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Applied Materials posts lower quarterly profit

Supplier of chipmaking equipment cites weak orders from contract chipmakers, flat-panel display manufacturers.

Applied Material posted a lower quarterly profit on Tuesday as the top supplier of chipmaking equipment faced weak orders from contract chipmakers and flat-panel display manufacturers.

Applied's shares fell nearly 3 percent on the results, which showed costs up and interest income down, while a 14 percent drop in orders from the previous quarter was toward the upper end of the company's range of forecasts for the decline.

"Conditions in the display industry remained challenging, as customers work to fully utilize existing capacity," Chief Executive Mike Splinter said in a statement, though Applied and its rivals did enjoy steady demand from memory chipmakers.

Net income for the third fiscal quarter was $473.5 million, or 34 cents a share, compared with $512 million, or 33 cents a share, a year ago. Revenue rose 1 percent to $2.56 billion.

"We expected to see a recovery in flat-panel display orders, however customers have not resumed their capacity expansion plans," Chief Financial Officer George Davis said on a conference call.

Applied had been expected to earn net profit of $437.5 million, or 31 cents per share, on revenue of $2.53 billion, according to the average of analysts' expectations on Reuters Estimates.

Excluding special items other than stock-based compensation and amortization, Applied Materials earnings came to 34 cents per share, ahead of analysts' average forecast of 32 cents.

However, Applied is now heading solidly into the back half of the year, which includes back-to-school and holiday sales.

"We expect (Applied Materials) to call a bottoming in bookings in the October quarter," wrote brokerage firm FBR in a research note ahead of the earnings report.

Applied said it expects a fiscal fourth-quarter per-share profit of 26 cents to 29 cents a share, and revenue to fall 5 percent to 10 percent from $2.56 billion in the third quarter.

Orders are forecast to be little changed, down 5 percent in the fourth quarter from the third, Davis said.

"What we're seeing is that spending is starting to soften a little bit, which is why we're guiding orders and revenue down a little bit, but it's coming off of high levels," Davis said in a telephone interview.

Throughout 2007, some 70 percent of Applied's orders have come from the memory-chip industry as consumer gadgets sport more applications that demand larger amounts of memory, Davis said.

Splinter said the company added three contracts for thin-film solar production lines to those already announced this year, reflecting the expanding market for the technology.

Splinter said on the conference call that he was boosting the expected value of contracts to be signed in its solar business in 2007 to more than $600 million from $400 million.

Applied shares fell to $20.68 in extended trading. The stock fell 44 cents, or 2 percent, to close at $21.24. The stock had been up 18 percent this year, as of Monday's close.