Applied Materials (AMAT) is likely to provide mixed news when it reports results after the close Tuesday for its fiscal second quarter ended April. The Street is looking for revenue of $904 million and a loss of 10 cents a share; the thinking on the July quarter is $923 million and a loss of 8 cents.
Analysts seem to agree that there has been a pick up in demand for semiconductor manufacturing equipment from the foundry sector. But the company’s solar business is struggling.
RBC Capital’s Mahesh Sanganeria wrote Monday that he sees orders up about 20% overall, with 60% growth in the silicon systems group. He notes that the company saw a pick up in demand in the quarter from Taiwan Semiconductor (TSM), but that the additional orders have largely been priced into the shares. Sanganeria lifted his EPS estimate for the October 2009 fiscal year to a loss of 13 cents from a loss of 17 cents; for FY 10 he goes to 17 cents in the black, from 14 cents. He also increased his price target on the stock to $11, from $9, but maintains his Sector Perform rating, noting that “a real recovery will require capacity buys in [the] memory sector,” which as he notes is not likely any time soon.
Mehdi Hosseini, of Friedman Billings Ramsey, thinks the company will meet or beat the April quarter consensus, but that July guidance is likely to be below the current estimates. He writes in a note that expectations for a V-shaped recovery drove AMAT shares to a 35% gain since late February, but a more muted recovery is likely.
Barclays Capital analyst C.J. Muse asserts in a note Monday that he sees few surprises coming, with a pick up in the silicon business but a depleting backlog in solar. He says the viability of AMAT’s thin-film solar business remains uncertain. Muse maintains an Equal Weight rating and $10 target.
And Muse is not the only skeptic on solar. Credit Suisse’s Satya Kumar writes he remains skeptical on AMAT’s solar business, with financing conditions still difficult, and increasing pressure to reduce costs. He contends that at current low volumes, the sector will renain a drag on the company’s margins.
AMAT Monday is off 4 cents, at $11.85.