AMAT CQ4 Preview: Strong orders a given, margins key to near-term performance
Goldman Sachs, February 12, 2004
"Summary: Applied Materials is reporting on February 18th. We expect strong CQ4 order growth and guidance for continued strong orders in April.
We model revenues of $1.3 Billion, up 7% sequentially, with earnings per share of $.08, in-line with the Street consensus estimate. We expect the company to report orders of $1.75 billion, up 37% sequentially, in-line with the significant sequential order growth reported by Applied's peers (ie. Toyko Electron, KLAC, and LCRX). We also expect Applied to guide for continued strong order growth to $2.25 billion (+29% sequentially) in PAril-quarter.
We believe that order strength during the January-quarter was likely broad-based with relative strength coming from the Taiwanese foundaries (we believe that UMC and TSMC both placed significant orders in the fourth quarter), Korea (we believe Samsung pulled in a number of orders in the Dec/Jan timeframe) and Japan whee customers continue to spend aggressively to add capacity as evidenced by Toyko Electron's approximately 50% sequential order increase for December.
Even with more linear order growth patterns, report likely to highlight that the industry is likely to see only two more quarters of meaningful order growth.
Applied projected quarterly orders ($ in millions)
JAN 04 APR 04 (E) JUL 04 (E) OCT 04(E)
Gross $1,750 $2,250 $2,700 $2,970
Orders
% Seq. 36.7% 28.6% 20% 10%
Since order stregth is given, margin leverage will likely dictate near-term stock movement. Regardless of the pattern that orders take for the January and April quarters, we expect investors will be pleased with the order performance of the company.
Market share, lead times, tool ASPs, and customer order patterns are also likely to be key areas of Street focus on the call.
Yet another issue on which we intend to focus during and after the call is whether or not the company is seeing any stretching out of the lead times for its tools and if so, whether or not lengthening lead times have begun to translate into ASP leverage of the company.
Finally, on investor focus areas on the call, we are anxious to get management's insight on customer order patterns. Recent comments from UMC as well as our own checks into order patterns at Intel, TSMC, and Samsung lead us to believe that at least some major customers have already ordered a significant portion of their 2004 capex budget. We believe many of these orders were placed during CQ4 2003 which is why sequential order growth has been so robust for the companies that already reported." |
