Last week, Applied Materials reported fourth-quarter fiscal 2016 earnings of 66 cents per share, a penny better than the consensus estimate. Revenue rose 39.2% to $3.3 billion. Backlog decreased 7% to $4.58 billion. Gross margins rose 150 basis points to 43.7% and operating margin jumped 590 basis points. Net income increased 108% to $722 million.
Management raised guidance. The company foresees first-quarter earnings of 62 cents to 70 cents, vs. the initial estimates of 58 cents. Revenue is expected to be between $3.20 billion and $3.34 billion.
The company continues to target $2.80 in earnings and $3.17 the year after, based on a $1.6 billion increase in semiconductor revenue and the wafer fab equipment market reaching $34.5 billion.
I think Applied Materials can still go higher for four reasons.
First, the long-term trends that are driving the equipment cycle are still in place. Worldwide equipment spending is estimated to grow about 3% in 2017 and is projected to keep going past $37 billion by 2019. The worldwide demand for semiconductors shows no sign of letting up, and that's driving equipment spending.
Second, new technologies like 3-D NAND memory and new etch techniques are in the early stages of their growth. Last year, Applied Materials landed over $1.5 billion of orders for 3-D NAND equipment. New etch patterning has added about $1 billion in new equipment sales.