The Lead: Applied Materials moves to Japan, Facebook and Apple focus on China
Asia's importance to the future of Silicon Valley was underlined more than once Tuesday: Applied Materials attempted to form a chip-equipment monolith by merging with a Japanese rival, Facebook received a bounce after gaining (a slight) entry into China, and IDC predicted strong growth for Apple in the region.
Applied Materials' deal with Tokyo Electron combines the world's No. 1 and No. 3 chip-equipment companies in the world, which will have dual headquarters in Japan and Santa Clara while incorporating in the Netherlands. The combined effort, which will have a new name that has not yet been announced, has a market capitalization of about $29 billion, with Tokyo Electron valued at about $9 billion.
"We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees," Gary Dickerson said in Tuesday's news release. Dickerson was named CEO of Applied Materials just last month, and will now serve as CEO of the new venture, while Tokyo Electron CEO Tetsuro Higashi will be chairman.
The merger could face antitrust scrutiny, though VentureBeat's Dean Takahashi makes the case that customers -- chipmakers like Intel (INTC) and Advanced Micro Devices -- will not have a problem with the move. Also, there still is one strong, viable competitor in ASML, which has received major funding from Intel and others to develop next-generation technology.
The chip industry has faced turmoil globally in the past couple of years, as consumers opt for mobile computing devices that use smaller, cheaper chips that are easier to produce. Applied Materials' revenues dropped from $10 billion in 2011 to $8.1 billion in 2012, when Silicon Valley's chip industry declined overall.
"It's a defensive strategy because R&D costs are going up and the number of customers is going down," BGC Partners manager of Japanese equity sales Amir Anvarzadeh told Bloomberg News. "This tells you there's a problem in the industry."
Analysts said the deal -- reportedly the largest foreign move for a Japanese company in six years -- could help to weather the current storm. S&P Capital IQ analyst Angelo Zino raised his price target for the stock from $17 to $21, while others said the combined company will be a stronger one than the two worthy companies that will create it.
"They have the highest profit margins, they have the best balance sheets, they make money through thick and thin," David Rubenstein, senior analyst at Advanced Research Japan, told Reuters. "So they are not desperate, but they are hungry for earnings growth and this is one way they can do it."
Shares in Applied Material roared 9.1 percent higher Tuesday to close at $17.44; Applied investors will receive an equal amount of shares in the new company, while Tokyo Electron investors will receive 3.25 shares for every share of that company if the deal is approved.
Facebook and Twitter are expected to receive a boost as China opens up its Shanghai Free Trade Zone to the social networks, which have been blocked from mainland China since 2009. According to a report in the South China Morning Post, the area in Shanghai the country is opening up to rival Hong Kong will also allow foreign companies to vie for a contract to provide Internet services.
Facebook especially needs China, as it has few areas in which to expand its billion-plus user base. CEO Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg have exhibited that need, with Zuckerberg visiting China in March and Sandberg meeting officials there last month. Twitter would have to compete with Weibo, a popular Chinese messaging service, but hints of access to the China market could help the San Francisco company as it rolls toward an initial public offering.
Facebook shares, also propelled by rating and price-target upgrades from Citi, gained 2.7 percent to $48.45 Tuesday, establishing record intraday and closing highs.
Apple was less fortunate Tuesday on Wall Street, dropping 0.3 percent to $489.10 after Monday's big bump, but growth in China could boost the Cupertino company back past the $500 mark. After Apple launched new iPhones in China on the same day they were first available in the United States, pushing debut weekend sales to a record, IDC reported that it expects Apple's share of the Chinese market to double within the next year.
Apple could use the boost in China, where its revenues fell precipitously last quarter as Samsung showed greater familiarity with the nation's consumers. They likely reaped significant profit from the weekend's iPhone sales, as teardowns revealed the phones cost Apple less than $200, which should help Apple's profit margins remain wide. Barclays increased its price target on the company Tuesday, while Morgan Stanley dropped its target on expectations of weaker Mac sales.
SV150 market report: New highs for Yahoo, social media gains boost tech stocks
Wall Street slipped to losses late in Tuesday's session, but tech stocks still managed to hold on to their overall gains: The tech-heavy Nasdaq was the only major U.S. index to gain while the SV150 increased 0.2 percent thanks to gains from Yahoo (YHOO) and social-media companies.
Yahoo hit five-year intraday and closing highs, moving as high as $31.66 before closing with a 3.3 percent increase at $31.24. The Sunnyvale Internet company announced a new, automated system for selling ads Tuesday in a partnership with AOL and Microsoft that will allow advertisers to quickly claim ad space online. Yahoo also received some negative publicity, however, as Information Week reported that users who received previously used email addresses from the company recently are receiving information that could easily lead to identity theft.
Social-media companies followed Facebook in gains, with LinkedIn leading the pack with a 2.6 percent gain to $245.80 after the Mountain View professional-networking site after Evercore Partners increased its price target on the stock from $250 to $280. Zynga hit its highest prices since Don Mattrick came aboard as CEO, closing with a 2.4 percent gain at $3.61, and Yelp gained 2.4 percent to $67.36 as New York's attorney general continued to go after fake reviewers.
Google (GOOG) stayed relatively steady a day after suffering Gmail outages, adding 34 cents to close at $886.84 while retooling the YouTube commenting system. Netflix (NFLX) gained 1.5 percent to $306.49 after a report detailed its successful inroads in Canada, and eBay (EBAY) gained 0.8 percent to $55.17 while launching its loan program for small businesses.
On the negative side, Cypress Semiconductor took a huge fall after the San Jose chip company chopped its quarterly forecast on weakness in its Asian revenues; Cypress shares closed with a 14.9 percent descent to $9.65. VMware dropped 2.5 percent to $83.19 as the Palo Alto company continued to suffer an executive exodus, Cisco (CSCO) dropped 0.6 percent to $24.14 while the San Jose networking giant prepares to unveil a secret experiment next month, and Intuit (INTU) fell 0.7 percent to $59.96 after reiterating its revenue forecasts and introducing a partnership with Square at the company's analyst day.
The SV150 index of Silicon Valley's largest tech companies: Up 2.13, or 0.16 percent, to 1,346.38
The tech-heavy Nasdaq composite index: Up 2.96, or 0.08 percent, to 3,768.25
The blue chip Dow Jones industrial average: Down 66.79, or 0.43 percent, to 15,334.59
And the widely watched Standard & Poor's 500 index: Down 4.42, or 0.26 percent, to 1,697.42
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.