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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Alastair McIntosh who wrote (6872)	11/13/2002 7:33:03 PM
From: Return to Sender	Respond to of 95640

Applied's Quarter About as Grim as Expected thestreet.com By K.C. Swanson Staff Reporter 11/13/2002 07:05 PM EST Click here for more stories by K.C. Swanson Updated from 6:13 p.m. EST Semiconductor equipment manufacturer Applied Materials (AMAT:Nasdaq - news - commentary - research - analysis) swung to a profit from a loss in the year-ago quarter. But in a reflection of the negative near-term outlook, it said orders for new equipment suffered a double-digit slide in its fiscal fourth quarter -- and bookings will see an even steeper drop-off in the quarter now underway. The company reported net sales of $1.45 billion, down 1% sequentially but up 14% from last year's levels for the same period. Analysts were expecting revenue of $1.47 billion, according to Thomson Financial/First Call. Net income was $147 million, or 9 cents a share, a penny above the consensus outlook. That represents a reversal from last year's net loss of $82 million, or a nickel a share. But that figure includes a benefit of about 1.6 cents related to taxes, which wasn't anticipated in the company's original guidance. In other words, after stripping out the unexpected benefit, AMAT's earnings were actually closer to around 7.4 cents. While still a slight improvement over the prior quarter's 7-cent profit, closer examination suggests the company didn't beat the Street estimate after all. "We're splitting hairs here, but it tells you how tough a quarter it was," points out Byron Walker, an analyst at UBS Warburg, characterizing the AMAT's results and commentary as a "slight disappointment, but within the bounds of expectations." AMAT said new orders for the quarter totaled $1.56 billion, down 12% sequentially, within the range of guidance given by the company. Many analysts had expected an even steeper drop. But though things could have been worse, the company's bleak assessment of the near-term outlook for chips will hardly soothe investors in the sector. Given the lower-than-expected outlook for PC sales, plus plans for new capacity to come online, CFO Joseph Bronson said he expects capacity utilization at foundries to drop below 55% in the quarter underway -- a precipitous slide from the third quarter's 69% and second quarter's 74%. "With lower visibility in overall electronics demand over the next six to nine months, we expect only moderate growth for both the chip industry and chip equipment industry," said Bronson on the conference call. "We expect order capacity in the near term to be weak as capital spending plans are deferred." In the first quarter, AMAT expects both orders and revenues to fall off 20% sequentially. The company says it should remain profitable operationally, but will incur a small loss after taking a restructuring charge related to layoffs. Earlier this month, bowing to the steep drop-off in equipment demand, it announced a layoff of 11% of staff, which will leave it with a payroll of around 14,000. The forecast for a 20% decline in orders is slightly worse than what some of AMAT's peers have predicted (though it's worth noting they have slightly different quarterly schedules). KLAC-Tencor (KLAC:Nasdaq - news - commentary - research - analysis) says bookings should be flat, while Novellus (NVLS:Nasdaq - news - commentary - research - analysis) predicts orders will be flat to down 10% for its December quarter and Lam Research (LRCX:NYSE - news - commentary - research - analysis) expects orders to drop 15%. At UBS Warburg, Walker says AMAT's downward guidance could be on the aggressive side. In other words, management wants to be sure not to disappoint. "The debate will now move to exactly what orders will be -- whether they're really closer to 15% down -- and whether that's the order bottom," he says. "The bottom could occur in the December/January time frame, but it may stretch out beyond." Walker has a hold on the stock; his firm has no banking relations with AMAT. AMAT management refused to speculate on when a bottom might be reached. "If I could answer that, I'd have a different job. I can only say what we have visibility to," said Bronson, in response to an analyst question. But in a further bearish comment on demand, CEO James Morgan said on the call, "The environment isn't going to get easier any time soon," citing "geopolitical and macroeconomic uncertainties." "Despite rising DRAM prices and reduced inventories, we continue to wait for an inflection point," he said. "Business investment and productivity needs to accelerate before real growth can gain traction." For the just-ended quarter, gross margin was 41.7%, compared to 37.1% a year ago. Gross margin grew 20 basis points from the last quarter. But in response to an analyst question, Bronson admitted, "With the drop in revenues, we will be hard-pressed to keep margins where they are."

To: Alastair McIntosh who wrote (6872)	11/14/2002 7:38:37 AM
From: robert b furman	Read Replies (1) \| Respond to of 95640

Hi Al, It is not an uncommon activity to roll a favorable tax treatment into earnings at the end of the fiscal year. Often times these last quarter adjustments are taken after a consultation with the IRS. As the previous years taxes are estimated and accrued over the year - an overpayment is more the sign of a careful,conservative management. Although I agree with the concept that this is a move that indicates business is soft - it also is a sign that management is doing a more than credible job of surviving during the tough times. These are tough times and management has been down this raod before. There is no doubt that good times will resurface. When IBD features a lead story on page one that the IC industry has matured where the go-go days of 20% growth plus are gone and the industry is settling in to believe that 8-10% growth is the best one can expect - that is the best sign there is that a turn is close at hand. The "fact" that there is no return to the growth days is what I've been looking for as a final signal that this bear is short in life. Every one must know it will never recover - before a recovery can in fact occur. With Walmart same store sales growing at 3.5% - the acceptance of a long term growth rate @ 8- 10% is just dandy. But no one will get excited until that 8-10% growth rate is at peak cycle and at a pe that Wally gets(or higher). By then, our favorite threads will be cluttered with bulls looking for the moon. These are times where quiet accumualtion of industry leaders are the smart move. Get as many as you can, while they're cheap.When IT spending is on the mend and growth as low as 8-10 % is occurring( my bet is it will be much higher then ) - you'll be kicking your back side for not buying at an obvious low trough. Don't get me wrong 11 is better than 14 - but a year from now, no one will be concerned if they missed the perfect price by 2-3 points. Now as in 98 - the excellent companies are downsizing for lean running, as that is what will occur next year. The surprise of the year will be how profitable these lean running companies will be on any signs of an uptick. Additionally: note how fast stockholder equity grows when receivables and inventories are minimized, and depreciation flows positive with out incurring tax liabilities. Remember depreciation is a cashless expense.In the SCE sector - depreciation is uniquely accelerated - thusly cash flow is tremendous. This allows for upgrades and replacements before an overall turn in the topline growth of the sector is apparent. This is a key characteristic of this sector.The life cycles are so short for many of the products made that full depreciation of the purchased equipment is difficult to achieve.Being able to write all of the machine off - is often only achieved by those who jump out early and seem to be investing during the trough - Intc is the classic example. For many cycles and almost 2 decades the turns of this sector's stock prices have not been led by fundamentals. It has been anticipated almost intuitively. Bob Funny Morgan just said the same thing on CNBC - Ahh great minds.gggg He said the sector still has long term growth in mid teens. When that is accepted by all gurus out there, Amat will be trading in the 30's plus. BWDIK Bob P.S. Very long this sector and patient.