Applied Materials Mixed

Shares of the semiconductor equipment supplier rise after hours on orders optimism.
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Updated from 4:22 p.m. EDT

Applied Materials

(AMAT) - Get Report

shares rose late Tuesday because of the chip-equipment maker's optimistic order expectations for its current, fiscal fourth quarter.

For the recently completed third quarter, Applied Materials reported a decline in sales and earnings, coming in short of Wall Street's sales estimate but beating the earnings target by a penny. Orders were at the high end of its targets.

Executives said that the overall business environment remains challenging but that indicators are perking up.

"The environment is improving," says CFO Nancy Handel, citing improved interest from memory manufacturers and foundry customers.

Shares rose 3.7% to $17.80 in recent late trading after closing the regular session down 2.7% to $17.17.

The world's largest chip-equipment company reported third-quarter net income of $369.6 million, or 23 cents a share, on $1.63 billion in sales. That was down from a year ago, when the company earned $440.6 million, or 26 cents a share, on $2.24 billion in sales.

The third-quarter results include a favorable tax adjustment of $132 million, or 8 cents a share, due to the resolution of a multiyear tax examination.

Excluding that tax adjustment, Applied Materials' earnings still came in one penny higher than the consensus estimate of 14 cents a share gathered by Thomson First Call.

Sales were lighter than the $1.65 billion forecast by analysts but within the company's guidance, which called for a 10% to 15% decline, or range of $1.58 billion to $1.68 billion.

New orders totaled $1.47 billion in the third quarter, a drop of 5% sequentially and a decline of 40% from a year earlier. At the quarter's start, Applied Materials predicted that orders would be down 5% to 10% sequentially.

With most other equipment companies already having reported quarterly results a month ago, Applied Materials had another month of data by which to judge the health of coming demand.

Applied Materials says that so far, indications are good. For its fourth quarter, the company predicted earnings of 13 cents to 14 cents a share, revenue flat to down slightly and order growth of 5% to 10%.

Analysts had predicted earnings of 14 cents a share on sales of $1.66 billion. Although the company's earnings and sales targets slimly trail the consensus targets, investors placed more weight on the order guidance, which is used as a leading indicator for future sales.

Other equipment makers had mostly predicted sequential order declines of 5% to 10% for the current quarter, but those targets were mostly issued in early-to-mid July.

A notable exception was

KLA-Tencor

(KLAC) - Get Report

, which had forecast at the end of July that orders could be down 10% to up 10%.