AMAT Preview: Inventory Is a Concern

Applied Materials (AMAT - commentary - Trade Now) is scheduled to report its third-quarter results on Tuesday after the close with a conference call scheduled for 4:30 p.m. EDT. Current Street consensus is for revenue to be $955 million (down 48% year over year and 6% quarter over quarter) on a pro forma loss of 8 cents per share.

In the prior period, revenue in the quarter was $1.02 billion (down 53% year over year and 24% quarter over quarter), with a GAAP loss of 19 cents per share of (pro forma loss of 10 cents per share). The gross margin was 15.2%, only one-third of the year-ago benchmark and about one-half of that reported last quarter after a $47 million inventory writedown. The company continued to report an operating loss as well.

Cash from operations was back in the black again ($84 million), with the cash account increasing by about $150 million, to $2.06 billion. Accounts receivable decreased about $360 million, dropping five days from days sales outstanding (81 days). While Inventory decreased about $230 million, the much lower cost of goods sold level pushed days of inventory to 210 days.

Silicon Solutions Group (SSG) revenue was very weak at $260 million, down 80% year over year and down 52% quarter over quarter. This segment operated at a loss in the period, but a 5% sequential increase in bookings led to a book-to-bill ratiol of 1.00. Applied Global Services (AGS) revenue was $319 million (down 47% year over year and 8% quarter over quarter) and also operated at a loss, with bookings down 24% sequentially and a book-to-bill of only 0.74. Display operations revenue was $84 million, down 58% year over year and 44% from the prior quarter. The operating margin was marginally positive at 1.2%, with a book-to-bill of 0.15. Energy and Environmental Solutions (EES) revenue was $357 million, an increase of 320% from last year and 21% from the prior quarter with two new SunFabs recognized in the quarter. The unit operated at loss in the period, and bookings dropped to only $141 million, or a boo-to-:bill of 0.39.

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Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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