Applied Materials' Slide Brings Out Buyers

"We would buy AMAT into any weakness, as we are certainly now much closer to the bottom," he wrote. "This call may have served to get all the bad news out of the way, much of which has already been priced into the stock."

Late Wednesday the Santa Clara, Calif.-based chip-equipment maker, the world's largest, posted sharply higher net income in its fiscal fourth quarter but said it had recently seen demand decelerate.

For the just-ended fiscal fourth quarter, Applied delivered net income of $455 million, or 27 cents a share, up from year-ago levels of $15.4 million or 1 cent.

Revenue totaled $2.20 billion, up 80% from last year's levels and down 1% from the preceding quarter.

Analysts were looking for 26 cents a share in earnings on $2.28 billion in revenue.

New orders in the fourth quarter increased 7% to $2.62 billion.

However, Applied's guidance fell far short of expectations.

In a postclose conference call, Chief Financial Officer Nancy Handel explained, "In the near term, we're entering a period of lower capital investment as our customers focus on reducing chip inventories."

Handel said orders should tumble 35% in the first quarter of fiscal year 2005 from fourth quarter levels. Revenue should fall 20% to 23%, to a range of $1.76 billion to $1.7 billion, with earnings of 15 cents to 16 cents.

The guidance is dramatically below the consensus estimate for $2.16 billion with EPS of 23 cents.

Asked why Applied's outlook is so much worse than analysts had expected, CEO Mike Splinter said the company's fourth quarter came in slightly better than executives had anticipated, making the drop-off appear more dramatic. Also, the demand picture has worsened within just the past month or so. "If we were making this projection thirty days ago, it would have been quite different," said Splinter.