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|  | APRIL 6, 2005
S&P's Tech Company Report Card, Pt. 3 [Page 2 of 6] Semiconductor Manufacturers Adaptec (ADPT ) B+/Stable Revenues were up 10% year-over-year in the December, 2004, quarter, but EBITDA profitability fell to nearly breakeven levels because of weak channel performance in storage connectivity components. The balance sheet remains liquid, with more than $517 million of cash, which offsets a leveraged financial profile that includes $285 million of funded debt as of December 31, 2004. Guidance for the March, 2005, quarter calls for recovery in profitability to levels comparable with prior recent performance, i.e., EBITDA margins in the mid- to high-single digits. Advanced Micro Devices (AMD ) B/Stable AMD faces aggressive microprocessor and flash-memory competition, steep pricing pressures, and high leverage, offsetting a refreshed product line and improved manufacturing processes. EBITDA margins have been above 25% since the September, 2003, quarter, well above historical levels. Still, free cash flows are expected to remain negative, recognizing annual capital expenditures around $1.4 billion to fund a large factory under construction in Dresden, Germany, and other activities. Pro forma cash balances of $1billion and debt levels of $2.5 billion recognize Fujitsu's share of a joint-venture factory. Maturities through 2007 are about $900 million. Agere Systems (AGR.A ) BB-/Stable The company has refocused on storage, as it deemphasizes the dwindling long-haul communications market. Agere has consolidated its manufacturing into one site in Orlando, Fla., which will be closed by December, 2005, if it isn't sold. A moderate sales decline reflects fluctuating demand for its chips in third-generation cell phones, although the market likely will pick up later in the year. The company hopes to achieve 15% EBIT margins on sales at sales of $500 million per quarter, by the June, 2005, quarter, following late-2004 cost reductions. Cash balances were $692 million as of Dec. 31, 2004. Debt totals $720 million plus about $250 million postretirement benefit obligations, but near-term maturities are moderate. Leverage of 2.2x is moderate for the rating, recognizing aggressive market conditions. AMI Semiconductor(AMIS ) BB-/Positive Solid growth in the company's core automotive, industrial, and medical segments have offset weakness in the communications sector, leading to a modest 2% decline in sales for the December quarter. EBITDA margins are stable, contributing to stable credit protection metrics with debt to EBITDA around 2X. Liquidity is ample, with about $161 million in cash. Flexibility for small acquisitions, such as the DspFactory transaction, is incorporated into the current rating. Amkor Technology (AMKR ) B/Negative Aggressive, debt-financed capital spending in fiscal 2004 coincided with an industry downturn, suppressing profitability and cash flow. December quarter revenues slipped 8% from the prior quarter, and are expected to continue to decline by around 9% for the March quarter. EBITDA margin has slipped to 15%, from the low 20% range generated one year ago. Leverage is high at 6.3x, and likely will weaken further as of March. Liquidity could be strained as the company has $266 million maturing in May, 2006, and is forecasting continued low profitability and sustained high capital spending. Applied Materials (AMAT ) A-/Stable AMAT's revenue and order growth slowed substantially in the January, 2005, quarter as the semiconductor industry continued its struggle with higher product inventories and slower end-growth in 2005. Orders were down 36% sequentially, to $1.68 billion. Still, the company maintained healthy EBITDA margins in the quarter, at 26%, and revenues grew 14% year-over-year. Liquidity remains at solid levels for the rating at $6.4 billion, vs. $463 million of funded debt. Still-healthy cash generation has been offset, in part, by increased share buybacks, which totaled $300 million in the quarter, reducing cash balances by $180 million sequentially. ASM International (ASMI ) B+/Stable The group's front-end operations in 2004 recorded positive EBITDA for the first time in three years, but the better performance should be more than offset in 2005 by the bleak outlook in back-end operations. The company has prefinanced its $115 million debt maturity of November, 2005. Chartered Semiconductor BBB-/Stable Despite Chartered's weak sales in the fourth quarter of 2004, its revenue for full-year 2004 increased 69%, to $932 million, from the previous year. A higher operating margin (41% in 2004, compared with 26% in 2003) because of increased sales of 0.13 micron chips and cost-savings initiatives enabled the company to post stronger cash-flow measures. Its ratio of funds from operations to debt rose to 32% in 2004, from 8% in 2003. Chartered's profitability and cash-flow measures, however, are expected to weaken in the near term, as sales are likely to slow further in the first half of 2005 because of customers' inventory correction. Chartered's liquidity position remains strong, with cash of $569 million as of Dec. 31, 2004. The ratings also benefit from support provided by its ultimate parent, Temasek Holdings. Cirrus Logic (CRUS ) B/Stable Revenues decreased 7% sequentially in the December, after increasing 22% for the six months ended September, because of depressed sales of DVD recorders, a key endmarket. Earnings are volatile, given the company's high operating leverage, despite being a fabless producer. EBITDA has been nominal over the last two quarters, although financial flexibility is adequate with cash balances of $177 million and no funded debt Conexant Systems (CNXT ) B-/Negative Sluggish end demand for DSL chips, particularly in Asia, and excess channel inventory have sharply curtailed revenues, with December sales down 34% from September. Expectations are for continued weakness through March. The company has been cash-low negative since June, 2004, and cash and equivalents have eroded by about $50 million to $391 million as of December. Liquidity may be strained, as $197 million of debt matures in May, 2006. Cymer (CYMI ) B+/Stable* Fiscal 2004 revenues were up 47%, but sales growth decelerated rapidly in the December quarter, contracting 7%, vs. the year-earlier period, and expectations are for continued sluggish demand in the near term. Profitability has been equally volatile, as the company reduced factory loadings to reduce field inventories. Cash flow remains adequate and the company recently reduced debt by $50 million. Cash balances remain in excess of debt. Cypress Semiconductor (CY ) B+/Stable Revenues and profitability have softened in the current industry dip, but should recover in the second half of the year. The company continues its practice of moderate-size acquisitions and point-product divestitures to improve its profitability. December quarter results were down 5% sequentially, as customers burn through excess inventory. The situation likely will continue into 2005. Pro forma cash balances were $200 million as of Dec. 31, 2004. Debt to EBITDA is about 2.5x, moderate for the rating. EPCOS (EPC ) BBB/Stable Free cash flow generation in 2005 will be challenging for EPCOS, and the company is expected to record small negative cash generation in 2005. Free cash flow generation in 2004 was €51 million. The company is not expected to materially exceed the 2.5x debt-to-EBITDA ratio commensurate with the rating, however. Fairchild Semiconductor (FCS ) BB-/Stable Revenues and profitability vary widely through the business cycle. Recent sales levels have dipped, reflecting industrywide excess inventory in 2004, expected to persist through mid-2005. EBITDA margins are good, around 20%. The company is a major supplier of power-management chips, now 75% of its sales, with a focus on consumer electronics and personal computers. Debt to EBITDA is in line with the rating, at around 3 to 1, with no near-term debt maturities, while the company has been generating modest levels of free cash flows. The company's acquisitive business practices are still expected to constrain ratings to the current level over the longer term. FEI (FEIC ) B+/Negative* Improving operating performance in 2004 helped to strengthen debt-protection metrics. Following four quarters of 20% or more revenue growth and increasing EBITDA margins, which reached 14% in the December, 2004, quarter, adjusted total debt to EBITDA improved to 4.2x at year-end, compared with over 11x at the same time a year earlier. The negative outlook continues to reflect a volatile business profile that leads periodically to high levels of financial leverage and limited cash generation, in part because of high investments in working capital. Freescale Semiconductor (FSL ) BB+/Positive Ratings reflect a brief track record at current profitability levels, the potential challenges facing Freescale as an independent company, ongoing high R&D expenditures needed to maintain its technology base, and its second-tier position in the growing wireless market. Sales were $1.43 billion in the December quarter, flat with September, with EBITDA of $190 million, or 13% of sales. The company has a $1 billion net cash position, and no debt maturities for five years. Hynix Semiconductor B-/Stable Hynix has enjoyed the cyclical upturn of the DRAM industry and seen financial improvements as a result of its spin off of its nonmemory business as MagnaChip last year. Net borrowings (including overseas subsidiaries) declined from 3.2 trillion Korean won at year end 2003 to KW1.1 trillion at year-end 2004. However, despite the improvements, the slowdown expected in the industry this year, and Hynix's significant KW2 trillion capital investments planned this year limit Hynix's ability to further improve its balance sheet and liquidity to cushion periods of cyclical downturns. Furthermore, about KW1.7 trillion of restructured bank debt matures at the end of 2006, and plans to start investment in China in 2006 demonstrate Hynix's need for more cash. Intel (INTC ) A+/Stable EBITDA margins in the December, 2004, quarter were flat sequentially, and guidance for the March, 2005, quarter is for flat to seasonally down, sequentially, better than previously expected because of lower-than anticipated startup costs in the transition to 65 nanometer process technology. While stock buyback activity has increased to between $2 billion and $2.5 billion per quarter in recent quarters, liquidity remains world class, with $16.8 billion of cash as of Dec. 27, 2004.
BW MALL
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