Bloomberg News

Applied Materials Predicts Sales Below Estimates

August 16, 2012

Applied Materials Inc. (AMAT:US), the world’s largest producer of chipmaking equipment, forecast fiscal fourth-quarter sales that may fall short of analysts’ estimates as some customers rein in expansion plans.

Sales in the current period will fall 25 percent to 40 percent from the prior quarter, the company said yesterday in a statement, indicating revenue of $1.41 billion to $1.76 billion. Analysts on average estimated sales of $1.95 billion, according to data (AMAT:US) compiled by Bloomberg.

Makers of Nand flash memory -- semiconductors used to store data in phones, tablets and other devices -- are producing more chips than their customers need, hurting prices and causing chip companies to curb output, according to Patrick Ho, an analyst at Stifel Nicolaus & Co. Applied Materials may also be setting conservative targets in an unpredictable economic climate, he said.

“Nand has some supply-demand imbalances that will take a few quarters to work through,” said Ho, who is based in Dallas. He recommends buying Applied Materials shares. “They’re going to be cautious.”

The company predicts per-share profit before some items to be break-even to 6 cents in the fourth quarter, which ends in October. On that basis, it was estimated to have a profit of 12 cents a share, the average of analysts’ predictions.

Shares of Santa Clara, California-based Applied Materials rose 1.5 percent to $11.98 at the close in New York. The stock has climbed 12 percent this year.

Third Quarter

Applied Materials said third-quarter net income fell to $218 million, or 17 cents a share, from $476 million, or 36 cents, a year earlier. Revenue in the period that ended in July dropped 16 percent to $2.34 billion. That compares with average analyst estimates for profit of 21 cents and sales of $2.32 billion.

Demand for Applied Materials’ machinery fell more than expected in all of its markets, including flat-screen display and solar-panel equipment, Chief Executive Officer Mike Splinter said. Even so, orders for chip gear will pick up in the last three months of the year, he said.

So-called foundries, which make chips for other companies, will lead a return to building capacity as they gear up for smartphone growth next year, Splinter said. Their willingness to spend on new machinery will be influenced by how well those handhelds sell in this year’s holiday shopping season, he said.

Holiday Buying

“A big part of this return is dependent on smartphones and tablets and a reasonable holiday buying season,” Splinter said in a telephone interview yesterday. “We’re being quite realistic and cautious.”

Last month, Applied Materials reduced its projections for this fiscal year. For the 12 months ending Oct. 28, sales will be below a previous prediction of $9.1 billion to $9.5 billion, the company said July 10. Profit, excluding some items, will be less than its previous forecast of 85 cents to 95 cents a share.

Applied Materials also cut its forecast for industrywide factory-equipment sales to $30 billion to $33 billion, compared with an earlier prediction of $32 billion to $35 billion.

Investors and analysts track semiconductor-equipment orders as a harbinger of demand for the broader electronics industry. Chipmakers such as Intel Corp. (INTC:US) and Samsung Electronics Co. vary spending on new equipment and plants based on their projections for demand as much as two years in advance.

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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Companies Mentioned

  • AMAT
    (Applied Materials Inc)
    • $25.38 USD
    • 0.49
    • 1.93%
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    (Intel Corp)
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