August 9, 2000
Applied Materials CFO Sees 4Q EPS Of 73c-75c
Dow Jones Newswires
By Rick Jurgens
Of DOW JONES NEWSWIRES
PALO ALTO, Calif. -- Applied Materials Inc. (AMAT) posted third-quarter net income above estimates and a hefty increase in new order volume, and executives predicted that chip makers' appetite for equipment will continue to grow.
Especially strong demand from Japanese customers helped boost the third-quarter total of new orders to $3.28 billion, from $2.93 billion in the second quarter, Chief Financial Officer Joseph Bronson said in a conference call Wednesday. Order volume was up sequentially for the sixth quarter in a row, he said.
Applied Materials, a Santa Clara, Calif., maker of semiconductor manufacturing equipment, posted net income of $603.8 million, or 70 cents a share, for the quarter, which ended on July 30. That beat the analysts' consensus estimate of 68 cents a share, as compiled by First Call/Thomson Financial. A year ago, the company posted net income of $256.1 million, or 31 cents a share, excluding one-time items and adjusted for a subsequent stock split.
David Wang, senior vice president, said that the "up cycle" in the worldwide semiconductor industry will continue. Demand for semiconductors remains strong in all segments, and that has boosted chip makers' profit margins and their ability to finance capacity expansion, he said. A shortage of production capacity for dynamic random access memory chips is developing, he said.
Bronson said the company expects to post fourth-quarter net income ranging from 73 to 75 cents a share on revenue in a range from $2.85 billion to $2.9 billion. The company also expects new orders to reach $3.5 billion and gross margin to increase over the third-quarter figure of 50.9%, he said.
Applied Materials itself has experienced some shortages of components, including capacitors and discrete devices, Bronson said. While that has slowed deliveries to customers, it hasn't affected Applied Materials' financial performance, he said.
Although during its third quarter Applied Materials booked some orders for equipment for a new generation of production lines which use 300 millimeter wafers, significant sales won't begin to be posted until the first two quarters of fiscal 2001, Bronson said. Most existing production lines can't use wafers larger than 200 millimeters.
Accounts receivable were $2.16 billion at the end of the quarter, up 31% from $1.65 billion at the end of the second quarter, while sales were up 24.7% sequentially. The higher increase of accounts receivable reflected "a lot of shipments at the end of the quarter," Bronson said.
Applied Materials stock changed hands at 73 in after-hours trading volume of 1.7 million shares, up from the Nasdaq closing price of $72.13, according to CBS MarketWatch.
Applied Materials' stock has fallen from its 52-week high of $115 set April 7. Stock prices throughout the industry have slumped as investors reacted to a series of developments that some interpreted as portents of a downturn in the highly cyclical chip-making equipment sector.
Chief Executive James Morgan told Dow Jones Newswires that based on high-level discussions with Applied Materials customers, the company expects 2001 to be another "up year," with revenue growth. Additional visibility for 2001 will come from the "bottom-up" preparations currently underway for the new three-year plan which Applied Materials puts in place at the start of each fiscal year, he said.
Tia-Min Pang, an analyst with SG Cowen Securities Inc., said that Applied Materials' earnings announcement and call were cause for a "deep sigh of relief" after the "shivers" that followed an earnings warning last week by another chip equipment maker, Kulicke & Soffa Industries Inc. (KLIC).
Milind Bedekar, an analyst with Donaldson Lufkin & Jenrette Securities Corp., saw "a very solid positive" in Applied Materials' specific guidance of $3.5 billion in fourth-quarter new orders. That was better than a general projection of sequential growth, he said. "Applied did all the hand-holding that we could look for them to do," he said. Still, he said, storm clouds loom in the form of a possible slowing in demand from end users of chips, especially cell phone makers.
The sky looks better to David Wu, an analyst with ABN AMRO Inc., who said Applied's comments disproved pessimists who have predicted that a slowdown is about to arrive. "The sky is not falling," he said. Most chip makers "are rich," with strong balance sheets and positive cash flow, so that they have the need, the will and the means to invest in capacity expansion, Wu said.
But Mark Fitzgerald, an analyst with Banc of America Securities, said that Applied's results and guidance didn't erase the concerns that had driven the stock price down since April. He noted that the company's guidance for fourth-quarter sales signaled sequential growth below 7%, down from 25% in the current quarter, and that slowing growth causes a decline in price-to-earnings multiples in a cyclical industry.
Fitzgerald also discounted the bullishness of Applied Materials executives. "Equipment guys are the last to know" about a slowdown in demand from chip makers, he said.
-By Rick Jurgens |
