Applied Materials Posts Higher Profit, Weaker Orders

Applied Materials Inc. (AMAT), the world's largest supplier of semiconductor manufacturing tools, Tuesday reported a higher quarterly profit, but said orders for new equipment could weaken as the chip industry prepares for a slowdown.

Earnings in the quarter were $288.8 million, or 17 cents a share, compared to a year-earlier profit of $82.4 million, or 5 cents a share. Sales rose to $1.78 billion from $1.56 billion in the same period last year. Both earnings and sales were just ahead of analysts' expectations.

New orders, an indicator of future revenue, fell 36 percent quarter-over-quarter, slightly weaker than the company's target of a 35 percent drop, as some Japanese chip makers delayed purchase plans. Orders could decline as much as 10 percent in the current quarter, the company said.

Applied Materials forecast flat-to-slightly higher sales in the quarter, and earnings of 16 cents or 17 cents a share, ahead of Wall Street expectations. It said it expected business "momentum" to recover beginning in the middle of the year.

The company's shares edged up 11 cents in after-hours trading on Inet from a close of $17.49 on the Nasdaq exchange.

Global semiconductor sales are expected to be flat this year after a record year in 2004, a slowdown that is also expected to limit spending on microchip factories. Applied Materials and rivals, including Novellus Systems Inc. (NVLS), have watched orders for their equipment weaken ahead of the expected decline.

On a conference call with analysts, Applied Materials Chief Executive Michael Splinter said he expected order "momentum" to return in the second half of the calendar year. Chip makers, he said, are preparing to upgrade their factories to build components with smaller features, requiring a greater investment in tools to build, test, and package chips.

Suresh Balaraman, an analyst with ThinkEquity Partners, said Applied appeared to be underperforming compared to its rivals. "I think in terms of bookings, their sequential decline is probably worse than many of their peers," he said.

Analysts on average were expecting earnings in the fiscal first quarter, which ended Jan. 30, of 16 cents a share and sales of $1.74 billion. For the second quarter, analysts were targeting earnings of 15 cents a share and sales of $1.68 billion.

The Santa Clara, California-based company may face pressure to declare its position on paying a dividend, a day after rival KLA-Tencor Corp. (KLAC) said it would begin to pay a dividend of about $100 million a year.

Splinter told Reuters in November he was not inclined to pay a dividend, though Wall Street appears interested in having the company reconsider that position. In a research note Tuesday, Jefferies & Co. analyst Cristina Osmena wrote a report entitled "Mr. Splinter, Where is Our Dividend??"

During the conference call, Nancy Handel, Applied Materials' Chief Financial Officer, said the company would "take another look" at issuing a dividend, and report back at the company's annual shareholder meeting in March.