Applied Materials Sags on Weak Demand

SAN FRANCISCO -- Applied Materials'(AMAT Quote) bottom line fell more than 25% in its fiscal second quarter, as demand for the company's semiconductor manufacturing equipment continues to stagnate.

The company said the market for chipmaking tools had weakened considerably from its previous expectations, and it projected financial results for the current quarter that were sharply below analysts' expectations.

Customer spending on the equipment made by Applied and other companies will be "down considerably" from earlier expectations, CEO Mike Splinter said in a post-earnings conference call, citing weaker-than-expected demand for flash memory chips as the main culprit.

"We had expected flash memory to have a pretty strong second half. In fact that's not going to happen," Splinter said.

The company said sales in the current quarter will be down 10% to 18% sequentially, suggesting a range of $1.76 billion to $1.93 billion, compared with the $2.24 billion expected by analysts. Applied Materials said EPS will range between 10 cents and 14 cents, well below the 25 cents average analyst expectation, according to Thomson Financial.

Applied Materials said it expected the downturn in the chip business to reach a bottom in the current quarter, with sales expected to begin growing again after that. But Splinter cautioned that real growth won't be possible until prices of DRAM memory chips begin to rise.

"While average DRAM contract prices increased more than 15% in last 30 days, that is still well below levels necessary to support meaningful investment," Splinter said.