Chip equipment maker Applied Materials' (AMAT - Get Report) latest earnings report and earnings call commentary provide fresh reasons for bulls to be upbeat about a tech sector that has surged from its February lows. They also provide a bit of positive news for beaten-up memory maker Micron (MU - Get Report) , and more signs that Apple AAPL plans to ship iPhones sporting OLED displays next year, and in large volumes.
Applied forecast that quarterly revenue would rise between 15% and 19% ($324.3 million to $335.6 million), and that the October quarterly earnings per share would be in a range of $0.61 to $0.69. That soundly topped average estimates of $0.48. The estimates outweighed mixed July quarter results that showed EPS slightly beating the average analyst estimate and revenue slightly missing.
Applied is up about 6.6% to $29.52 as of 1:50 pm., and has reached its highest levels since the Dot.com bubble. Altogether, more than half a dozen companies appear to be higher thanks to Applied, including fellow chip equipment makers Lam Research (LRCX - Get Report) , KLA-Tencor (KLAC - Get Report) , Teradyne (TER - Get Report) , Axcelis (ACLS - Get Report) and Ultratech (UTEK) . Applied may not be one of the flashier names in tech, but its numbers and commentary can have big ripple effects on markets, and also shine a light on what some tech giants are up to.
Applied's orders rose 6% from the previous quarter and 26% annually to $3.66 billion. That helped its backlog rise 19% sequentially and 60% annually to $4.95 billion. Chip equipment orders rose 13% sequentially and 10% annually to $2.2 billion thanks to strong demand from contract manufacturers, also known as foundries. "Display and adjacent markets" orders rose 5% sequentially and 153% annually to $803 million, aided by big commitments from OLED panel manufacturers.
The earnings call contained additional positives. Three months after forecasting industry chip wafer fab equipment (WFE) spending will be roughly flat in 2016, Applied said it now expects demand to be slightly up, and that its "early view is that 2017 could be higher." In May, research firm Gartner forecast WFE spending would drop 2% this year to $31.5 billion, before rising 6.8% in 2017 to $32.9 billion.
Equipment spending by foundries, previously expected to be flat in 2016, is now expected to rise 5% to 10% -- Taiwan Semiconductor (TSM - Get Report) , the world's biggest foundry, hiked its capital spending budget last month, and both TSMC and Samsung are spending heavily to bring advanced 10-nanometer manufacturing processes to market. NAND flash memory investments, driven by production ramps for 3D NAND chips that enable cheaper and denser SSDs, are now expected to rise 40%, up from a prior 35%.
On the flip side, logic (processor) investments, which Applied previously expected to be flat, are now expected to be down slightly, as Intel spends cautiously. And Applied is also forecasting DRAM spending, up sharply in 2015, will drop "at least" 25% in 2016 as manufacturers try to curb supply growth following brutal price drops. Moreover, CFO Bob Halliday said logic and DRAM spending might each be up just "a little bit" in 2017. Micron, which got 60% of its revenue from DRAM in its May quarter, is up 3.8% today.
Meanwhile, amid numerous reports stating Apple plans to ship iPhones with OLED displays in 2017, as well as a report suggesting iPads with foldable OLEDs will arrive down the line, Applied declared it's "in pretty early innings on the transition to OLED on...phones," in spite of the fact Samsung has been heavily using OLEDs in its smartphone line for some time.
The company said the OLED-related orders it has been booking "will ship through 2017 and to early 2018," and that the materials requirements of OLEDs makes Applied's "available market opportunity more than three times larger than for traditional [LCDs]." Total display industry capital spending is expected to surge to about $14.5 billion this year from a little over $8 billion last year, and be flat or slightly up in 2017.
The size of Applied's OLED order ramp, along with that seen by industrial laser maker Coherent (COHR - Get Report) , runs counter to speculation that only a limited number of OLED iPhones will ship in 2017 due to supply constraints. Orders of this size suggest Apple wants to ship tens of millions of OLED iPhones in late 2017, and larger volumes in 2018. Coherent is also higher today, as is OLED materials and technology provider Universal Display (OLED - Get Report) .