All Eyes on Applied Materials' Bookings Impact - TheStreet

Only two weeks ago, chip-equipment maker

Applied Materials

(AMAT) - Get Report

startled the market when it warned that orders fell off more than expected in the January quarter. With that as a backdrop, expectations aren't overly high leading up to its financial report later today.

There's been speculation the company could come up a little short on revenue, though earnings are expected to be on target. But the bigger question is what guidance will be for the April quarter, in light of weak bookings.

To recap, at the end of January, Applied warned that orders for the first quarter

had fallen about 35%, worse than the 20% decline it expected. The company stuck by the revenue outlook it issued back in November, when it predicted sales would see a drop of 20% sequentially.

The current sales consensus estimate for the January quarter matches that forecast exactly: Analysts are looking for revenue of $1.15 billion, according to Thomson Financial/First Call. But given the bleary pace of orders through last month, it's also possible Applied may see a sales shortfall for the period, says Deutsche Bank's Timothy Arcuri. He's expecting sales of around $1.1 billion. (Deutsche Bank has no banking relations with AMAT.)

Arcuri and others believe pro forma earnings will come in on target with consensus estimates for 2 cents. The company has already said it will post a GAAP loss due to a pretax charge of around $100 million for layoffs.

But the order shortfall in the January period is bound to hurt sales in the quarter under way. Analysts currently expect sales to rise less than 1% for the April quarter, to $1.16 billion.

AMAT's Ebb and Flow

Banc of America's Mark FitzGerald predicts guidance for sequential sales to be flat to up 5% in the April quarter, an outlook roughly in line with equipment outfits that have already offered forecasts.

Lam Research

(LRCX) - Get Report

has guided for a modest increase in sales;

KLA-Tencor

(KLAC) - Get Report

for flat orders, and

Novellus

(NVLS)

for revenue to rise 7% (which partly reflects top-line growth from a recent Novellus acquisition, as opposed to organic growth).

Besides listening up for AMAT's near-term expectations, analysts will be scouting for clues to its growth expectations going forward. As Morgan Stanley analyst Steve Pelayo notes, on the company's last call in November management said the "environment wasn't getting any easier anytime soon" and predicted fab utilization rates would drop below 55% in the fourth quarter. On the upside, the company at the time pointed to "positive indicators from DRAM pricing and lean inventories."

But since then, the strength in DRAM pricing has evaporated. Writes Pelayo, "In light of the above comments, combined with falling DRAM prices and the company's negative bookings pre-announcement (we agree with the lean inventory portion), we wonder if management's confidence in the recovery has been shaken a bit over the last 90 days."

The problem isn't with AMAT itself, Pelayo says, but with "those things AMAT can't directly control, like end-market demand, macroeconomic and geopolitical issues, and technology saturation." (Morgan Stanley hasn't done recent banking for the company.)

Since the stock topped out at $17.49 in November -- back when investors were momentarily seized by optimism about '03 -- war worries and bearish capital spending news from Applied's chipmaker customers have taken their toll. Monday, shares closed at $12.05, down 31% from their near-term high.

And some analysts think the stock will go lower. Banc of America's FitzGerald thinks it will retest its October low of $10.26. "The earliest that we expect a sustained upturn in business is in 2004," he concludes. Banc of America hasn't done recent banking for Applied.