Chip slump dogging Applied Materials
By Daniel Sorid
Reuters Company News
biz.yahoo.com
NEW YORK, Aug 12 (Reuters) - Tuesday is expected to be a day of diminished expectations for the world's largest maker of tools used in microchip production.
When Applied Materials Inc. (NasdaqNM:AMAT) reports results for the third quarter of its fiscal year on Tuesday, Wall Street will be looking for the company to predict a drop in orders for the fourth quarter.
The chip equipment industry has been hit hard by a fresh wave of cuts in capital spending by chip makers and weakness in demand for chip-hungry hardware like personal computers. Orders, a measure of products requested by customers but not yet booked as revenue, are likely to get worse before they get better, analysts said.
"The expectations for a recovery, especially for a recovery in the PC business, are being reined in," said Banc of America Securities analyst Mark FitzGerald. "And that is going to filter right down to the bottom of the food chain, the capital equipment companies."
FitzGerald said he expects the company to give guidance for a decline in fourth-quarter orders of between 5 percent and 10 percent.
Throughout the early part of this year, investors had sent Applied Materials stock rallying from September lows, on optimism for a recovery in the chip industry.
But fears of a new U.S. economic recession and budget cuts by chip makers have since taken a toll on the company's stock. The livelihood of companies like Applied Materials is tied to the capital spending budgets of chip makers.
At the beginning of its third quarter in late April, Applied Materials Inc. shares stood at $24.15. On Friday, the company's stock closed 42.6 percent below that level, at $13.86, as those optimistic predictions have dwindled.
Industrywide, sales of chip equipment are forecasted to drop 19 percent this year from the $28 billion reported in 2001, according to trade group Semiconductor Equipment and Materials International.
While the group is predicting the market for chip equipment will grow 29 percent in 2003, budget cuts by the two largest contract chip manufacturers -- makers of chips designed by other companies -- suggests a bleaker outlook.
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan:2330.TW) and United Microelectronics Corp. (Taiwan:2303.TW) slashed 2002 capital spending budgets last month. And Banc of America's FitzGerald said he expected Intel Corp. (NasdaqNM:INTC), the world's largest chip maker, to pare back its own capital spending plans.
Shares of Applied Materials dropped 54 cents, or 3.9 percent, to $13.32 in afternoon trade on Nasdaq.
A QUARTER TO MEET EXPECTATIONS
Wall Street is nevertheless expecting Applied Materials to meet the revenue and profit guidance it gave at the end of its second quarter.
When the company releases its report on its third quarter, which ended July 28, at the market close on Tuesday, analysts are expecting a profit in the range of 4 cents to 7 cents a share, with an average estimate of 5 cents, according to a poll of 27 analysts by Thomson First Call. Revenue is expected to be around $1.28 billion.
Orders are expected to be in the range of the company's guidance of around $1.8 billion to $2.0 billion.
Lehman Brothers analyst Edward White wrote in a research note that most evidence suggests Applied Materials will predict weaker orders for the company's fourth quarter of its fiscal year, which ends in October. |
