FWIW, from iionline.com
By Dave Sterman
Applied Materials (NASDAQ:AMAT - Quotes, News, Boards) delivered another strong quarter after the bell on Tuesday. And as the tide rises for AMAT, it should lift the shares of other chip equipment stocks in sympathy.
Thanks to strong demand and tight cost controls, AMAT beat estimates by an impressive 33%. The world's largest chip equipment maker earned $0.36 a share in its second quarter (ended May 2), ahead of the First Call estimate of $0.27 a share. This marks the third straight quarter that AMAT has topped estimates by at least a nickel.
Applied is rebounding even faster than competitors such as Lam Research (NASDAQ: LRCX - Quotes, News, Boards) and Novellus (NASDAQ: NVLS - Quotes, News, Boards) thanks to an aggressive move to develop machines that can offer 0.18 micron technology. Over the next few years, many chip makers hope to make the switch from 0.25 microns to 0.18 which enables higher manufacturing yields and lower costs.
Demand for the company's newer products helped trigger a 35% sequential jump in orders. AMAT's book-to-bill ratio, which measures the rate of new orders against current shipments, registered at an eye-popping 1.24. That in turn led backlog to swell to $1.36 billion. Much of the hot demand is coming from Korea, which boosted orders 80% sequentially. The fortunes of the chip making stocks have risen and fallen on the heels of the Japanese and Korean economies.
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Bullish management guidance caused analysts to quickly bump their estimates for the remainder of the year. Management told analysts to forecast earnings of $0.50-$0.54 per share into their models for the current quarter that ends in July. The Street had been looking for per share profits of $0.33 a share, according to First Call. That's quite a leap. If the company can hit that target, it would be the second most profitable quarter in its history. (In January, 1998, AMAT earned $0.60 a share).
Predictably, analysts were quick to sing the company's praises. 'Applied's newly revamped manufacturing is showing strengths,' wrote Hambrecht & Quist's Eric Chen in a morning note. He bumped his full-year earnings outlook to $1.87 a share, and expects earnings to rise another 39% next year to $2.60 a share.
BT Alex. Brown's Erika Klauer was also caught off guard by AMAT's strength. 'We did not foresee the magnitude of the reported EPS difference,' she writes.
Bottom Line:
But here's the $64,000 question for investors. How much will investors pay for shares of a highly cyclical company? When the shares open up this morning, they will like sport a price/earnings multiple of 27-29 times next year's earnings. In its favor, the company continues to pull away from the pack and remains the premier investment in the chip-making arena. Sell-side analysts sum up the quandary quite nicely. 'Dips are a buying opportunity,' notes Banker's Trust's Erika Klauer. That's analyst speak for 'don't chase the stock while it has a lot of momentum. |
