the future is good:
Applied Materials Beats Expectations
Thanks to Rebound in Chip Market
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
May 19, 1999
Applied Materials Inc., citing a long-awaited rebound in the semiconductor market, sailed past analysts' expectations for profits and orders in its fiscal second quarter.
The Santa Clara, Calif., company, the largest maker of the equipment used to manufacture chips, reported net income for the period ended May 2 of $141.6 million, or 36 cents a diluted share. That compares with year-earlier earnings of $141.2 million, or 37 cents a share. The earnings were well above analysts' consensus of 27 cents a share. Revenue fell 5% to $1.12 billion from $1.18 billion a year earlier.
Applied Materials said new orders were $1.39 billion, well above analysts' estimates of roughly $1.15 billion.
"It's encouraging that there were a lot of orders from a lot of customers in all geographies," said James C. Morgan, the company's chief executive officer.
The results were announced after the stock market closed. Applied's stock declined 12.5 cents to $63.125 in Nasdaq Stock Market trading Tuesday, but rose on the news to $65.25 in after-hours trading, according to Instinet.
Applied Materials benefited from a restructuring last year that lowered its costs and helped drive new machines to market. But a bigger factor is the recovery from an unprecedented three-year spending slowdown among chip makers. Chip makers appear to be seeing enough growth to justify new capacity investments, as well as shift to new technologies that will make faster and cheaper chips.
Byron Walker, an analyst at Warburg Dillon Read in New York, said the industrywide upturn is "looking good" but depends in part on whether memory chip makers have enough cash to spend on new equipment. Prices of dynamic random access memory chips have dropped 40% since March, Mr. Walker said.
The question for Applied and other equipment makers is whether demand for the new technologies can overcome problems that are stopping DRAM companies from investing. Mr. Morgan said that DRAM companies continue to make selective investments in new products, and he said orders from Taiwanese companies known as foundries helped offset the DRAM problems. Taiwanese customers were 25% of the new orders, second only to 30% from North American customers.
Mr. Morgan added that the speed of the industry recovery also depends on the health of the Asian, European and U.S. economies that help drive demand for chips.
During the quarter, Applied began shipping the last of its nine-tool set that would enable chip makers to make chips that use new, copper technology. And Applied has begun hiring employees again after cutting about 1,000 positions last year because the Asian economic crisis deepened an already prolonged semiconductor downturn. The company has about 12,000 employees, well below a peak of 16,000 in 1996 before the downturn began.
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