Applied Materials Tops Estimates

Updated from 4:32 p.m. EST

SAN FRANCISCO -- Applied Materials(AMAT - Cramer's Take - Stockpickr) saw its top and bottom lines pinched in its fiscal first quarter, but the company managed to outpace Wall Street expectations.

And Applied Materials said demand for flat panels and its nascent solar energy business led to a surge in new orders.

In the three months ended Jan. 27, Applied said revenue declined 8% year over year to $2.09 billion. The average analyst expectation called for $2 billion in revenue, according to Thomson Financial.

Applied Materials posted net income of $262.4 million, or 19 cents a share, vs. $403 million, or 29 cents a share at this time last year.

Excluding certain restructuring charges, Applied said it earned 23 cents a share. The average analyst expectation, which generally exclude one-time charges, called for Applied to earn 19 cents a share.

Shares of Applied Materials were up 4.5%, or 81 cents, at $18.88 in extended trading Tuesday.

Applied Materials sells tools and equipment for manufacturing semiconductors, flat panel displays and solar-energy panels.

A glut of memory chips and fears of an economic slowdown have caused chipmakers to ease spending on manufacturing equipment -- a trend that is pressuring Applied and other semiconductor toolmakers.

"In order for us to hit our full-year outlook, clearly we need to see a recovery in the second half," Applied CFO George Davis told TheStreet.com in a post-earnings interview. "For that to happen, we need to see foundries come in at a much higher level than they have, and you would expect memory makers to start to come back led by flash [memory chips]."

In the meantime, Applied has said it will eliminate 1,000 jobs this year.

"We know how to handle cyclical movements in the industry. We've taken steps on the semiconductor side to get the cost structure in place," Davis said.

"The real challenge for us is execution this year, and really, execution on the big ramps outside of semiconductor equipment," he noted.

In particular, Applied is hoping that flat-panel displays and solar energy will offset the chip market's weakness.

The company's order book provided good news on that front: New orders in the fiscal first quarter increased 13% sequentially. At this time last year, Applied's order book experienced a sequential decrease of 6%.

While orders for semiconductor-making equipment were down sharply in the fiscal first quarter, orders in Applied's display group jumped to $555 million from $120 million at this time last year.

Granted, last year's weakness in the display business made for an easy comparison. But Davis noted that the latest display orders are $200 million higher than the group's record in any previous quarter.

In the current quarter, Applied said orders will be down 5% to up 5%.

Applied projected sales in the current quarter would be flat to up 5% sequentially, suggesting a range of $2.09 billion and $2.2 billion. The Street was looking for $2.06 billion.

Applied said EPS will range between 18 cents and 22 cents vs. the Street's 22 cents expectation.