LRCX Lam Research Corporation

After reporting an encouraging first quarter last month, Applied Materials Inc. (AMAT), the leading producer of chip making equipment, has authorized the repurchase of shares up to an additional value of roughly $3.0 billion over the next three years. The company has less than $1.0 billion available under the existing buyback plan which was started in 2010.

Additionally, the company also announced its decision to hike quarterly dividend by one cent to 9 cents per share. This translates into a 13% increase from the prior dividend. The increased dividend will be paid on June 14, 2012, to stockholders of record on May 24, 2012. Prior to this announcement, Applied had been paying a quarterly dividend of 8 cents per share.

We believe that continuous share buybacks and a hike in dividend will inspire investor loyalty through higher returns from the stock.

During the recently concluded first quarter, Applied spent $200 million on share repurchases and $104 million on dividends. The cash and short-term investments balance was $2.0 billion at quarter-end, having declined $4.2 billion during the quarter due to the cash paid for the Varian acquisition during the quarter. The debt cap ratio including long-term liabilities and short-term debt was just 22.1%. We remain encouraged by Applied’s strong cash position and its ability to service its long-term debts.

Applied reported decent first quarter results, with both revenue and earnings per share surpassing our expectations. The company provided a strong revenue outlook for the second quarter, which was up 5–15% sequentially. Applied’s strong position in the semiconductor market, improving business, both on account of stronger end markets and the Varian acquisition, the solar business in China, its huge portfolio and strategic relationships are all positives.

The regular share buybacks and dividend hikes are a good way of encouraging investor confidence as it returns shareholder value. The company expects to post better results in the second quarter than estimated by the analysts. The increase in dividend indicates that the company is heading toward strong future growth.

Applied, which competes with other large equipment makers, such as KLA-Tencor Corporation (KLAC), Lam Research (LRCX) and Novellus Systems, Inc. (NVLS),holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

 
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