Applied Materials Blows Out Earnings, But Orders Slow Significantly (
AMAT)
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1.77Quote As Of 1999/8/17 4:01PM
Applied Materials blew by Wall Street projections when it reported its
fiscal third-quarter earnings after the closing bell Tuesday. The
chip-equipment bellwether earned 61 cents a share, versus a consensus
estimate of 53 cents a share.
Quarterly revenues climbed to $1.43 billion, a 62% improvement from a
year ago and a 28% gain from the second quarter. Gross margins improved
to 48.7%. They were 46.3% last quarter and 44.6% a year ago.
The main event as far as analysts were concerned, however, was bookings
-- a subject of much debate on Wall Street leading into AMAT's earnings
report. New orders rose 5% from last quarter and 140% from a year ago to
$1.46 billion. Last week, the stock dropped on concerns that orders were
slowing and this report would seem to bear that out. The company saw
orders grow 51% sequentially two quarters ago and 35% last quarter. Some
analysts were expecting 10% sequential growth this time around, so a 5%
increase may be read as a disappointment.
Still, A.G. Edwards & Sons? Chris Chaney says AMAT is mostly suffering
from tough comparisons, not slowing business. 1998 was one of the worst
years the industry has ever had and the rebound was reflected most in
the first and second quarters.
Chaney was one of the analysts looking for order growth somewhere in the
range of 10% to 15%, so he says he'll be watching closely for what the
company gives by way of future guidance on orders. If the company says
in its conference call that orders will be flat to down in the next
quarter, the stock will be sure to take a big hit -- maybe as many as 10
points, Chaney says. But investors accustomed to blow-out quarters will
likely punish the stock somewhat even if that guidance is in line with
the slowdown Wall Street expects. Translation: Look for a down day on
Wednesday.
But those concerned about order growth aren?t looking at the big
picture, Chaney insists. In the next year and half, companies are going
to start begin building the latest fabrication plants for 300 mm wafers.
If each plant costs about $2 billion to construct, and a good $1 billion
to $1.5 billion is spent on equipment, there?s going to be some pretty
big business for Applied. "So, there?s a huge growth opportunity going
forward," says Chaney, who has an Accumulate on Applied shares. Any
slowdown in order growth will likely pick up "dramatically," but not for
six to 12 months.
Applied?s CEO James Morgan was certainly sanguine. "We believe the
market for semiconductor equipment may double over the next five years,
driven by three waves of industry activity," he said in a release. "The
first wave, the acceleration of Moore's Law to smaller linewidths, is
driving orders today. The second wave, the introduction of several new
materials, including copper and low-k dielectric films, is creating the
need for a broad range of innovative process technologies. Just on the
horizon is the third wave, the industry's move to 300mm wafers, which
will require completely new wafer processing equipment. Our broad
product offerings, product development capability and global
infrastructure continue to position the Company to address the
opportunities ahead."
If those three waves aren't enough, Applied is also taking market share
in most of its product categories, benefiting from its strong research
and development activity. During last year?s downturn, when other chip
equipment makers were laying off people, Applied had enough cash behind
it to continue its R&D work. If Applied?s stock pulls back tomorrow,
Chaney will be recommending that his clients take advantage of the dips
and snap up Applied shares. MR |
