Earnings Preview: Applied Materials

Applied Materials (AMAT) is expected to report Q3 earnings Tuesday after the close with a conference call scheduled for 4:30 pm ET.

Guidance

The consensus estimate is 14c for EPS and $1.84B for revenue, according to First Call. The Street is looking for a sequential revenue and earnings decline. On the last earnings call, management provided lower Q3 guidance of 10c to 14c in EPS. The company said it sees Q3 orders down 15% to 25%. Stifel expects Applied to generally meet its estimates of $1.85B and pro forma EPS of 16c excluding options, and 13c including options.

Analyst Views

Stifel believes bookings will come in down 25% sequentially, at $1.8B, driven by continued weakness in semi cap and a drop off in Flat Panel Display [FPD] orders. The firm believes management will generally deliver a tone and message consistent with the majority of its semi cap peers on its earnings call of weak October bookings. Stifel would not be surprised if Applied took a cautiously optimistic approach to its January 2009 quarter, as its checks indicate some potential pickup in DRAM and NAND flash orders.

Kaufman said that recent channel checks revealed that this quarter's revenue has been down sequentially for the whole industry. Additionally, channel checks indicate that the October quarter will be flat to down sequentially and this is not the consensus view. The consensus view is a more than 10% increase. That being said, Kaufman thinks expectations have already anticipated a further drop in revenue in 4Q08. Kaufman does not think it will be taken as a surprise.

RBC Capital expects the stock to trade lower following the earnings call due to significant downward revisions to CY09 estimates. The Street is modeling about 50% EPS growth in CY09, which should come down to a high single digit.

Trading wise: Applied Materials has a tendency to narrow its after-hours movement the next day following an evening earnings event. It has done so after 11 of the last 17 earnings events.