Morningstar: aandeel in de kijker is ASM International (07/05/2014) | Vlaamse Federatie van Beleggers

Market Cap (EUR Mil) 2,018

52-Week High (EUR) 31.84

52-Week Low (EUR) 22.51

52-Week Total Return % 25.0

YTD Total Return % 32.6

Last Fiscal Year End 31 Dec 2013

5-Yr Forward Revenue CAGR % 8.6

5-Yr Forward EPS CAGR % -29.7

Price/Fair Value 1.32

2012 2013

Price/Earnings 159.8 1.1 12.0 10.8

EV/EBITDA 10.2 16.7 11.1 10.0

EV/EBIT 16.9 27.6 13.0 11.5

Free Cash Flow Yield % -1.5 2.1 2.5 5.3

Dividend Yield % 3.2 19.8 1.6 1.6

2012 2013

Revenue 1,418 612 631 725

Revenue YoY % -13.2 -56.8 3.0 15.0

EBIT 89 44 126 143

EBIT YoY % -75.7 -51.0 189.6 13.4

Net Income, Adjusted 7 1,052 123 136

Net Income YoY % -96.2 14,615.9 -88.3 10.8

Diluted EPS 0.17 22.72 2.64 2.93

Diluted EPS YoY % -95.6 12,912.9 -88.4 10.8

Free Cash Flow -73 -678 205 -25

Free Cash Flow YoY % -533.5 832.6 -130.2 -112.0

ASM has reduced its ownership stake in its ASM Pacific back-end subsidiary.

Andy Ng Senior Analyst andy.ng@morningstar.com +1 (312) 384-4032

Research as of 01 May 2014 Estimates as of 30 Apr 2014 Pricing data through 05 May 2014 Rating updated as of 05 May 2014

Investment Thesis 01 May 2014

ASM International operates in the front end of the semiconductor equipment industry, and holds a 40% stake in major back-end chip equipment player ASM Pacific Technology, or ASMPT. Front-end tools are used by chipmakers to fabricate circuits on semiconductor wafers, while back-end tools are used to assemble and package individual chips into their usable form.

ASM is competitive in certain segments of the front-end market, but the business has seen limited profitability over the years.

ASM's competition includes Applied Materials and Tokyo Electron, two major chip equipment companies. With vastly greater scale and resources than ASM, these firms have advantages in areas such as research and development spending, overhead expense absorption, and pricing. However, ASM's focus on cutting-edge, front-end tools should position the firm to benefit from advances in semiconductor manufacturing technology. ASM has been spending substantial sums on R&D to ensure that its tools will be competitive for future nodes, and has made progress. The firm now has leading tools in certain niches and is a key supplier of atomic layer deposition equipment and plasma enhanced atomic layer deposition equipment, which are increasingly being adopted by chipmakers for state-of-the-art chip fabrication processes.

In 2013, ASM reduced its stake in the ASMPT subsidiary from 52%

to 40% in an effort to unlock value, as the firm and some shareholders believed that the stock market did not fully recognize the value of ASM's combined front-end and back-end businesses.

ASMPT is the leader in back-end assembly and packaging equipment. Despite facing numerous competitors, ASMPT is the most profitable player in the back-end industry because of its low-cost operations in Asia. This advantage has allowed ASMPT to remain consistently profitable, even during the severe industry downturn in 2008-09.

ASM has been working to reduce costs in its main front-end equipment business in recent years, including moving its manufacturing to Singapore. Nonetheless, the cyclical nature of the equipment industry and the lack of scale that ASM has, compared with larger competitors, present risks for the company.

Based in the Netherlands, ASM International supplies semiconductor manufacturing equipment for front-end and back-end processes. ASM's front-end equipment, such as deposition and epitaxial tools, is used in the preparation of silicon wafers and fabrication of semiconductor layers.

ASM's 40%-owned subsidiary, ASM Pacific, manufactures back-end tools used to assemble and package semiconductors into their final form.

Profile Vital Statistics

Valuation Summary and Forecasts

Financial Summary and Forecasts

The primary analyst covering this company does not own its stock.

Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.

Historical/forecast data sources are Morningstar Estimates and may reflect adjustments.

Analyst Note: Non per share data in EUR; EPS and Dividends in USD. Assume ASMPT share sale occurred end 2012. ASMPT consolidated, minority interest adjusted for share sale

(EUR Mil)

Contents

Investment Thesis Morningstar Analysis

Analyst Note

Valuation, Growth and Profitability Scenario Analysis

Economic Moat Moat Trend Bulls Say/Bears Say Credit Analysis

Financial Health Capital Structure Enterprise Risk Management & Ownership Analyst Note Archive Additional Information Morningstar Analyst Forecasts Comparable Company Analysis Methodology for Valuing Companies

Fiscal Year:

Fiscal Year:

1

- 2 2 2 2 3

4 4 4 5 6 - 8 12 14

Morningstar Analysis

Valuation, Growth and Profitability 01 May 2014 Our fair value estimate for ASM is EUR 24 per share. In 2013, the firm sold a 12% stake in the back-end ASM Pacific subsidiary for EUR 422 million, thereby reducing its ownership stake in the segment to 40% from 52%.

We think sales will grow 3% in 2014 and 15% in 2015, thanks to capital investments by leading chipmakers to advance to next-generation semiconductor manufacturing technologies, which will drive demand for tools from ASM.

In the longer term, we anticipate that annual sales growth will run in the 8% to 9% range. ASM's business may exceed our sales expectations if certain technologies are widely adopted. We expect operating margin to be 20% in 2013.

In the longer term, we project that operating margins will run in the upper teens. We expect long-term margins to be higher than historical levels because of cost savings, as ASM has moved its manufacturing to Asia. A portion of ASM's fair value estimate is attributed to the firm's 40%

stake in the ASMPT subsidiary.

Scenario Analysis

In our base case, we expect revenue to grow 3% in 2014 and 15% in 2015. We think the firm can grow in the 8% to 9% range in the longer term. On the profitability front, we think operating margin will come in at 20% in 2013.

However, we project that operating margins will trend toward the upper teens in the longer term.

For our bull scenario, we forecast revenue to grow 5% in 2014 and 20% in 2015. We think that sales can grow in the 9% to 10% range over the long run, driven by continued market leadership at ASM Pacific and share gains in the front-end unit. We expect operating margins to trend toward the low 20s range in the longer term. In this case, our fair value estimate is EUR 27 per share.

In our bear case, we project revenue to be flat in 2014 and to grow 5% in 2015, as the business environment is weaker

than expected. In the long-term, sales growth is projected to run in the 7% to 8% range in this scenario. On the profitability front, we forecast that operating margins will trend toward the midteens over time. Our fair value estimate under these assumptions is EUR 19 per share.

Economic Moat

We do not think that ASM has a moat. The front-end business has not been particularly profitable. In addition to having a concentrated customer base, the segment lacks the scale of its competitors, which include Applied Materials and Tokyo Electron.

The firm owns a 40% stake in its back-end ASM Pacific subsidiary. However, ASMPT's performance depends on the cycles of the chip equipment industry. Further, the profit contributions from the back-end subsidiary are often masked by losses in ASM's main front-end business.

Moat Trend

We think that ASM's moat is stable. We believe that the

front-end business will remain significantly smaller than its

major competitors. Although the firm's ASM Pacific

back-end subsidiary is an impressive business, its profits

are used to subsidize the main front-end business through

dividends. In addition, the back-end unit faces tough

competition from Kulicke & Soffa KLIC, which has similar

scale. Both the front-end and back-end segments have

concentrated customer bases, and we don't expect this to

change anytime soon.

Bulls Say/Bears Say

Bulls Say Bears Say

3 Its focus on emerging chip fabrication processes will position the company to benefit from advances in semiconductor technology.

3 ASMPT is the leading and most profitable player in the back-end market.

3 ASM has embarked on cost-streamlining measures in the front-end business, which includes moving manufacturing to Asia to lower costs.

3 ASM's front-end business faces formidable competition, including the two largest chip equipment firms in the world.

3 ASM operates in the deeply cyclical semiconductor equipment industry and is prone to unpredictable swings in business.

3 In 2013, the top 10 customers in the main front-end

business accounted for 86% of sales.

2014(E) 2015(E) 2016(E) 2017(E) 2018(E)

Cash and Equivalents (beginning of period) 312 498 452 473 503

Adjusted Available Cash Flow 192 -38 29 39 50

Total Cash Available before Debt Service 504 460 482 512 553

Principal Payments -165 — — — —

Interest Payments — — — — —

Other Cash Obligations and Commitments -6 -7 -8 -9 -9

Total Cash Obligations and Commitments -171 -7 -8 -9 -9

EUR Millions

% of Commitments

Beginning Cash Balance 312 153.0

Sum of 5-Year Adjusted Free Cash Flow 272 133.2

Sum of Cash and 5-Year Cash Generation 584 286.2

Revolver Availability — —

Asset Adjusted Borrowings (Repayment) — —

Sum of Cash, 5-Year Cash Generation, Revolver and Adjustments 584 286.2

Sum of 5-Year Cash Commitments -204 —

ASM Sector Universe

Business Risk 8

Cash Flow Cushion 4 — —

Solvency Score 2 — —

Distance to Default 1 — —

Credit Rating — — —

Five Year Adjusted Cash Flow Forecast (EUR Mil)

Credit Analysis

Cumulative Annual Cash Flow Cushion

Cash Flow Cushion Possible Liquidity Need

Adjusted Cash Flow Summary

Credit Rating Pillars Peer Group Comparison

Source: Morningstar Estimates

Note: Scoring is on a scale 1-10, 1 being Best, 10 being Worst

Financial Health & Capital Structure

ASM is in good financial position. At the end of the first quarter, the firm had a cash position of EUR 371 million and no debt on its balance sheet.

ASM boosted its cash position when it reduced its stake in ASMPT from 52% to 40%, which raised EUR 422 million for the firm. While ASM previously had debt on its balance sheet, the firm redeemed EUR 150 million worth of its outstanding 6.5% senior unsecured convertible notes due 2014 in the fourth quarter of 2012, resulting in the conversion of the notes to common shares by bondholders.

Given the cyclical nature of the chip equipment industry, we like the decline in debt on the balance sheet. The stronger players in the space tend to have large cash positions and lower amounts of debt, which allow them to invest heavily in R&D and further their technology positions at the expense of financially weaker competitors during cyclical downturns.

Enterprise Risk

ASM's business ebbs and flows with the highly volatile capital spending by chipmakers. The firm depends on a concentrated customer base; the top 10 customers in the main front-end business accounted for 86% of sales in 2013.

ASM faces several significantly larger rivals in the front-end

market. Additionally, its cutting-edge tools must gain

acceptance for the upcoming generations of semiconductor

manufacturing technologies.

Name Position Shares Held Report Date* InsiderActivity

NA NA NA NA NA

Top Owners % of Shares

Held % of Fund Assets Change

(k) Portfolio Date

American Funds SMALLCAP World Fund 2.48 0.26 -175 31 Mar 2014

MFS® International Value Fund 1.87 0.28 24 31 Mar 2014

Aberdeen Global Asian Smaller Cos Fd 1.74 1.20 -697 31 Mar 2014

FPIL Aberdeen Glb Em Mk Sm Co 1.34 1.64 — 31 Mar 2014

JOHCM European Select Val 1.60 2.05 -30 31 Jan 2014

Concentrated Holders

Add Value Fund N.V 0.43 12.46 50 30 Apr 2014

Think AMX ETF 0.05 6.34 — 05 May 2014

Robeco Hollands Bezit 0.79 5.45 -75 31 Mar 2014

ING Dutch Fund 1.30 5.10 44 31 Mar 2014

Kempen Orange 0.15 4.94 -10 31 Mar 2014

Top 5 Buyers % of Shares

Held % of Fund Assets

Shares Bought/

Sold (k) Portfolio Date

AllianceBernstein LP 0.37 0.13 168 31 Mar 2014

KBC Asset Management NV 0.21 0.08 128 28 Feb 2014

F&C Management Limited 0.46 1.93 118 28 Feb 2014

Columbia Management Investment Advisers, LLC 0.26 1.13 114 31 Mar 2014

Natixis Asset Management 0.48 0.23 93 28 Feb 2014

Top 5 Sellers

Aberdeen International Fund Managers Ltd 1.74 1.20 -697 31 Mar 2014

DB Platinum Advisors S.A. 0.01 2.11 -312 30 Apr 2014

ING Asset Management B.V. 0.20 0.96 -215 28 Feb 2014

Capital Research and Management Company 3.42 0.30 -175 31 Mar 2014

Robeco Institutional Asset Mgmt BV 0.79 5.45 -75 31 Mar 2014

Management 01 May 2014

Management & Ownership

Management Activity

Fund Ownership

Institutional Transactions

*Represents the date on which the owner’s name, position, and common shares held were reported by the holder or issuer.

We view management as adequate stewards of shareholder capital. Chuck del Prado replaced his father Arthur del Prado as president and CEO in March 2008. Chuck del Prado has been with ASM since 2001 and was previously the president and general manager of ASM America. He is a veteran of the tech industry and has held a variety of positions during his career at companies such as ASM Lithography and IBM.

Arthur del Prado founded ASM in 1968. He remains a major shareholder and controlled 18% of ASM as of March.

Management compensation appears reasonable relative to other similarly sized chip equipment firms.

In recent years, management has been able to reposition ASM's front-end segment to be a leader in certain types of cutting-edge tools used in semiconductor manufacturing.

Additionally, the front-end business has seen its cost structure improve with a shift in manufacturing to Singapore. Nonetheless, the company as a whole continues to lag other key chip equipment firms in terms of profitability.

ASM's back-end ASM Pacific subsidiary is very well run, as it is highly profitable and the key player in the chip assembly and packaging equipment segment. Management recently reduced ASM's ownership in ASM Pacific to 40% from 52%

in an effort to unlock value. However, management spurned a bid in 2008 from Applied Materials and Francisco Partners to acquire ASM's front-end operations for $625 million to

$800 million, which we thought would have been a great

deal for shareholders. ASM has returned excess cash to

shareholders via annual dividends and stock repurchases.

Analyst Notes

ASM International Reports Strong First-Quarter Results 24 Apr 2014

ASM International reported first-quarter results that were roughly in line with our expectations, as the firm saw robust demand for its chip manufacturing tools. We are maintaining our fair value estimate and moat rating.

For the quarter, revenue was EUR 151 million, up 19%

sequentially. Orders jumped to EUR 172 million from EUR 133 million in the fourth quarter. ASM continued to see robust demand for its atomic layer deposition (ALD) equipment and plasma enhanced atomic layer deposition (PEALD) equipment, which are key products for the firm, because chipmakers increase purchases of these tools to transition to next-generation semiconductor fabrication technologies.

On the profit front, gross margin was 43.7%, an increase from 39.3% in the fourth quarter, thanks favorable product mix, higher factory utilization levels and ASM's cost-cutting efforts. Operating income came in at EUR 33 million, versus

$12 million last quarter. Result from investments, which is the profit contribution from the ASMPT stake, was a profit of EUR 311 thousand. ASMPT contributed EUR 5.7 million in profits in the quarter, but this was somewhat offset by noncash adjustments totaling EUR 5.4 million related to the deconsolidation of the unit. Overall, ASM posted a net profit of EUR 27 million.

For the second quarter, management expects a low-single- digit decline in sales, while orders are anticipated to fall double digits. Nonetheless, these declines will be coming off a strong first quarter. Management also indicated that visibility for the second half of 2014 is limited. We continue to believe that ALD and PEALD tools will be key drivers for ASM down the road, as demand for these tools from chipmakers should grow as they transition to ever-more- advanced chip manufacturing processes. However, we

currently view ASM's shares as overvalued and would wait for an appropriate margin of safety before getting interested in the stock.

ASM International Reports Solid Fourth-Quarter Results;

Maintaining Fair Value Estimate 27 Feb 2014

ASM International reported fourth-quarter results that were within the range of our expectations. We are maintaining our fair value estimate of $32 per share and no moat rating.

For the quarter, revenue was EUR 127 million, up 9%

sequentially, and orders were EUR 133 million, versus EUR 112 million in the third quarter. ASM benefited from higher demand for atomic layer deposition, or ALD, and plasma- enhanced atomic layer deposition, or PEALD, manufacturing tools, which are increasingly being adopted by chipmakers for cutting-edge chip fabrication processes. The firm indicated that ASM's sales were led by memory chipmakers, followed by logic customers.

On the profit front, gross margin was 39.3%, versus 39.1%

in the third quarter. Operating income came in at EUR 16 million, up from EUR 12 million last quarter. Result from investments, which is the profit contribution from the ASMPT stake, was a loss of EUR 368 million. ASMPT contributed EUR 1.5 million in profits during the quarter, but this was masked by noncash adjustments totaling EUR 370 million related to the deconsolidation of the unit. Taken together, ASM reported a net loss of $361 million. Excluding the noncash adjustments related to the ASMPT deconsolidation, the firm would have posted a net income of EUR 9 million.

Management expects both revenue and orders to be up by

double digits sequentially in the first quarter. The

semiconductor equipment market appears to be seeing

some momentum in the near term, driven by capital

Analyst Notes

spending from leading chipmakers to advance their chip

manufacturing technologies. Further, ASM should benefit

from increasing adoption of ALD and PEALD tools at the

most cutting-edge fabrication technologies, which should

provide tailwinds for the firm. Nonetheless, we view ASM's

shares as overvalued at the moment and would wait for an

adequate margin of safety before getting interested in the

stock.

Growth (% YoY)

3-Year

Hist. CAGR 2011 2012 2013

5-Year Proj. CAGR

Revenue -20.6 33.6 -13.2 -56.8 3.0 15.0 8.6

EBIT -49.5 8.1 -75.7 -51.0 189.6 13.4 34.7

EBITDA -42.2 11.7 -64.6 -51.1 105.4 11.6 24.8

Net Income 111.9 68.8 -96.2 14,615.9 -88.3 10.8 -29.7

Diluted EPS 108.8 59.2 -95.6 12,912.9 -88.4 10.8 -29.7

Earnings Before Interest, after Tax -274.8 -57.0 -65.4 -3,688.4 -111.5 11.7 —

Free Cash Flow -345.1 -63.6 -533.5 832.6 -130.2 -112.0 —

Profitability

3-Year

Hist. Avg 2011 2012 2013

5-Year Proj. Avg

Operating Margin % 12.0 22.5 6.3 7.1 20.1 19.8 20.4

EBITDA Margin % 15.9 25.5 10.4 11.8 23.5 22.8 23.3

Net Margin % 61.2 11.4 0.5 171.8 19.5 18.8 19.3

Free Cash Flow Margin % -38.3 1.0 -5.1 NM 32.5 -3.4 9.3

ROIC % -18.5 9.2 3.3 -68.0 7.3 7.7 7.9

Adjusted ROIC % -16.1 9.6 4.3 -62.2 7.4 7.8 7.9

Return on Assets % 27.6 13.4 0.5 69.0 7.7 8.0 8.2

Return on Equity % 44.0 34.9 1.0 96.1 8.2 8.6 8.8

Leverage

3-Year

Hist. Avg 2011 2012 2013

5-Year Proj. Avg

Debt/Capital 0.11 0.23 0.10 — — — —

Total Debt/EBITDA 0.34 0.47 0.55 — — — —

EBITDA/Interest Expense 23.33 30.89 14.58 24.52 — — —

2012 2013

Price/Fair Value 1.23 1.00 — —

Price/Earnings 159.8 1.1 12.0 10.8

EV/EBITDA 10.2 16.7 11.1 10.0

EV/EBIT 16.9 27.6 13.0 11.5

Free Cash Flow Yield % -1.5 2.1 2.5 5.3

Dividend Yield % 3.2 19.8 1.6 1.6

Cost of Equity % 12.0

Pre-Tax Cost of Debt % 8.8

Weighted Average Cost of Capital % 11.8

Long-Run Tax Rate % 20.0

Stage II EBI Growth Rate % 5.0

Stage II Investment Rate % 33.3

Perpetuity Year 10

EUR Mil Firm Value (%) Per Share

Value

Present Value Stage I 258 22.3 4.00

Present Value Stage II 268 23.2 4.15

Present Value Stage III 631 54.6 9.79

Total Firm Value 1,156 100.0 17.94

Cash and Equivalents 312 — 4.85

Debt — — —

Preferred Stock — — —

Other Adjustments — — —

Equity Value 1,469 — 22.78

Projected Diluted Shares 64

Fair Value per Share —

Morningstar Analyst Forecasts

Forecast Fiscal Year Ends in December

Financial Summary and Forecasts

Valuation Summary and Forecasts

Key Valuation Drivers

Discounted Cash Flow Valuation

Additional estimates and scenarios available for download at http://select.morningstar.com.

The data in the table above represent base-case forecasts in the company’s reporting currency as of the beginning of the current year. Our fair value estimate may differ from the equity value per share shown above due to our time value of money adjustment and in cases where probability-weighted scenario analysis is performed.

(EUR)

2011 2012 2013

Revenue 1,634 1,418 612 631 725

Cost of Goods Sold 1,064 978 398 366 435

Gross Profit 571 440 215 265 290

Selling, General & Administrative Expenses 174 202 95 79 83

Research & Development 129 149 75 57 62

Other Operating Expense (Income) -101 — — — —

Depreciation & Amortization (if reported separately) 1 — 1 3 2

Operating Income (ex charges) 367 89 44 126 143

Restructuring & Other Cash Charges — 1 2 — —

Impairment Charges (if reported separately) — — 1 — —

Other Non-Cash (Income)/Charges — — — — —

Operating Income (incl charges) 367 88 40 126 143

Interest Expense 13 10 3 — —

Interest Income -1 -11 1,023 15 14

Pre-Tax Income 353 67 1,060 141 157

Income Tax Expense 37 26 11 21 24

Other After-Tax Cash Gains (Losses) — — — — —

Other After-Tax Non-Cash Gains (Losses) — — — — —

(Minority Interest) -129 -33 3 3 3

(Preferred Dividends) — — — — —

Net Income 187 7 1,052 123 136

Weighted Average Diluted Shares Outstanding 65 57 64 64 64

Diluted Earnings Per Share 2.87 0.13 16.39 1.91 2.11

Adjusted Net Income 187 7 1,052 123 136

Diluted Earnings Per Share (Adjusted) 2.87 0.13 16.39 1.91 2.11

Dividends Per Common Share 0.55 0.69 6.59 0.69 0.69

EBITDA 417 147 69 148 165

Adjusted EBITDA 417 148 72 148 165

Morningstar Analyst Forecasts

Income Statement (EUR Mil)

Fiscal Year Ends in December Forecast

2011 2012 2013

Cash and Equivalents 410 310 312 498 452

Investments — — — — —

Accounts Receivable 331 305 83 143 165

Inventory 377 403 104 130 155

Deferred Tax Assets (Current) — — — — —

Other Short Term Assets 98 110 18 16 17

Current Assets 1,216 1,128 518 787 790

Net Property Plant, and Equipment 260 275 57 53 52

Goodwill 52 52 11 11 11

Other Intangibles 15 14 6 3 1

Deferred Tax Assets (Long-Term) 13 6 1 1 1

Other Long-Term Operating Assets 26 24 958 790 908

Long-Term Non-Operating Assets — — — — —

Total Assets 1,582 1,500 1,551 1,645 1,764

Accounts Payable 158 152 45 55 66

Short-Term Debt 45 68 — — —

Deferred Tax Liabilities (Current) 4 0 10 10 10

Other Short-Term Liabilities 250 198 47 40 44

Current Liabilities 457 418 102 105 120

Long-Term Debt 150 13 — — —

Deferred Tax Liabilities (Long-Term) 1 1 0 0 0

Other Long-Term Operating Liabilities 7 5 — — —

Long-Term Non-Operating Liabilities 10 13 2 2 2

Total Liabilities 625 450 104 107 122

Preferred Stock — — — — —

Common Stock 2 3 3 3 3

Additional Paid-in Capital 376 480 251 251 251

Retained Earnings (Deficit) 302 288 1,282 1,372 1,476

(Treasury Stock) — — — — —

Other Equity -20 -29 -88 -88 -88

Shareholder's Equity 660 742 1,447 1,538 1,642

Minority Interest 298 308 — — —

Total Equity 958 1,050 1,447 1,538 1,642

Morningstar Analyst Forecasts

Balance Sheet (EUR Mil)

Fiscal Year Ends in December Forecast

2011 2012 2013

Net Income 316 40 1,049 120 133

Depreciation 45 58 28 19 20

Amortization 4 — — 3 2

Stock-Based Compensation 13 23 5 4 4

Impairment of Goodwill — — — — —

Impairment of Other Intangibles — — — — —

Deferred Taxes — — — — —

Other Non-Cash Adjustments -125 7 -1,029 — —

(Increase) Decrease in Accounts Receivable 72 18 -8 -60 -22

(Increase) Decrease in Inventory 8 -40 -20 -26 -25

Change in Other Short-Term Assets -20 -7 9 2 -1

Increase (Decrease) in Accounts Payable -95 -32 10 10 10

Change in Other Short-Term Liabilities -3 -26 5 -7 5

Cash From Operations 217 42 49 65 127

(Capital Expenditures) -89 -68 -17 -15 -20

Net (Acquisitions), Asset Sales, and Disposals -4 -4 302 — —

Net Sales (Purchases) of Investments — — — — —

Other Investing Cash Flows 23 — — 169 -118

Cash From Investing -70 -72 285 154 -138

Common Stock Issuance (or Repurchase) 4 -38 -35 — —

Common Stock (Dividends) -102 -55 -301 -32 -32

Short-Term Debt Issuance (or Retirement) — — 23 — —

Long-Term Debt Issuance (or Retirement) 19 23 -22 — —

Other Financing Cash Flows — -4 10 -1 -2

Cash From Financing -79 -73 -324 -34 -34

Exchange Rates, Discontinued Ops, etc. (net) -18 3 -4 — —

Net Change in Cash 50 -100 5 185 -45

Morningstar Analyst Forecasts

Cash Flow (EUR Mil)

Fiscal Year Ends in December Forecast

Company/Ticker Price/Fair

Value 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 1.05 85.0 21.3 17.1 18.2 13.1 8.0 49.6 27.5 19.4 3.0 3.0 1.2 2.9 2.7 1.5

Average 85.0 21.3 17.1 18.2 13.1 8.0 49.6 27.5 19.4 3.0 3.0 1.2 2.9 2.7 1.5

ASM International NV ASM NL 1.32 1.1 12.0 10.8 16.7 11.1 10.0 48.3 40.2 18.9 1.1 1.3 1.2 2.5 3.2 2.8

Company/Ticker Total Assets

(Mil) 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 12,043 USD 6.3 11.9 9.3 9.7 17.4 17.8 3.6 14.7 14.0 2.1 8.9 9.6 2.1 1.9 2.6

Average 6.3 11.9 9.3 9.7 17.4 17.8 3.6 14.7 14.0 2.1 8.9 9.6 2.1 1.9 2.6

ASM International NV ASM NL 1,551 EUR -68.0 7.3 7.7 -62.2 7.4 7.8 96.1 8.2 8.6 69.0 7.7 8.0 19.8 1.6 1.6

Company/Ticker Revenue

(Mil) 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 7,509 USD -13.9 14.6 78.8 -22.7 98.4 61.7 146.0 325.0 24.8 -123.5 7.7 -1,560.1 — — —

Average -13.9 14.6 78.8 -22.7 98.4 61.7 146.0 325.0 24.8 -123.5 7.7 -1,560.1 — — —

ASM International NV ASM NL 612 EUR -56.8 3.0 15.0 -51.0 189.6 13.4 12,912.9 -88.4 10.8 832.6 -130.2 -112.0 850.0 -89.5 —

Comparable Company Analysis

These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.

Valuation Analysis

Returns Analysis

Growth Analysis

Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales

ROIC % Adjusted ROIC % Return on Equity % Return on Assets % Dividend Yield %

Revenue Growth % EBIT Growth % EPS Growth % Free Cash Flow Growth % Dividend/Share Growth %

Last Historical Year

Last Historical Year

Company/Ticker Net Income

(Mil) 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 256 USD 39.8 43.8 40.5 15.8 20.1 18.3 10.3 17.8 16.1 3.4 12.7 12.1 5.8 9.7 7.7

Average 39.8 43.8 40.5 15.8 20.1 18.3 10.3 17.8 16.1 3.4 12.7 12.1 5.8 9.7 7.7

ASM International NV ASM NL 1,052 EUR 35.0 42.0 40.0 11.8 23.5 22.8 7.1 20.1 19.8 171.8 19.5 18.8 5.1 8.0 14.8

Company/Ticker Total Debt

(Mil) 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 1,946 USD 27.5 25.2 10.3 21.5 20.1 9.3 12.5 17.8 29.0 1.6 1.1 0.7 1.7 1.6 1.4

Average 27.5 25.2 10.3 21.5 20.1 9.3 12.5 17.8 29.0 1.6 1.1 0.7 1.7 1.6 1.4

ASM International NV ASM NL — EUR — — — — — — 24.5 — — — — — 1.1 1.1 1.1

Company/Ticker Market Cap

(Mil) 2013

2013

2013

2013

2013

Applied Materials Inc AMAT USA 22,962 USD 2.38 2.61 0.52 2.72 3.18 1.81 2.14 2.59 1.25 — — 2.16 161.8 38.1 30.5

Average 2.38 2.61 0.52 2.72 3.18 1.81 2.14 2.59 1.25 — — 2.16 161.8 38.1 30.5

ASM International NV ASM NL 2,018 EUR 4.87 7.72 7.02 5.10 7.51 6.59 4.07 6.27 5.30 — — — 3.1 26.3 23.7

Comparable Company Analysis

These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.

Profitability Analysis

Leverage Analysis

Liquidity Analysis

Gross Margin % EBITDA Margin % Operating Margin % Net Margin % Free Cash Flow Margin %

Debt/Equity % Debt/Total Cap % EBITDA/Interest Exp. Total Debt/EBITDA Assets/Equity

Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout Ratio %

Last Historical Year

Last Historical Year

3 Moat Valuation 3 Three-Stage Discounted Cash Flow 3 Weighted Average Cost of Capital 3 Fair Value Estimate 3 Scenario Analysis 3 Uncertainty Ratings 3 Margin of Safety 3 Consider Buying/Selling 3 Stewardship Rating

their fair value. A number of components drive this rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s intrinsic value based on a discounted cash-flow model, (3) the margin of safety bands we apply to our Fair Value Estimate, and (4) the current stock price relative to our fair value estimate.

The concept of the Morningstar Economic Moat™ Rating plays a vital role not only in our qualitative assessment of a firm’s investment potential, but also in our valuation process.

We assign three moat ratings—none, narrow, or wide—as well as the Morningstar Moat Trend™ Rating—positive, stable, or negative—to each company we cover. There are two major requirements for firms to earn either a narrow or wide moat rating: (1) the prospect of earning above-average returns on capital; and (2) some competitive edge that pre- vents these returns from quickly eroding. The assumptions we make about a firm’s moat determine the length of “eco- nomic outperformance” that we assume in the latter stages

enterprise value and the value of the firm if no future net in- vestment were to occur. Said differently, moat value identi- fies the value generated by the firm as a result of any future net new investment. Our Moat Trend Rating reflects our as- sessment of whether each firm’s competitive advantage is either getting stronger or weaker, since we think of moats as dynamic, rather than static.

At the heart of our valuation system is a detailed projection of a company’s future cash flows. The first stage of our three- stage discounted cash flow model can last from 5 to 10 years and contains numerous detailed assumptions about various financial and operating items. The second stage of our mod- el—where a firm’s return on new invested capital (RONIC) and earnings growth rate implicitly fade until the perpetuity year—can last anywhere from 0 years (for no-moat firms) to 20 years (for wide-moat companies). In our third stage, we assume the firm’s RONIC equals its weighted average cost of capital, and we calculate a continuing value using a standard Morningstar Research Methodology for Valuing Companies

Analyst conducts company and industry research:

Financial statement analysis Channel checks Trade-show visits Industry and company reports and journals Conference calls Management and site visits 3 3

3 3

3 3

Strength of competitive advantage is rated:

None, Narrow, or Wide Advantages that confer an economic moat:

High Switching Costs (Microsoft)

Cost advantage (Wal-Mart) Intangible assets (Johnson & Johnson) Network Effect (Mastercard) Efficient Scale (Lockheed Martin)

Analyst considers past financial results and focuses on competitive position and future prospects to forecast future cash flows.

Assumptions are entered into Morningstar’s proprietary discounted cash-flow model.

The analyst then eval- uates the range of potential intrinsic values for the company and assigns an Uncertainty Rating: Low, Medium, High, Very High, or Extreme.

The Uncertainty Rating determines the margin of safety required before we would rec- ommend the stock.

The higher the uncer- tainty, the wider the margin of safety.

Analyst uses a discounted cash-flow model to develop a Fair Value Estimate, which serves as the foundation for the Morningstar Rating for stocks.

The current stock price relative to Morningstar’s Fair Value Estimate, adjusted for uncertainty, determines the Morningstar Rating for stocks.

The Morningstar Rating for stocks is updated each evening after the market closes.

QQQQQ QQQQ QQQ QQ Q

Fundamental Analysis

Economic Moat

Rating

Company Valuation

Fair Value Estimate

Uncertainty

Assessment

3 Uncertainty Methodology 3 Cost of Equity Methodology 3 Morningstar DCF Valuation Model 3 Stewardship Rating Methodology

* Please contact a sales representative for more information.

Instead, we rely on a system that measures the estimated volatility of a firm’s underlying future free cash flows, tak- ing into account fundamental factors such as the diversity of revenue sources and the firm’s fixed cost structure.

We also employ a number of other tools to augment our valu- ation process, including scenario analysis, where we assess the likelihood and performance of a business under different economic and firm-specific conditions. Our analysts typically model three to five scenarios for each company we cover, stress-testing the model and examining the distribution of resulting fair values.

The Morningstar Uncertainty Rating captures the range of these potential fair values, based on an assessment of a company’s future sales range, the firm’s operating and fi- nancial leverage, and any other contingent events that may impact the business. Our analysts use this range to assign an appropriate margin of safety—or the discount/premium

prices receive our highest rating of five stars, whereas firms trading above our consider-selling prices receive our lowest rating of one star.

Morningstar Margin of Safety and Star Rating Bands

Price/Fair Value 2.75

2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25

Low Medium High Very High*

* Occasionally a stock’s uncertainty will be too high for us to estimate, in which case we label it Extreme.

• 5 Star

• 4 Star

• 3 Star

• 2 Star

• 1 Star

Uncertainty Rating

— 125%

105% — 80% —

— 95%

— 135%

110% —

70% —

— 90%

— 155%

115% —

60% —

— 85%

— 175%

125% —

50% —

— 80%

New Morningstar Margin of Safety and Star Rating Bands as of August 18th, 2011

Our corporate Stewardship Rating represents our assess- ment of management's stewardship of shareholder capital, with particular emphasis on capital allocation decisions.

Analysts consider companies' investment strategy and

valuation, financial leverage, dividend and share buyback

policies, execution, compensation, related party transac-

tions, and accounting practices. Corporate governance

practices are only considered if they've had a demonstrated

impact on shareholder value. Analysts assign one of three

ratings: "Exemplary," "Standard," and "Poor." Analysts judge

stewardship from an equity holder's perspective. Ratings

are determined on an absolute basis. Most companies will

receive a Standard rating, and this is the default rating in

the absence of evidence that managers have made

exceptionally strong or poor capital allocation decisions.

coverage list.

3 Encapsulates our in-depth modeling and quantitative work in one letter grade.

3 Allows investors to rank companies by each of the four underlying com- ponents of our credit ratings, including both analyst-driven and quantitative measures.

3 Provides access to all the underlying forecasts that go into the rating, available through our insti- tutional service.

different lenses—qualitative and quantitative, as well as fundamental and market-driven. We therefore evaluate each company in four broad categories.

Business Risk

Business Risk captures the fundamental uncertainty around a firm’s business operations and the cash flow generated by those operations. Key components of the Business Risk rating include the Morningstar Economic Moat

Rating and the Morningstar Uncertainty Rating.

Cash Flow Cushion

Morningstar’s proprietary Cash Flow Cushion

ratio is a fundamental indicator of a firm’s future financial health The measure reveals how many times a company’s internal cash generation plus total excess liquid cash will cover its debt-like contractual commitments over the next five years. The Cash Flow Cushion acts as a predictor of financial distress, bringing to light potential refinancing, operational, and liquidity risks inherent to the firm.

3 3 3 3 3

3

The higher the rating, the less likely we think the company is to default on these obligations.

The Morningstar Corporate Credit Rating builds on the modeling expertise of our securities research team. For each company, we publish:

Five years of detailed pro-forma financial statements Annual estimates of free cash flow

Annual forecasts of return on invested capital

Scenario analyses, including upside and downside cases Forecasts of leverage, coverage, and liquidity ratios for five years

Estimates of off balance sheet liabilities

These forecasts are key inputs into the Morningstar Corporate Credit Rating and are available to subscribers at select.morningstar.com.

Morningstar Research Methodology for Determining Corporate Credit Ratings

Competitive Analysis

Cash-Flow Forecasts

Scenario Analysis

Quantitative Checks

Rating Committee

A AA

BBB

C

D

BB CC B

CCC

Analyst conducts company and industry research:

• Management interviews

• Conference calls

• Trade show visits

• Competitor, supplier, distributor, and customer interviews

• Assign Economic Moat

Rating

Analyst considers company financial statements and competitive dynamics to forecast future free cash flows to the firm.

Analyst derives estimate of Cash- Flow Cushion

.

Analysts run bull and bear cases through the model to derive alternate estimates of enterprise value.

Based on compet- itive analysis, cash-flow fore- casts, and scenario analysis, the analyst assigns Business Risk.

We gauge a firm’s health using quantitative tools supported by our own backtesting and academic research.

• Morningstar Solvency Score

• Distance to Default

Senior personnel review each company to determine the appropriate final credit rating.

• Review modeling assumptions

• Approve company-specific adjustments

AAA Extremely Low Default Risk AA Very Low Default Risk

A Low Default Risk BBB Moderate Default Risk

BB Above Average Default Risk B High Default Risk

CCC Currently Very High Default Risk CC Currently Extreme Default Risk

C Imminent Payment Default D Payment Default UR Under Review UR+ Positive Credit Implication UR- Negative Credit Implication

AAA

a credit committee of at least five senior research per- sonnel reviews each preliminary rating.

We review credit ratings on a regular basis and as events warrant. Any change in rating must be approved by the Credit Rating Committee.

Investor Access

Morningstar Corporate Credit Ratings are available on Morningstar.com. Our credit research, including detailed cash-flow models that contain all of the components of the Morningstar Corporate Credit Rating, is available to subscribers at select.morningstar.com.

measure focuses on the future cash-generating performance of the firm derived from Morningstar’s proprietary discounted cash flow model. By making standardized adjustments for certain expenses to reflect their debt-like characteristics, we can compare future projected free cash flows with debt-like cash commitments coming due in any particular year. The forward-looking nature of this metric allows us to anticipate changes in a firm’s financial health and pinpoint periods where cash shortfalls are likely to occur.

Morningstar Solvency Score

The Morningstar Solvency Score

is a quantitative score derived from both historical and forecasted financial ratios.

It includes ratios that focus on liquidity (a company’s ability to meet short term cash outflows), profitability (a company’s ability to generate profit per unit of input), capital structure (how does the company finance its operations), and interest coverage (how much of profit is used up by interest payments).

Distance to Default

Morningstar’s quantitative Distance to Default measure ranks companies on the likelihood that they will tumble into financial distress. The measure is a linear model of the percentile of a firm’s leverage (ratio of Enterprise Value to Market Value), the percentile of a firm’s equity volatility relative to the rest of the universe and the interaction of these two percentiles. This is a proxy methodology for the common definition of Distance to Default which relies on option-based pricing models. The proxy has the benefit of increased breadth of coverage, greater simplicity of calculation, and more predictive power.

For each of these four categories, we assign a score, which

we then translate into a descriptive rating along the scale

of Very Good / Good / Fair / Poor / Very Poor.

© 2014 Morningstar. All Rights Reserved. Unless stated otherwise, this report was prepared by the person(s) noted in their capacity as Equity Analysts employed by Morningstar, Inc., including its global affiliates. It has not been made available to the issuer prior to publication.

The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic value. Five-star stocks sell for the biggest risk-adjusted discount whereas one-star stocks trade at premiums to their intrinsic value.

Based on a fundamentally focused methodology and a robust, standardized set of procedures and core valuation tools used by Morningstar’s Equity Analysts, four key components drive the Morningstar Rating: 1. Assessment of the firm’s economic moat, 2. Estimate of the stock’s fair value, 3. Uncertainty around that fair value estimate and 4.

Current market price. Further information on Morningstar’s methodology is available from http://global.morningstar.

com/equitydisclosures.

It has not been determined in advance whether and in what intervals this document will be updated. No material interests are held by Morningstar or the Equity Analyst in the financial products that are the subject of the research reports or the product issuer. Regarding Morningstar’s conflicts of interest: 1) Equity Analysts are required to

comply with the CFA Institute’s Code of Ethics and Standards of Professional Conduct and 2) Equity Analysts’

compensation is derived from Morningstar’s overall earning and consists of salary, bonus and in some cases restricted stock; however Equity Analysts are neither allowed to participate directly or try to influence Morningstar’s investment management group’s business arrangements nor allow employees from the investment management group to participate or influence the analysis or opinion prepared by them. Further information on Morningstar’s conflict of interest policies is available from http://global.

morningstar.com/equitydisclosures.

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