To: orkrious who wrote (5858 ) 11/15/2001 10:26:48 AM From: Sully- Respond to Applied Materials (AMAT) 39 -1.71: Since its lows on Oct. 3, Applied Materials has rallied 53%. With a move like that in such a short amount of time, you'd swear AMAT had called a bottom in the cyclical downturn and told investors to ready themselves for an extended period of tremendous sales and earnings momentum. Of course, AMAT did nothing of the sort, yet that has mattered little to a market that has been fixated on the idea that the U.S. economy is on the cusp of a meaningful economic recovery. Following AMAT's latest earnings report, tech investors may need to rein in their enthusiasm just a bit. For its fourth fiscal quarter ended Oct. 28, AMAT reported a profit of $0.03 per diluted share, down from $0.15 in the yr-ago period, and a penny shy of the consensus estimate; revenue fell 57% to $1.26 bln (consensus was $1.255 bln). New orders dropped 69% to $1.1 bln and were down 9% from the prior quarter. As an aside, AMAT implemented SAB 101 for fiscal Q4, and did so retroactively effective to the beginning of FY01. Accordingly, it restated its results for the first three fiscal quarters of 2001. The market hasn't had difficulty digesting that accounting change; however, it has had some difficulty digesting some of AMAT's forward-looking comments. In particular, AMAT said it expects Q1 sales to be $1.0 bln and that it expects to remain profitable or incur a small loss-- guidance that is tantamount to a warning as current Multex consensus estimates are $1.26 bln and $0.05, respectively. On the bright side, gross margin should increase versus the Oct. qtr. Orders, meanwhile, are anticipated to be slightly below orders in fiscal Q4 as customers continue to cut back on capital spending plans. Looking further ahead, AMAT indicated it expects industry capital spending to decline 30% in 2002 and capital spending for wafer fabs to decline 35%. That bleak spending outlook has pressured its stock after hours and the stocks of peer companies like Novellus (NVLS) and KLA-Tencor (KLAC). Given the market's decidedly bullish mindset of late, all may be forgiven by the time of the opening bell on Thursday. Nonetheless, investors shouldn't lose sight of the fact that a pickup in business investment is a necessary ingredient to get the economy running again. AMAT's outlook for capital spending in 2002 suggests the market may be getting ahead of itself in discounting the timing of a tech recovery next year.-- Patrick J. O'Hare, Briefing.com
