Applied reported results and we're seeing a huge rally across the tech sector. Results were impressive and guidance was even more impressive. Let's look at the numbers and try to arrive at some conclusions.
Sales were up $2.45b up 9% sequentially but flat Yoy. GM came in around 42.7%, OM at 19.2% and net income at $376MM at 15% net margin. Not bad. The company now has a market cap of $25.5b with revenues expected in the range of $10-11b over 2016-17.
So why is the market so excited? Guidance was pretty impressive. Revenues up 14-18% with EPS coming in around $0.46-0.50. The company is very cash flow positive, but it is also cyclical so that worth considering.
It's the orders that came in in Q2, they booked the "highest orders in 15 years and they said they expect to deliver record earnings in 2016.
Q2 results were $3.45b, up 52% and 37% sequentially and YoY. Backlog increased to $4.17b.
Semi spending is cyclical (just like the semi conductor sector). So right now we are seeing a huge surge in backorders related to companies moving towards 3D NAND and also transitioning to lower nodes in DRAM. China is also increasing investments in semis so there's a tailwind there which could last many years. So AMAT, LAM and KLAC are likely to see tailwinds of sorts.
But it pays to be cautious here for a few reasons.
1. China is experiencing macro issues, thereby softness in purchase of phones, tablets etc wouldnt be surprising
2. Once the tailwinds from DRAM and NAND start to subside, there's China left. So keep an eye out here - there might be a sharp correction if normalized CAPEX is lower or if China slows to any significant degree.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.