Applied Materials Beats Expectations, Doubles Revenue

Applied Materials Inc. (AMAT), the largest maker of chip-making tools, Tuesday said it had doubled its quarterly revenue and returned to a profit as a result of healthy spending on new semiconductor factories.

Insisting that a recovery in capital spending will not vanish in the coming months as some chip analysts fear, Applied Materials executives forecast further growth in revenue and new orders in the current quarter. The company's shares rose slightly in after-hours trading.

"It's pretty much in line on the revenues and earnings," said Mark FitzGerald, an analyst with Banc of America Securities.

The Santa Clara, Calif.-based company said it earned $440.6 million or 26 cents a share in its third fiscal quarter ended Aug. 1. A year earlier, Applied Materials had a loss of $36.8 million as it took a $164 million charge to write down inventory and cut jobs. Net sales rose 104 percent to $2.24 billion from $1.09 billion in the same period last year.

As chip makers have increased spending on factories to produce more advanced chips on larger silicon wafers, many have found that they have manufactured more than they can sell. Growing inventories have become apparent at chip makers including Intel Corp. (INTC), the industry's largest player.

Michael Splinter, the chief executives of Applied Materials, forecast continued growth in semiconductor capital spending and waved off fears that inventories posed a serious threat to the chip industry.

"I'm not at all concerned," Splinter said on a conference call. "If we look back to 2000, a lot of companies had real problems with inventories. I don't think anybody's about to let that happen again."

Splinter also said investments, including an $85 million acquisition announced on Monday, have given the company a strong foothold in chip factory services, a growing source of revenue. Sales of equipment to build flat-panel monitors, which are quickly replacing bulkier cathode-ray-tube-based displays, are also very strong, Splinter said.

Shares of Applied Materials rose 43 cents, or 2.8 percent, to close at $16.07 on Nasdaq, before results were announced. In after-hours trading on INET (search), the shares rose to $16.20.

Wall Street on average was expecting third-quarter earnings of 25 cents a share on revenue of $2.15 billion, according to a poll of analysts by Reuters Estimates.

Applied Materials said new orders, a measure of future revenue, rose 11 percent from the second quarter to $2.46 billion, just ahead of its target.

For the current quarter, Applied Materials forecast orders would rise another 5 percent, with revenue also rising up to 5 percent from the third quarter. Earnings per share are expected to reach 24 cents to 26 cents a share, just below the average analyst estimate of 27 cents a share.

Despite optimism from Applied executives, FitzGerald said he believed some made-to-order chip makers, known as foundries, have been cutting back their purchasing plans as the chip industry adjusts to growing inventory levels.

"Some of these big Asian companies, particularly the foundries, are starting to pull back at this point, and that's been a big part of the mix," FitzGerald said.

Splinter, however, said chip makers are not turning back on plans to build factories that can manufacture chips on larger, 12-inch silicon wafers with features sizes of 90 nanometers, or billionths of a meter, and smaller

"People are not going to slow those down," he said on the conference call. "We see demand continuing to grow."