Applied Materials beats 3Q estimates, sees more growth

Applied Materials (Nasdaq: AMAT) reported better-than-expected third quarter earnings Wednesday and predicted stronger growth ahead.

After market close Wednesday, the world's largest maker of chip manufacturing equipment reported fiscal third quarter earnings of $604 million, or 70 cents per share. First Call's survey of 28 analysts predicted a profit of 68 cents per share for the quarter ended July 30.

Shares of Applied Materials rose 1 9/16 to 72 1/8 in Wednesday's regular trading ahead of the quarterly report.

Executives of Applied Materials previously predicted a strong performance in the July quarter.

Applied CFO Joseph Bronson told analysts to expect further growth. The company sees new orders rising sequentially in the fourth quarter, to more than $3.5 billion. Fourth quarter earnings per share should range between 73 and 75 cents per share, on revenue of $2.85 billion to $2.9 billion, Bronson said. That sales range assumes no revenue from 300 mm systems.

Revenue in fiscal 2001 quarters should also rise sequentially, Bronson said.

Third quarter revenue increased to $2.73 billion, 25 percent higher than the $2.19 billion in the comparable period a year earlier. Gross margin rose 800 basis points during the quarter to 50.9 percent, from 50.1 percent in the fiscal second quarter.

Applied had a backlog of $3.69 billion at the end of July, compared to $3.18 billion at the end of April.

New orders of $3.28 billion represented a 12 percent gain sequentially and 116 percent improvement year-over-year. North America generated 30 percent of Applied's new orders, followed by Japan at 24 percent, Taiwan and Europe each at 15 percent, Southeast Asia and China at 9 percent and Korea with 7 percent.

Some analysts in recent weeks have warned of a chip industry slowdown within a year or sooner, but Applied disputed the notion. Increased fab spending will fuel continued growth, executives said.

"Our judgement is that the semiconductor industry is still healthy and the underlying demand is still strong," said Joseph Bronson, Applied's CFO.

Bronson cited several reasons for optimism:

• Chipmakers still need more production capacity at 0.18 micron levels, especially with strong demand from the communications market.

• Companies are investing in new technology, particularly related to 300 mm wafers. Pilot testing of 300mm continues to grow, Bronson said.

• The memory chip industry will see a capacity shortage by the end of 2000. Some major DRAM vendors also need to upgrade their equipment, Bronson said.

• Japanese chip companies' expansion appears to be set for 2000 and 2001. Applied sees 10 new expansions in Japan, with more than 150,000 wafer starts per month.

• The economic outlook remains positive in markets where chip manufacturing is strong.

• Newly introducted devices continue to expand the demand for chips. New servers, workstations, consumer applications and communications equipment are driving a 30 percent in silicon consumption this year, Bronson said. PCs will consume about 28 percent, he added.