Applied Materials Reapplies Cost-Cutting M&A Strategy

Sep. 24, 2013 4:34 PM ETApplied Materials, Inc. (AMAT)
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An insider’s view on tech M&A transactions and trends, Inorganic Growth covers the numbers as well as the story behind them. Brenon Daly is the primary writer, with insights from across 451 Research. Hundreds of more in-depth M&A analysis reports and data can be found in 451 Research's subscriber-only Market Insight Serivce. Our M&A numbers come from The 451 M&A KnowledgeBase — a proprietary database of all tech deals since Jan. 1, 2002, sorted into more than 650 industry categories. The KnowledgeBase includes proprietary data on deal values and/or trailing revenues for key private M&A transactions. To request more information about our M&A research services, please go to the following URL: http://www.the451group.com/apply/apply.php?apply_page_id=604 Visit The 451 Group: Inorganic Growth (http://blogs.the451group.com/techdeals/)

By Tejas Venkatesh, Scott Denne

In its biggest deal ever, Applied Materials (AMAT) is acquiring fellow chip manufacturing equipment vendor Tokyo Electron (8035) for $9.3bn in stock. The rationale for the transaction lines up closely with Applied's cost-cutting motive in its $4.9bn purchase of Varian Semiconductor, and comes at a time when we expect limited revenue growth in the semiconductor equipment market.

In buying Tokyo Electron, Applied is projecting a $60m decrease in its quarterly operational expenses after a year and $120m by the third year following the close. Applied achieved similar (although smaller) results when it acquired Varian in the summer of 2011. Then Applied promised to shave $12m-16m off its quarterly expenses, and though it's a quarter away from the deadline, its operating expenses came in at $556m last quarter - $14m lower than what Varian and Applied put up before the deal.

In a survey this month by ChangeWave Research, a service of 451 Research, 16% of semiconductor vendors indicated that their capital budgets would decrease for the next quarter, versus just 2% who expected an increase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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