Applied Materials tops estimate

February 12, 2002: 5:46 p.m. ET

Chip-equipment maker beats recently raised earnings expectations.

NEW YORK (CNN/Money) - Applied Materials said Tuesday that first-quarter profits tumbled 97 percent, but the results still managed to top Wall Street's forecasts, and the company added it expects orders to improve in the current quarter.

Executives of the world's largest supplier of chip-making equipment affirmed Wall Street's most recent financial expectations, but sounded a refrain that has rung for several quarters running: that a recovery is just beyond the horizon.

While improvements in the overall economy as well as the chip industry are "signals of growth in the second half of 2002," they said they were not ready to call the bottom what has been one of the most punishing downturns in its history.

"I think it will take another quarter before there are signs of sustainable growth," James C. Morgan, the company's chairman and CEO, told analysts during a teleconference Tuesday evening.

After the close of trading, Applied Materials said it earned $15 million, or 2 cents per share, in the quarter ended Jan. 27. That's down 97 percent from $424 million, or 50 cents per share, during the same quarter last year.

But the latest results topped the breakeven per-share earnings estimate most analysts had pegged, according to a survey conducted by First Call.

Recent expectations had been for Applied Materials (AMAT: Research, Estimates) to lose a penny per share, but many analysts recently raised their forecasts, resulting in a penny-per-share consensus estimate early Tuesday.

Including restructuring and other one-time charges, the company reported a net loss of $45.5 million, or 6 cents per share, compared with a net profit of $156.8 million, or 19 cents per share, in the year-ago period.

At $1 billion, Applied Materials' fiscal first-quarter revenue met Wall Street's expectations and was more than 58 percent below the $2.4 billion in sales it logged in the year-ago quarter.

The company also said its orders, a key indicator of overall demand in the chip industry, rose to $1.12 billion in the first quarter from fourth-quarter levels of $1.1 billion.

And Joe Bronson, the company's chief financial officer, said he expects a sequential improvement in the current quarter ranging between 10 percent and 15 percent.

He also affirmed most analysts' expectations for the current quarter, forecasting revenue of $1 billion or slightly higher, which would result in a modest profit.

"We expect to remain profitable as long as the revenue target is achieved," Bronson said. He did not provide any forecasts beyond the current quarter.

By First Call's count, analysts currently are expecting the company to report a profit of a penny per share on about $1 billion in sales for the fiscal second quarter ending in April. For the fiscal year ending in October, expectations currently are for a profit of 22 cents per share on roughly $4.5 billion in sales.

Analysts' comments about the company ahead of the earnings report had been mixed.

On Tuesday, ABN Amro reiterated its "add" rating on Applied Materials' shares, saying it expects management's tone to be positive in its outlook for the current quarter. The firm told its clients to expect the company's revenue growth to stagnate in the current quarter and then show an increase in the fiscal third quarter.

Credit Suisse First Boston on Monday made some cautiously optimistic comments about Applied Materials, forecasting a profit of a penny per share and suggesting that a cyclical decline in orders for chip equipment had reached a bottom. At the same time, the firm said any "good news" that management might have about the current quarter or the remainder of the year already has been priced into the stock.

"We would be surprised if the company could say anything to get the stock above $45, as most of the world is playing the stock on the long side and recent investor conferences have already incorporated a more bullish tone by the company," Credit Suisse First Boston told its clients in a research note.

Because of its status as the clear leader in chip-equipment, Applied Materials earnings report has been one of the most hotly anticipated on Wall Street.

The stocks of many chip-equipment makers have been volatile in recent weeks following sharp reductions in the capital spending plans of large chipmakers, including Intel (INTC: Research, Estimates) and Texas Instruments (TXN: Research, Estimates), which are among Applied Materials' top customers.

For its part, Applied Materials is forecasting an overall chip-industry capital spending decline of 25 percent in 2002.

But Applied Materials executives stressed that they have continued to invest in the most advanced chipmaking technologies in spite of the industry's downturn.

And they said while companies like Intel may have scaled back their buying plans for this year, they also are among the few chip companies that have invested in the next generation of equipment.

Morgan suggested that the scores of smaller companies that have deferred investments in advanced manufacturing process technologies, including equipment that yields smaller chips using larger wafers, will need to do so if they wish to remain competitive.

"This represents a huge investment over the next two to five years," he said.