreciation & Amort.	250	255	260	265	270	276	2.0%
Research and Development	1,162	1,208	1,256	1,307	1,359	1,413	4.0%
Other	31	32	34	35	36	38	4.0%
Total Expenses & Items	2,390	2,501	2,619	2,743	2,875	3,015	4.8%
Other Income	106	115	126	137	149	163	9.0%
EBIT	2,520	2,831	3,185	3,589	4,051	4,583	12.7%
- Interest Expenses	39	43	47	52	57	63	10.0%
Pretax Income	2,481	2,788	3,138	3,536	3,994	4,519	12.7%
- Income Taxes	763	857	965	1,087	1,228	1,389
Net Income	1,718	1,931	2,173	2,449	2,766	3,130	12.7%
Tax Rate	30.7%	30.7%	30.7%	30.7%	30.7%	30.7%
Dividends Paid	297	326	359	395	434	478	10.0%
EBITDA	2,769	3,086	3,445	3,854	4,321	4,858	11.9%
Shares outstanding (000,000's)	1,398	1,482	1,571	1,665	1,765	1,871	6.0%
Diluted Shares outstanding	1,416	1,501	1,591	1,686	1,787	1,895	6.0%
Earnings Per Share
Basic	$1.23	$1.30	$1.38	$1.47	$1.57	$1.67	6.4%
Diluted	$1.21	$1.29	$1.37	$1.45	$1.55	$1.65	6.4%
Source: estimates

ASSUMPTIONS

• All segments except Adjacent Technologies (solar) will grow at historical pace
• Adjacent Technologies will experience major growth
• Expenses will continue to grow at a slower pace than sales
• Debt will stay low

Earnings History

Applied Materials (AMAT)
Annual Income Statements ($MM)
	2007	2006	2005	2004	2003	2002	I Yr.	3 Yr.
Revenue
Silicon	6,667	5,971	4,467	5,767	4,477	5,062	11.6%	5.0%
Fab Solutions	2,165	2,210	1,768	1,675			-2.0%	8.9%
Display	854	966	756	571			-11.6%	14.3%
Adjacent Technologies	138	20	-	-			598.2%
Total Revenues	9,824	9,167	6,992	8,013	4,477	5,062	7.2%	7.0%
- COGS	5,020	4,605	3,606	3,956	2,491	2,618	9.0%	8.3%
Gross Profit	4,804	4,562	3,386	4,057	1,986	2,444	5.3%	5.8%
Less Expenses & Items
Marketing and Selling	447	439	359	394	325	386	1.8%	4.2%
General and Administrative	501	468	339	357	301	323	7.0%	11.9%
Total Depreciation & Amort.	250	270	300	356	382	388	-7.6%	-11.1%
Research and Development	1,162	1,152	941	992	921	1,052	0.8%	5.4%
Other	31	212	-	194	372	85	-85.3%	-45.6%
Total Expenses & Items	2,390	2,542	1,938	2,293	2,300	2,234	-6.0%	1.4%
Other Income	106	182	171	118	149	180	-42.0%	-10.1%
EBIT	2,520	2,203	1,619	1,882	(165)	390	14.4%	10.2%
- Interest Expenses	39	36	38	53	47	49	8.6%	-4.5%
Pretax Income	2,481	2,167	1,582	1,829	(212)	341	14.5%	10.7%
- Income Taxes	763	650	372	478	(62)	72	17.3%	60.5%
Net Income	1,718	1,517	1,210	1,351	(149)	269	13.3%	8.3%
Tax Rate	30.7%	30.0%	23.5%	26.1%	29.5%	21.0%	2.4%	7.9%
Dividends Paid	297	251	98	-	-	-
EBITDA	2,769	2,473	1,920	2,238	217	777	12.0%	7.4%
Shares outstanding (000,000's)	1,398	1,551	1,646	1,688	1,660	1,644	-9.9%	-3.2%
Diluted Shares outstanding	1,416	1,565	1,657	1,722	1,660	1,702	-9.5%	-3.6%
Earnings Per Share
Basic	$1.23	$0.98	$0.74	$0.80	($0.09)	$0.16	25.7%	49.7%
Diluted	$1.21	$0.97	$0.73	$0.78	($0.09)	$0.16	25.2%	50.3%
Source: Applied Materials Annual Reports & SEC Filings

NOTES

• Last three years give best picture of segment performance
• EPS has shown strong growth
• Expenses have increased at slower pace than revenues
• Debt has been low and decreased

Investor Summary

APPLIED MATERIALS	Nasdaq:	AMAT
Medical Appliances & Equipment	TARGET:	$29.44

Stock Data			Sales & Earnings	2007A	2008E	2009E
Price 11/30/2007	$18.83		Revenue (MM)	$9.8	$10.5	$11.3
52-Week Range	17.35 - 23.00		EBITDA (MM)	$2.8	$3.1	$3.4
Dividend Yield	1.1%		EPS (diluted)	$1.21	$1.29	$1.37
Capitalization			Value Measures
Shares Outstanding (MM)	1,397.89		Price/Earnings	15.52	18.30	21.55
Market Capitalization (MM)	$26.3		Price/Sales	2.71	3.36	4.52
Debt/Equity	0.09		Price/Book	3.61
Projections			Growth (5 Yr.)	Historical	Projected
12-Month Price Target	$23.55		Earnings	50.3%	6.4%
24-Month Price Target	$29.44		P/E/G	0.31	2.44
Annual Total Return	26.2%

KEY AREAS FOR GROWTH

• Development of Solar Energy -  provides equipment for making solar wafer production more efficient
  

MAJOR RISK
Poor performance in other segments could undermine the potential of solar.