Applied Materials, Inc. (AMAT)
F3Q2010 Earnings Call Transcript
August 18, 2010 4:30 pm ET
Michael Sullivan – VP, IR
Mike Splinter – Chairman, President and CEO
George Davis – EVP and CFO
Jim Covello – Goldman Sachs
Stephen Chin – UBS
Chris Blansett – JP Morgan
C.J. Muse – Barclays Capital
Krish Sankar – Bank of America/Merrill Lynch
Peter Kim – Deutsche Bank
Gary Hsueh – Oppenheimer
Mike Chu – Morgan Stanley
Viji Subramanyam [ph] – Credit Suisse
Wenge Yang – Citi
Patrick Ho – Stifel Nicolaus
Edwin Mok – Needham & Company
Mahesh Sanganeria – RBC Capital Markets
Jagadish Iyer – Arete Research
Robert Pikover – CREF [ph]
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Good day and welcome to Applied Materials Third Quarter of Fiscal 2010 Earnings Call. Please note that today's call will contain forward-looking statements, which are all statements other than those of historical facts, including statements regarding industry outlooks, customer spending, and Applied's opportunities, strategic position, operational initiatives, restructuring activities, and Q4 and fiscal 2010 forecast.
All forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Information concerning these risk factors is contained in today's earnings press release and in the company's filings with the SEC, including its most recent Form 10-Q. Forward-looking statements are based on information as of August 18th, 2010 and Applied assumes no obligation to update such statements.
Today's call also contains non-GAAP financial measures, both historical and forecasted. Reconciliations of the GAAP and non-GAAP measures are contained in today's earnings release or in the financial highlights slides, which are available on the Investor page of Applied's website at amat.com.
I would now like turn the conference over to Michael Sullivan, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Carrie and good afternoon. Joining me today are Mike Splinter, our Chairman and CEO; George Davis, our Chief Financial Officer; and Joe Sweeney, our General Counsel and Corporate Secretary.
Today, we will discuss results for our third fiscal quarter, which ended on August the 1st. Our earnings release was issued at 1.05 Pacific Time and you could find a copy on Business Wire or on our website at amat.com.
Mike Splinter will lead off the call with comments on the industry environment along with our performance and plans. George will follow with comments on our financial performance for the third quarter, and our expectations for Q4. We will then open the call for your questions.
And with that, I would like to hand the call over to Mike Splinter.
Thanks, Mike. Applied delivered solid third quarter results, driven by our semiconductor, display, and crystalline silicon solar businesses. Sales were up 10% and earnings per share were $0.03 above the range of our forecast. During the quarter, we announced a clear path to profitability in our Energy and Environmental Solutions segment, which strengthens our company's overall financial outlook. And we expect a strong finish to our fiscal year.
Turning to the industry environment, 2010 has been a very good year for electronic product sales, led by consumer demand in the BRIC countries. In the second calendar quarter, our customers saw year-over-year growth across their end markets with LCD TV units up 43%, PC units up 20%, and cell phones up 15%, led by smartphones. We are mindful of the soft macroeconomic leading indicators and certainly of leading industry reports. We will stay close to our customers to anticipate any changes in their markets or investment plans.
Next, I will cover each of our markets in more detail. For the semiconductor industry, we maintain our WFE spending outlook of $26 billion to $28 billion, the midpoint of which represents growth of 110% for the year. We now expect our equipment sales in SSG and AGS to be up more than 160% for our fiscal year. The foundries are investing more aggressively than previously expected with significant new orders from a broader set of our customers.
Over the first three fiscal quarters, roughly 75% of our orders were concentrated in foundry and DRAM. DRAM pricing is stable and availability has remained tight with bit supply and demand, both growing at 50% to 60%. NAND pricing fell about 5% this quarter and there has been little change all year with supply and demand both growing at 70% to 80%. Overall, memory inventories remain relatively low.
We expect DRAM spending to moderate over the rest of the year, with growth in foundry, NAND, and logic expected to offset the decline. We see NAND investments continuing well into 2011 as demand for flash storage outpaces supply. Q3 was the fifth consecutive growth quarter for SSG and AGS. And today, we are monitoring 15 fabs and fab expansion projects that are projected to add $50 billion in new spending over the next eight to 12 quarters.
In SSG, our focus on capturing new opportunities at key market inflections is paying off. During the quarter, we won significant customer decisions in metal gate transistors, copper interconnects, and wafer-level packaging. We remain confident that we will gain 2 points of WFE share for the year, driven by net positional wins across our portfolio and favorable exposure to the increase in foundry spending.
Sales growth for year is being led by Etch, where we are tracking the 4 points of share gains, even as DRAM spending is expected to moderate in the second half of the year. In inspection, we see shifts in the timing of key customer spending and orders for brightfield and mask inspection are projected to be at record levels in Q4.