Applied Materials Forecasts Sales Below Analysts’ Estimates
August 24, 2011, 11:05 PM EDTBy Ian King
(Updates with CEO comments in ninth paragraph.)
Aug. 24 (Bloomberg) -- Applied Materials Inc., the world’s largest producer of chipmaking equipment, forecast fourth- quarter sales and profit that missed analysts’ estimates as weaker demand leads semiconductor makers to cut expansion plans.
Profit before certain costs in the period ending in October will be 16 cents to 24 cents a share, the company said in a statement today. Sales will decline as much as 30 percent from the prior quarter, Applied said, indicating revenue of as little as $1.95 billion. Analysts on average predicted profit of 31 cents on sales of $2.55 billion, according to Bloomberg data.
Applied’s customers are scaling back on orders for new machinery amid concern that demand is stalling for computers, mobile phones and consumer electronics. The company also supplies makers of TV and computer flat-panel displays and solar panels, two markets that are also “under pressure,” said Patrick Ho, an analyst at Stifel Nicolaus & Co. in Dallas.
“They could be a little bit worse off than their peers,” said Ho, who recommends buying Applied Materials shares. “The key things are their peripheral businesses, the solar and the display.”
Applied Materials shares fell as much as 7.5 percent in extended trading after the report. The shares had dropped 8 cents to $11.36 at 4 p.m. today on the Nasdaq Stock Market. The stock has lost 19 percent this year.
Third Quarter
Third-quarter net income was $476 million, or 36 cents a share, compared with $123 million, or 9 cents, in the same period a year earlier, the Santa Clara, California-based company said. Revenue rose 11 percent to $2.79 billion.
Excluding certain costs, profit was 35 cents a share. Analysts on average had estimated profit of 33 cents on $2.67 billion of sales.
Fiscal fourth-quarter revenue will fall 15 percent to 30 percent from the third quarter’s, the company said. That equates to sales of $1.95 billion to $2.37 billion.
Some customers have delayed orders for machinery and others have canceled, Applied said today. Made-to-order chipmakers, or foundries, and memory-chip makers have become more cautious about spending, Chief Executive Officer Mike Splinter said on a conference call.
The company will use factory shutdowns to reduce expenses in the next two quarters when orders decline, Chief Financial Officer George Davis said on the call. Applied will also limit hiring, which will help cut spending by about $20 million, he said.
Tablets, Smartphones, Solar
Splinter said the slowdown feels similar to one in 2005 that lasted about two quarters.
“Tablets are strong, smartphones are strong and end demand in solar is good,” he said in an interview. “If the economy came back, it would turn fast.”
Under Splinter, Applied has branched out into machinery that makes solar panels and flat-panel monitors, trying to find markets that will provide a cushion from the wide swings in demand for chipmaking equipment.
The solar industry is being hit by the removal of government subsidies to panel buyers and a flood of new supply, causing prices to plummet. TV and computer display makers are also churning out too many panels, sending prices lower. Applied today said orders from both display makers and energy and environmental customers declined in the third quarter.
Rivals’ Forecasts
In July, Applied reaffirmed its forecast for the total market for chip-manufacturing equipment to be $30 billion to $33 billion this year, citing optimism that the largest chipmakers would stick to their spending budgets.
At the time, that forecast contrasted with more bearish comments from rivals. Last month, Novellus Systems Inc. projected third-quarter sales and profit that fell short of analysts’ estimates, saying customers had become more pessimistic about demand and were delaying orders.
KLA-Tencor Corp., whose machinery helps chipmakers ensure that each stage of production is completed successfully, said orders may decline as much as 20 percent in the second half of this year from the first six months.
Investors and analysts track semiconductor-equipment orders as an early indicator of demand for electronics. Chipmakers such as Intel Corp. and Samsung Electronics Co. vary their spending on new equipment and plants according to how they foresee demand as much as two years in the future. Their factories can cost more than $3 billion to build and are run 24 hours a day, which makes the companies careful with equipment purchases.
--Editors: Jillian Ward, Nick Turner
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
