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Applied Materials Beats

But restructuring charges cut the chip-equipment maker's quarterly profit in half.

Updated from 6:36 p.m. EST

Restructuring charges halved earnings

Applied Materials


in the fiscal first quarter, but the company still topped analysts' expectations.

And the leading chip-equipment company on Wednesday offered even more for investors to cheer: better-than-expected guidance for the current quarter and a rosy outlook for the rest of the year.

On the conference call, company CEO Mike Splinter said Applied was "seeing momentum" in a number of its product categories but expected to see healthy demand in the flash memory, flat-panel TV and its semiconductor markets.

"As we look across the landscape, we see the potential for an extended upturn," Splinter said on the call. "I'm confident that this should be an outgrow-and-outperform year for Applied Materials."

Investors liked what they heard, and sent shares of Applied up 54 cents, or 2.6%, to $21 in recent after-hours trading.

The chip-equipment maker earned $142.8 million, or 9 cents a share in the quarter ended Jan. 29. That was down from the same period a year earlier, when the company earned $288.8 million, or 17 cents a share.

Sales rose 4% year over year to $1.86 billion.

The current quarter included $215 million, or 8 cents a share after tax, of restructuring charges, meaning that the company would have earned about 17 cents a share without those expenses.

On that basis, analysts polled by Thomson First Call were expecting the company to earn 16 cents a share on $1.81 billion in sales. The company

predicted in November that it would earn 14 cents to 15 cents a share on sales ranging from about $1.77 billion to $1.81 billion.

The company expects to earn 22 cents to 23 cents, including stock-options costs, in its current, or second fiscal quarter on sales ranging from $2.1 billion to $2.14 billion, or up 13% to 15% sequentially.

The company also expects orders to range from $2.35 billion to $2.45 billion in the quarter, or up 15% to 20% from fiscal first-quarter levels.

Wall Street has forecast earnings of 19 cents a share on $1.97 billion in sales in the current period. In the same period a year ago, the company earned $304.8 million, or 18 cents a share, on sales of $1.86 billion.

The restructuring charges in the just-completed quarter are related to a decision the company announced last month to sell or close some of its global facilities. As a result of the move, the company took a charge of $124 million to write off real-estate assets and a charge of $91 million related to restructuring some lease obligations.

The closures should result in about $29 million a year in savings, the company has predicted. Applied doesn't expect to record any significant future charges related to the closures, company CFO Nancy Handel said in an interview with


The company's year-over-year profit drop also reflected the expensing of stock-options charges. Such costs amounted to $52 million, or 2 cents a share after taxes, in the quarter.

Much of the strength the company sees in coming quarters derives from strong consumer demand for flash memory-based products.

Apple Computer


has had a huge hit with its flash-based iPod nano line, and Applied's memory chips are being incorporated into a growing number of portable devices, including cell phones and, shortly, into

notebook computers.

In the current quarter, Applied believes that 50% of its orders will be related to memory products, particularly flash. And the company expects that kind of demand to continue for the rest of the year, Handel said.

"That's an area of significant investment," she said.

One area that has been lagging in orders is parts for semiconductor foundries. Although many companies have been utilizing 85% or more of their foundries' capacity recently, there generally has not been a surge in foundry equipment purchases.

In the just-completed quarter, some 19% of Applied's orders were for foundry equipment, and Handel expects a similar portion of orders to come from foundries in the current quarter.

Instead of building new fabrication plants, semiconductor manufacturers seem to be focusing on adding incremental capacity to their existing foundries, Handel said.

"Their economic models seem to be driving them to higher utilization rates," she said. But she added that the company expects the foundries to increase "their investment plans toward the back half of the year."

Applied Materials' stock closed regular trading up 20 cents, or 1%, to $20.46.