Earnings Preview: Applied Materials

Applied Materials (AMAT) is expected to report Q1 earnings Tuesday with a conference call scheduled for 4:30 p.m. ET.

Guidance

The consensus estimate is 20c for EPS and $2.01B for revenue, according to First Call. Last quarter was a mixed one for Applied Materials. It beat estimates by a penny, but its per-share profits came in flat year-over-year.

This year, Wall Street is looking for Applied to post continued earnings declines in every quarter but Q4, as it continues to lose money growing its thin-film solar panel business. The general sense is that the outlook for the core semi equipment business could be weak, but that demand for making solar panels and flat-panel displays could be better than expected.

Analyst Views

RBC Capital's Mahesh Sanganeria, among others, says the Street tomorrow could get a positive surprise on Q1 orders as well as Q2 order guidance, due largely to strength in flat panel display orders. Deutsche Bank agrees that bookings will be solid in Q1, coming in towards the top of the forecast range due to strong flat-panel orders and initial solar sales, but cautions that there will be further erosion in the memory sector, which could lead to order guidance down 10% or more.

Credit Suisse advises owning the stock here, with solar and flat panel driving better-than-expected near-term orders. Cowen said that given a still uncertain spending environment that management will guide conservatively, they imagine flat to down 10% sequentially. Under that scenario Cowen thinks there's likely still downside to Q2 street estimates.

RBC Dain said while peers have guided March 1Q08 orders down 10% or more, they expect flat Q2 orders guidance. They expect management's tone bullish due to FPD strength and potential upside from solar segment. The stock would likely trade higher after the call. Dain recommends investors to sell the stock into strength after the call; they prefer Novellus (NVLS).

Key issues for conference call: Most important will be commentary and guidance around the forward order outlook; a possible announcement or confirmation on recent speculation that Applied was the winner of India's Moser Baer signed agreement with an equipment supplier for 565MW phased expansion of their thin film line; an update on the demand picture in the core silicon business.