H&Q AMAT 3rd quarter analysis of 08/03/99. Note their view on bookings as opposed to Needham's view. Jeff
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Anticipating another great quarter: Applied will announce its July
quarter earnings on August 17, 1999. We expect another great quarter,
continuing the series of results that beat street expectations by wide margins
during the last four quarters. For FQ3, we now estimate $1.4 billion in
revenue and $0.56 EPS, which were revised from $1.3 billion and $0.50,
respectively.
Continued sequential growth in orders: We believe that bookings during
the July quarter may amount to approximately $1.5 billion, sequentially
growing by nearly 8% from the April quarter. This set of estimates yields a
book-to-bill ratio of approximately 1.07, which is lower than the June average
book-to-bill ratio of 1.19 for front-end equipment. The continued sequential
growth of bookings, albeit at a moderated rate, is consistent with our
expectations. Given that a majority part of the company's FQ4 falls in the
summer time, and the possible effects of Y2K transition, we project that the
company will exit the fiscal year with orders slightly above $1.5 billion.
Product lines and customer segment: We believe that CMP continues to be
a hot sector with very healthy contribution margin. HDP CVD is also expected
to show strong growth during the quarter. Foundries will likely account for a
large percentage of the company's shipment and orders (30-40%). In light of a
major foundry player doubling its 1999 capital expenditure just recently, we
firmly believe that the foundry sector will continue to outpace our capital
spending expectations. In our view, Applied remains one of the best-positioned
companies to leverage the foundry trend.
Business pull-in: Compared to our expectations, Applied is pulling-in its
businesses, measured in bookings, shipments and earnings, by roughly a
quarter. We believe that this is in part a reflection of the company's effort
to streamline its internal operations during the last downturn coming to
fruition, and in part driven by the faster than anticipated progress in the
global capital spending environment. As a result of the accelerated business
momentum at Applied, we are raising our estimates.
Raising estimates: For the July quarter, we are raising our revenue and
EPS estimates to $1.5 billion and $0.56 from $1.4 billion and $0.50,
respectively. We are also revising our F2000 projections to $2.70 EPS on
revenues of $6.66 billion, from $2.50 EPS and $6.32 billion revenue.
Recommendation: We reiterate our BUY recommendation on shares of Applied
Materials.
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