Opportunity for Varian Semi: Applied Materials Shuts Ion Implant Business

Applied Materials (AMAT) yesterday announced that it will shut down its Applied Implant Technologies group based in Horsham, England.

The move affects 270 people, mostly in Horsham, and will result in costs of $90 million to $130 million over the next four quarters. Applied said that the implant business “has moved towards commoditization” and that projected future financial performance “does not warrant” investing in next-generation “beamline” implant products.

That was not going to be the big news for Applied yesterday; the more important news were fourth quarter results, after the close. But it seems to be good news for Applied rival Varian Semiconductor (VSEA). Yesterday, J.P. Morgan’s Jay Deahna raised his rating on the company to Overweight from Neutral, on the theory that Applied’s decision represents a big opportunity for Varian, which also plays in the “high current” ion implant market. Deahna figures that market is about $750 million in size, and that Applied had about 35% of it. If Varian can take 80% of that, it would be an extra $200 million in revenue; he added $165 million to his model for Varian, spread over six quarters.

His 2007 EPS estimate increases to $2.55 a share from $2.51; for 2008, he goes to $3.22 a share, from $2.84.

“Despite the near-term concerns with exposure to memory, we expect Varian to deliver consistent and compelling upside to consensus EPS estimates in [the second half] and beyond on share gains and potentially on margin expansion, the latter of which is likely upside to our model,” he writes. Deahna set a price target on the stock of $58.

Yesterday, Varian shares are up $1.52, or 3.7%, to $42.67.