Applied Materials (AMAT) - Get Report shares surged higher in pre-market trading Friday after the semiconductor equipment maker forecast solid near-term sales after stronger-than-expected quarterly results that suggest a near-term chip sector rebound.
Applied Materials said adjusted earnings for the three months ending on October 27, the group's fiscal fourth quarter, came in at 80 cents per share, down 5.9% from the same period last year but four cents ahead of the Street consensus forecast. Group revenues fell 6.4% to $3.75 billion but again topped analysts' forecasts of a $3.68 billion tally.
With an eye towards a near-term rebound in semiconductor markets, the chip sector equipment maker said its sees current quarter revenues in the region of $4.1 billion and adjusted earnings in the range of 87 cents to 95 cents per share, both estimates coming in ahead of Refinitv forecasts and echoing the bullish sentiment expressed by its European rival, ASML NV (ASML) - Get Report last month.
"In addition to seeing strength on the leading edge, we continue to see strength on trailing node geometries and specialty nodes, that continues," CEO Gary Dickerson told investors on a conference call late Thursday. "And while we don't have perfect visibility for the full year, we're very positive on the foundry, logic market over the long run."
"Because of the strength seen in recent months, we're revising our estimates for 2019 wafer fab equipment upwards," he added. "We now believe 2019 spending levels could be similar to 2017. Based on the visibility we have today, we're optimistic about 2020 with an expectation of sustained strength in foundry logic and a step-up in memory investments during the year with NAND recovering ahead of DRAM."
Applied Materials shares were marked 7.3% higher in early Friday trading to change hands at $61.05 each, a 20-month high and move that would extend the stock's impressive year-to-date gain to around 82.5%.
Last month, ASML said it sees fourth quarter revenues rising to around €3.9 billion amid improving customer demand for its extreme ultraviolet lithography systems, or EUV, machines, which design complex chips used by, sector titans such as Samsung Electronics (SSNLF) , Intel Corp. (INTC) - Get Report and Taiwan Semiconductor (TSM) - Get Report and cost as much as €100 million.
"While the shape/slope of the recovery is still in question, we would highlight Applied Material's peak-to-trough revenue was only down ~20% versus prior cycles of >40% - and average quarterly EPS in FY19 of $0.76 - eclipsed total EPS of $0.59 in FY13 - the last time (wafer fabrication equipment) contracted significantly," said Credit Suisse analyst John Pitzer, who boosted his price target on the stock by $11 to $70 per share with an outperform rating following the earnings report.
"Higher levels of profitability thru cycle, along with our argument that SCE is moving from cyclical back to growth cyclical should be supportive of multiple expansion," he added.