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Applied Materials excels
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August 9, 2000: 6:12 p.m. ET
Chip equipment maker exceeds expectations amid strong demand
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Applied Materials, the world's leading supplier of the equipment used to manufacture computer chips, beat Wall Street's estimates for its fiscal third-quarter results, as accelerating demand for semiconductors resulted in record earnings and revenue.
And executives at the Santa Clara, Calif.-based company said they expect continued robust sales of their products as chipmakers scramble to add capacity to their operations. Demand for semiconductors - and thus semiconductor equipment - is being driven by the growth of the Internet and communications devices.
Excluding one-time items, Applied Materials (AMAT: Research, Estimates) reported third-quarter net income of $604 million, or 70 cents per share, a 136 percent increase from $256 million, or 31 cents, in the same period last year. Analysts had expected the company to report earnings of 68 cents per share, according to earnings tracker First Call.
Revenue for the quarter came in at $2.73 billion, up 83 percent from $1.49 billion in last year's period, an amount that was consistent with analyst estimates of $2.6 billion-to-$2.7 billion.
 Orders rose to a record $3.28 billion, up from $1.5 billion in the third quarter of 1999. The company has had six consecutive quarters of order growth, and its total for this year's third quarter was consistent with analyst estimates.
"Our record results reflect customers' investments in expanded capacity to meet increasing semiconductor demand and in advanced technologies to provide more powerful, portable and affordable semiconductors," said James Morgan, chairman and CEO, in a news release.
Gross margin for the third quarter was 50.9 percent, up from 48 percent for the third fiscal quarter of 1999. Net income as a percentage of sales rose to 22.1 percent from 17.2 percent in the 1999 quarter.
Looking forward to the fourth quarter, Applied Materials' management said on a conference call that they expect revenue of $2.85 billion-to-$2.9 billion and earnings per share of 73-to-75 cents. The mean analyst expectation for that quarter is now 75 cents, according to First Call.
Shift to 300 mm wafers
Applied Materials is trying to shift the semiconductor industry to manufacture chips on wafers that are 300 millimeters in diameter, rather than the current 200-millimeter standard. A 300 mm wafer can fit 2.5 times as many chips as a 200 mm one, lowering the cost per chip. However, machines for making chips on 300 mm wafers are more expensive than the current factory equipment.
"Intel aims to implement 300 mm wafers as soon as we can," said Intel spokesman Michael Sullivan. "We've already announced a capital allocation for 300 mm facilities."
During the quarter, Applied Materials introduced 22 new 300 mm systems, calling it the largest chip equipment rollout in the history of the industry. The company received its first significant orders for 300 mm products during the quarter, although it said that revenue from 300 mm products will not be material in fiscal 2000.
In June 1999, chip giant Intel Corp (INTC: Research, Estimates) introduced a 0.18 micron manufacturing process--which refers to the width of the transistors. 0.18 micron is 1/500th the width of a human hair. That process allows Intel and other companies to make processors that are significantly smaller, cheaper, and more efficient than the previous 0.25 micron microprocessors.
"The industry outlook continues to be positive," Applied Materials' Morgan said. "There are significant capital investment requirements in 0.18 micron capacity for Internet, communications and digital devices."
"The emerging industry transition to 300 mm wafer processing, combined with continued growth of 200 mm applications, provides a tremendous opportunity for Applied Materials to supply technologies that will enable our customers to deliver on the promise of the Information Age," Morgan continued.
Intel now has about half of its production running on the 0.18 micron process, and expects to transition to a 0.13 micron process next year.
Shares of Applied Materials closed Wednesday at 72-1/8, up 1-9/16. In after hours trading, they rose 15/16 to 73-1/16. 
-- Click here to send e-mail to David Kleinbard
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