Earnings Preview: Applied Materials

May.17.12 | About: Applied Materials, (AMAT)

Applied Materials (NASDAQ:AMAT) is expected to report Q2 earnings after the market close on Thursday, May 17, with a conference call scheduled for 4:30 pm ET.

Guidance

The consensus estimate is 24c for EPS and $2.40B for revenue, according to First Call. Applied Materials projects Q2 revenue to be up 5%-15% sequentially, with SSG including Varian increasing 15-25% sequentially, AGS to be up 5-10%, Display being flat to down 25% and EES to be down more than 40%. The non-GAAP EPS is expected to come in at 20c-28c a share. A few analysts expect a decent Q2 with revenue and earnings in line with consensus. They believe that pressure in both Display and Solar will be partially offset by growth in Silicon and a modest improvement in Service, helping results to match the guidance. Also, a few analysts expect revenue to come in modestly above the mid-point of guidance, consistent with its peers including Lam Research (NASDAQ:LRCX), Novellus Systems (NASDAQ:NVLS) and KLA-Tencor (NASDAQ:KLAC). Some remain cautious about the company's efforts in the solar energy market since management has already missed several targets to bring its solar division to profitability.

Key Focus Points: 1) Update on the $30B-$35B 2012 WFE spending outlook and preliminary view of 2013 spending outlook given positive comments from Intel (NASDAQ:INTC). Recent Taiwan Semiconductor (NYSE:TSM) comments could prompt AMAT to tighten the range to $32-35B; 2) Progress of initiative to grow share within foundries from 20%-24% in 2012, led mostly by Varian acquisition plus increased investment in advanced transistors within foundries; 3) Update on expectations for the opex run rate going forward -- the current opex run rate is $555-$565M per quarter; 4) Progress on improving FPD breakeven from $450M as of last quarter to $400M; 5) Progress on improving EES breakeven from $800M to $500M -- by end of 2013 with $600M run-rate exiting 2012.