Applied Materials Beats Estimates on All Fronts

Updated from 6:27 p.m. EDT

Applied Materials (AMAT) beat analysts' earnings and sales estimates for its fiscal second quarter, and orders rose sharply compared with the first quarter, as the semiconductor industry began to see signs of a recovery after a severe downturn last year.

The Santa Clara, Calif., company also said Tuesday it expects third-quarter revenue of $1.2 billion to $1.3 billion and believes earnings will improve in the current quarter. Analysts polled by Thomson Financial/First Call expect third-quarter earnings of 4 cents a share on sales of $1.178 billion.

In addition, Applied said third-quarter orders should rise 10% to 15% from second-quarter levels due to capacity additions, improvements in the global economy and consumer confidence, and growth in the Chinese market.

Applied said it earned $52 million, or 3 cents a share, in the fiscal second quarter, compared with $318 million, or 19 cents a share, excluding one-time items, in the year-ago period. Revenue reached $1.16 billion.

Analysts had called for a 2-cent profit on sales of $1.041 billion.

Even more impressive was the firm's order growth, which increased 51% sequentially to $1.69 billion, well above analysts' estimates of between $1.4 billion and $1.5 billion.

In mid-February, Applied said it expected order growth of 10% to 15%, which would place orders between $1.23 billion and $1.288 billion.

The company said 21 customers placed orders of more than $10 million in the second quarter, compared with only 11 customers with orders at that level in the first quarter.

"Order momentum increased in the second quarter as customers expanded capacity for their leading-edge technology applications," said James Morgan, chairman and chief executive. "We are seeing strong demand for our advanced products and service solutions as the semiconductor industry begins to recover and customers increase their capital spending."

Robert Maire, an analyst at Bear Stearns, described the quarter as "monstrous." [Order growth of] 51% was way better than even the wildest expectations," he said.

He also said he believes the firm's outlook for orders is conservative and said this is "only the beginning" of a cyclical improvement.

Still, some investors continue to worry about the stock's recent climb and the fact that it trades at 191 times this year's earnings estimates and almost 40 times 2003 earnings projections.

Applied's chief executive said the recovery in the chip industry has been driven by strong consumer-related demand and a strengthening wireless market in Europe and Asia, but he also noted that telecommunications and corporate information technology spending continue to be sluggish.

"While we believe that further improvement in worldwide economic conditions is necessary to drive the next phase of recovery for the semiconductor industry, we are encouraged by the current technology expansions," he said.

Applied now believes the chip industry's capital spending will total $30.6 billion this year, down 20% from 2001 but better than an earlier forecast of a 25% decline. Wafer-equipment spending should be slightly more than $18 billion for 2002, a 15% decline from last year, but ahead of the earlier forecast of a 20% drop.

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