UMS Holdings

[Boon]

Many great points have been raised by fellow buddies in this thread especially recently with discussions on its business model, customer's intentions, macro outlook etc. Personally, I didn't find Andy's sale to be perplexing since I have seen him sell in great volume in the past while the business carried on steadily. But AMAT sale is different since it is unprecedented. I initially purchased UMS with the knowledge that with AMAT as a SSH, it implies that it has confidence in its subcontractor ability to deliver and the partnership is unlikely to be disrupted. With the stake sale, this premise no longer holds true - I am not saying that AMAT definitely has no more confidence in UMS but rather I cannot say that it definitely does. The fundamentals is no longer the same (to me) - there is an element of uncertainty as Specuvestor wisely wrote about. I did reduce my stake yesterday after contemplating about this. I am penning this now to avoid any hindsight bias but I do wonder will I regret parring down my stake when the dust settles (foresight bias ?) haha ! I hope the Board will issue a similar clarification like in 2012 to reduce this element of uncertainty.

(Vested)

At the infancy stage of the AMAT-UMS strategic partnership, a stake in UMS by AMAT would probably mean a great deal – it symbolized AMAT’s commitment and support to the new partnership.

The paring down of AMAT’s stake in UMS could symbolize the deterioration of the relationship – AMAT has lost confidence in UMS.

Or it could mean the relationship has now reached a mature, stable and robust stage.

Hence, the “strategic stake” in UMS is deemed to have served its initial purpose – it is now redundant as far as AMAT is concern.

From the perspective of capital allocation, it may no longer justifiable for AMAT to continue parking the money here which it should deploy elsewhere in compliance with its overall capital allocation objective - hence, the sell down.

I would tend to believe in the later - Of course, the possibilities are many – as always, one would have to draw his/her own conclusion.

Who is right and who is wrong – only time will tell.

(vested)

From page 10 of
2008 CITIZENSHIP REPORT
Supply Chain
As the leading equipment supplier to the global semiconductor, LCD flat panel display markets and solar photovoltaic (PV) industries, Applied has an extensive supply chain. To produce our semiconductor, flat panel, and solar products, we purchase subsystems, parts, materials and services from more than 800 suppliers worldwide, with 75 prime strategic suppliers representing 80 percent of our annual procurement spend.

http://www.appliedmaterials.com/sites/de...08_csr.pdf

The latest reports do not contain number of suppliers AMAT has.

Using 2008 figure of 75 prime strategic suppliers - if AMAT has to “commit” in each strategic supplier, an average “strategic stake” of USD 10 million - that work out to be USD 750 million – a lot of “capital” being tied down.

To achieve optimal use of capital, there is every reason for AMAT to pare down its stake in UMS, I reckon.

(vested)