Applied Materials Finally Stops Calling the Bottom

| About: Applied Materials, (AMAT)

There are many good reasons to listen to conference calls. First off, the question and answer session can give you a hint as to what issues are bugging investors. If you don't understand why a stock is trading the way it is, see what the analysts are harping on. The calls are also good for seeing what management thinks about the current operating environment. Furthermore, if you follow a company long enough you start to get a feel for whether management's thoughts about the operating environment are particularly useful.

To that end, I have criticized Applied Materials in the past for being perpetual bottom callers.

Last year's fiscal fourth quarter:

Q - Jay Deahna - J.P. Morgan Chase & Co.

What's important in what you're saying, then, is that you really are talking about an incredibly mild pause. Because if that's what you're going to deliver and orders most likely, it sounds like you're saying they flatlined in April at worst, if I'm reading you correctly, that's not really even a downturn.

A – Mike Splinter

The way I'm looking at this is, there's really two things that are going on. One is, the foundry and logic guys are really in the downturn. In fact, I think they're approaching the bottom of the downturn in spending. Meanwhile, memories have continues increase investment as the bit growth has continued to expand at a very fast rate.

(Excerpt from full AMAT F4Q06 conference call transcript)

Orders declined 5.6% sequentially in the following quarter. Then they said:

The foundries, however, continue to hold back on capital investment and are very much in the bottom of the trough at only 11% of our bookings in Q1.

(Excerpt from full AMAT FQ107 conference call transcript)

The next quarter they said:

We expect bookings from foundries will increase but remain relatively weak. Foundry orders have not returned to levels we expected at the end of Q1, as indicated by foundries being only 12% of our Q2 orders.

(Excerpt from full FQ207 conference call transcript)

And this quarter?

Orders came in at the low end of our range as the expected slowdown in DRAM orders was compounded by weaker-than-expected orders from foundry and display customers.

(Excerpt from full AMAT FQ307 conference call transcript)

What I thought was most interesting, though, was that management is now shying away from any mention of a "bottom," a "trough" or even of rising orders. What's more, when an analyst described it as a trough in the Q&A the answer backed away from it.

Michael R. Splinter

Steven, as far as Q4 being a quarterly trough, I think the real question again will be how sell-through goes, back to school, and holidays. Our checks in Taiwan are pretty positive so far on computer builds and other consumer products for the latter half of the year. I think those things are going a little bit better than normal seasonality, so we are starting out okay. But again, it is going to be whether our customers have confidence to invest going into 2008. At this point, we think they should but I don’t think they are going to decide even until October.

(Excerpt from full AMAT FQ307 conference call transcript)

Now that they have stopped calling it a bottom, perhaps it can actually be one.

AMAT 1-yr chart:
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