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THE DAY AHEAD: Applied Materials sees big profits in 2Q

Applied Materials (Nasdaq: AMAT) shareholders should be feeling quite chipper today after the semiconductor equipment company beat estimates in the first quarter, issued a stock split and gave one bullish forecast.

The earnings results and the stock split were expected, but the big eye-popper was Applied Materials' second quarter outlook, which should boost other chip equipment makers.



Applied Materials: Set for another big run?



On a conference call with analysts, CFO Joseph R. Bronson told analysts to expect second quarter revenue ranging between $2 billion and $2.1 billion, and earnings per share between $1 and $1.08. That forecast means Applied Materials will top current expectations by at least 17 cents a share.

Applied Materials' business may not be all that exciting, but it is quite profitable when all the stars line up. And things are looking good right now. Semiconductor demand is soaring courtesy of the Internet and telecommunications. And PC chip and memory growth isn't all that shabby either. Of course where the growth comes from doesn't really matter since Applied Materials products are used to manufacture most chips.

"There's more potential for growth than anytime in our history," said CEO James Morgan on the conference call.

He isn't kidding folks.

Going into the earnings report most analysts said there were only a few things that could trip up Applied Materials shares -- no stock split, lower than expected orders and a restrained outlook.

Applied Materials delivered all three. For starters, there's the 2-for-1 stock split that will satisfy retail investors. But more important was the order number. Applied Materials reported orders of $2.36 billion ahead of Wall Street expectations.

Chase Hambrect & Quist analyst Eric Chen said the order number was key because the other figures were expected. Chen had expected orders of about $2 billion, maybe $2.1 billion. Applied Materials delivered and Bronson said the company should have orders of at least $2.5 billion in the second quarter.

As for the outlook, "the demand picture continues to improve,"said Morgan.

The only thing you could possibly find wrong with Applied Materials is that it didn't beat estimates by enough with first quarter earnings of 80 cents a share on sales of $1.67 billion. Wall Street was looking for 77 cents a share. Some whisper numbers were higher.

But there's no need to worry. Applied Materials said it had problems implementing a new enterprise resource planning (ERP) system in November and that put a lid on profit and revenue gains. Analysts reckoned the software hiccups could have trimmed a few cents from the earnings per share figure.

Last quarter, we wondered if Applied Materials had any upside left after a strong run. The answer to that question now seems pretty obvious.

Prudential Securities raised its price target on Applied Materials to $195 and that may have been conservative.

More good news from Lycos

Lycos (Nasdaq: LCOS) should also bolster the tech sector today with a better-than-expected operating profit of 3 cents a share.

Lycos reported a second quarter operating profit of $3 million, or 3 cents a share, on sales of $68.6 million. Those results were two cents better than consensus and well ahead year ago totals.

Worldwide traffic grew to 122 million page views per day in the quarter while U.S. traffic improved 23 percent to 101 million page views a day.

On the e-commerce side, LYCOShop showed a 450 percent increase in shoppers during the holiday season as stores soared to 2,400 stores in eleven weeks. LYCOShop retailers include The Gap, Barnes&Noble.com, L.L. Bean, Patagonia, KBkids, and OfficeMax.