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Applied Materials' Profit, Sales Take a Plunge

Its outlook for the current quarter also weighs on shares.

Updated from May 17

Sales, profit and new orders for

Applied Materials

(AMAT) - Get Report

dropped sharply year over year in the second quarter, but were actually somewhat better than the company's guidance and Wall Street's expectations.

The outlook for the third quarter, however, was solidly below expectations, and shares fell 2.5% to $15.64 in early trading Wednesday.

Net income for the second quarter was $305 million, down 18% from last year, on sales of $1.86 billion, a decrease of 8%, the chip-equipment maker reported after the closing bell Tuesday.

New orders totaled $1.55 billion, a drop of 30%, and earnings per share were 18 cents, compared with 22 cents last year.

Analysts polled by Thomson First Call expected a profit of 17 cents a share on sales of $1.8 billion.

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CEO Mike Splinter cited foundries as a weak point, but he highlighted that end demand for semiconductors remains solid and is even better than anticipated for certain segments, he said during an interview later Tuesday.

At the start of the second quarter, Splinter

discussed a bifurcation between optimism and caution among the company's customers regarding the back half of the year, but toward a positive bias. Currently, he said, that timeline seems to have been pushed back a bit.

As evidence that the growth forecast for his company hasn't completely vanished, Splinter cited delays coming in the form of pushouts as opposed to cancellations. "That's certainly a positive indicator that as we talk with customers it's just a matter of time to fill up those factories that are already built."

The CEO also is particularly bullish about the prospects for flash memory, saying that demand exceeds capacity, which is, of course, good news for sellers of semiconductor equipment. Also strong is demand for flat panel displays and other components needed for consumer electronics products.

Still, guidance for the third quarter was disappointing. Applied Materials expects to earn a profit of 12 cents to 14 cents a share; Wall Street was expecting 17 cents a share. Revenue is expected to be down 5% to 10% sequentially, or $1.58 billion to $1.67 billion, compared with the First Call consensus of $1.829 billion And new orders are expected to drop by 5% to 10%.

"Certainly, a few months ago, I felt that by this time we'd start to see orders building for delivery in the second half of the year," Splinter said. "We just haven't seen that build despite some pretty positive news and us gaining share. We think there's just a little more lag time."

The impact of this uncertainty has hampered Applied Material's stock for the past year, as it hasn't traded markedly above $18 during a period in which the semiconductor industry has suffered through an inventory bloat and foggy visibility into the strength of the final months of this year.

Splinter said the company needs to keep executing and that eventually the stock should come around. He said the company has expanded its market share and it is focusing on growing its product base. "Our job is to get the company back to growth by focusing on key areas. If we do that, the stock will take care of itself."

Staff reporter Chris Kraeuter contributed to this story.