Applied Materials: Surviving Hard Times

by: Milind Paradkar

The world's largest chip equipment maker, Applied Materials Inc. (NASDAQ:AMAT) announced its results for the quarter ended April 2009 on Tuesday (see conference call transcript). Sales dropped 53% y/y to $1.02 billion, its lowest levels since 2002, but were higher than the average Wall Street estimate of $905.3 million. Operating loss widen to $293 million from $196 million in the prior quarter. GAAP loss per share stood at $0.19 compared to an income of $0.22 in the year-ago quarter.

Results include pretax charges totaling $166 million, comprising of $77 million for equity investment impairments, $47 million for inventory write downs, $27 million for restructuring and asset impairment charges, and $15 million for bad debt provisions.

(Please note: Energy and Environmental Solutions (EES) revenue growth has been plotted on the secondary axis-RHS)

Source: Gridstone Research

New orders plunged 73% y/y and 28% q/q, dashing off hopes of any rebound in the next couple of quarters. Quarter ending backlog stood at $3.16 billion, down 31% y/y and 23% on a sequential basis.

Source: Gridstone Research

Energy and Environmental Solutions (EES) orders were down 45% y/y to $141 million. EES revenue is expected to decline in Q3 due to the reductions in the number of SunFab signoffs, and a continued slowing in crystalline silicon equipment spending.

Display orders dropped 97% y/y to $13 million. AMAT expects a flat growth in the global TV market for 2009, with display capital spending to be down by more than 50% for the year.

Silicon Systems Group (SSG) orders were down 76% y/y and up 5% q/q to $259 million. AMAT is seeing a slow uptick in the SSG end markets and expects orders to improve in Q3 sequentially.

(Please note: Energy and Environmental Solutions, and Display order growth has been plotted on the secondary axis-RHS)

Guidance for Q3-FY09

Overall revenue is expected to be flat to down 15% q/q, with loss per share in the range of $0.06-0.14. SSG is expected to be flat to up 40%, while Services to be up by more than 5%. Display and EES revenue is expected to decline by approximately 50% and at least 30% respectively.

AMAT shares fell 2.5 % to $11.19 in after-hours trade on Tuesday from their close of $11.48 on NASDAQ.

Disclosures: No positions