Bloomberg News

Applied Materials Declines After Forecast Misses Estimates

November 17, 2011

(Updates share price in fifth paragraph.)

Nov. 17 (Bloomberg) -- Applied Materials Inc., the largest producer of chipmaking equipment, fell the most in 2 1/2 years after forecasting first-quarter sales and profit that trailed analysts’ predictions, a sign that semiconductor makers are scaling back expansion plans.

Profit before certain costs will be 8 cents to 16 cents a share, the company said in a statement yesterday. Revenue will decline as much as 15 percent from the prior quarter, Applied said, indicating sales of as little as $1.85 billion. Analysts on average predicted profit of 18 cents on sales of $2.07 billion, according to Bloomberg data.

Many chipmakers are reluctant to increase output until they see evidence that the economy is improving, said Mahesh Sanganeria, a San Francisco-based analyst at RBC Capital Markets. That’s damping demand for the gear needed to manufacture semiconductors.

“Unless there is an inflection in demand, there is no need to spend on capacity,” said Sanganeria. He has a “sector perform” rating on Applied Materials stock and said he doesn’t own any of the shares.

Applied Materials fell 7.5 percent to $11.53 at 4 p.m. in New York trading, the biggest decline since April 7, 2009. The stock has lost 18 percent this year.

Applied Materials also supplies makers of solar panels and TV and computer flat-panel displays, markets that are suffering amid overproduction and lower prices.

Orders Trough

“Display and solar equipment have been really tough,” said Edwin Mok, an analyst at Needham & Co. in San Francisco who has a “buy” rating on Applied Materials.

New equipment orders troughed in the fiscal fourth quarter, and Applied Materials expects additional demand for semiconductor and display machinery in the current period, Chief Executive Officer Mike Splinter said in an interview.

“Revenue will still be down a bit, but we’re seeing the bottom in orders,” he said. The key indicator of whether the recovery is sustainable will come during the end-of-year holiday shopping season, he said.

“The big question is how strong the buying is through Christmas and Chinese New Year at the end of January,” Splinter said. “We’ll know an awful lot more about consumer confidence by that time.”

Investors and analysts track semiconductor-equipment orders as a harbinger of demand for electronics. Chipmakers such as Intel Corp. and Samsung Electronics Co. vary spending on new equipment and plants according to their predictions for demand as much as two years in advance. 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.

Net Income

Net income fell to $456 million, or 34 cents a share, in the fourth quarter, which ended Oct. 30, Applied Materials said yesterday. That compares with $468 million, or 35 cents, a year earlier, the Santa Clara, California-based company said. Revenue fell 24 percent to $2.18 billion.

Excluding certain costs, profit was 21 cents a share. Analysts on average had estimated profit of 19 cents on $2.15 billion of sales.

Applied has started using factory shutdowns to slice costs, Chief Financial Officer George Davis said last quarter. It is also limiting hiring. The company expects to buy back shares this quarter, Davis said yesterday.

--Editors: Tom Giles, Jillian Ward

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


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