Applied Materials Second-Quarter Profit Forecast Tops Analsyts’ Estimates

By Ian King - Feb 17, 2012 7:36 AM GMT+0700

Applied Materials Inc. (AMAT), the largest producer of chipmaking equipment, predicted higher second- quarter profit than analysts had estimated, signaling that semiconductor makers are pulling out of a spending slump.

Excluding certain costs, profit will be 20 cents to 28 cents in the period, the Santa Clara, California-based company said today in a statement. That compares with an average analyst estimate of 16 cents, according to data compiled by Bloomberg. The shares jumped as much as 6.6 percent in extended trading.

Customers are stepping up equipment spending to ensure they can meet demand for chips used in smartphones, tablets and other mobile devices. Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. are helping fuel the rebound, according to Patrick Ho, an analyst at Stifel Nicolaus & Co.

“TSMC and even Samsung are boosting orders,” Ho said. The Dallas-based analyst recommends buying Applied stock, which he owns himself. “They should benefit from that,” Ho said.

Applied Materials shares rose as high as $14.08 in late trading after the report. The stock, up 23 percent this year, had closed at $13.21.

Sales in the current period will rise between 5 percent and 15 percent from the previous three months, the company predicted, indicating revenue of $2.3 billion to $2.52 billion. That compares with an average analyst estimate of $2.09 billion.

Mobility Growth

“The first half is driven by mobility,” Chief Executive Officer Mike Splinter said in an interview. “We’ve also gotten more positive on the economy. The U.S. is doing better, and Asia is doing better.”

Improving demand for chip machinery is helping make up for a slowdown in orders for equipment that makes flat-panel displays and solar panels. Applied expanded into that market in recent years, seeking to offset the swings in demand in its main business. Those newer businesses won’t recover until closer to end of the year, Splinter said.

While sales of chip equipment jumped 26 percent last quarter from the preceding three months, display machinery dropped 39 percent and solar-related revenue fell 34 percent. Orders, an indicator of future revenue, rose 53 percent for the semiconductor group. Solar orders dropped 62 percent.

Investors and analysts track semiconductor-equipment orders as a harbinger of demand for electronics. Chipmakers such as Intel Corp. (INTC) and Samsung vary spending on new equipment and plants based on their predictions for demand as much as two years in advance. Their factories can cost more than $3 billion to build and run 24 hours a day, which makes the companies careful with equipment purchases.

First-quarter net income decreased to $117 million, or 9 cents a share, from $506 million, or 38 cents, a year earlier. Revenue fell 19 percent to $2.19 billion. Excluding certain costs, profit was 18 cents a share in the period, which ended Jan. 29. Analysts on average had estimated profit of 12 cents and sales of $1.97 billion.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net