Applied Materials Profit Plunges 97 Percent

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Applied Materials Inc. on Wednesday said its fiscal fourth-quarter profits plunged 97 percent as customers continued to shy away from buying multimillion dollar chipmaking equipment amid the worst-ever year for the semiconductor industry.

Executives at the biggest maker of chipmaking gear were conservative in their financial guidance, warning of a potential loss per share in the current quarter and noting that sales will be about $1 billion. That would be a decline of about 20 percent from fourth-quarter levels.

"The guidance of a potential loss per share is particularly

telling,`` said Goldman Sachs analyst James Covello. ''This is a company that works very hard to remain profitable and the fact that they may not in the first quarter is sort of a watershed event."

While some chip companies, such as National Semiconductor Corp., have forecast a sequential rise in sales, suggesting that sales may have bottomed, Applied wasn't nearly so sanguine. The company's cautious guidance will likely weigh on chip and chip-equipment stocks on Thursday, Covello said, diminishing hopes that sales in the boom-and-bust industry have stabilized.

Shares of Applied fell 9 cents to close at $40.71 on Nasdaq, just before the results were released. In trading after the close, shares fell to $39.70. Shares of Applied have soared 43 percent since Oct. 1, while the Philadelphia Semiconductor Index, has surged 49 percent in the same time period.

``The environment continues to be really difficult, and the stock market wants to believe things are getting better and that's just not the reality,'' Covello said.


Excluding one-time items, Applied earned $22 million, or 3 cents a share, in the fourth quarter ended Oct. 28, down from $664 million, or 77 cents, in the year-ago period. Sales fell to $1.26 billion from $2.92 billion, in line with its earlier forecast.

Analysts polled by research firm Thomson Financial/First Call had expected profits of 1 cent to 8 cents a share, with a consensus estimate of 4 cents, on sales of $1.24 billion. The company is forecast to earn 4 cents a share in the first quarter on sales of $1.19 billion.

Including a pretax restructuring charge of $149 million, of 13 cents a share after-tax, Santa Clara, California-based Applied reported a loss of $82 million, or 10 cents a share.

Applied said new orders fell 9 percent to $1.10 billion from $1.21 billion in the third quarter, but the periodic decline is, at the least, getting smaller. Orders in the third quarter had fallen 11 percent from the second.

``The semiconductor industry continued to decline for the fourth consecutive quarter,'' said Chairman and Chief Executive James Morgan. ``Worsening global economic conditions and uncertainties from recent events have caused both businesses and consumers to decrease near-term spending, triggering further capital spending reductions for wafer fabrication equipment.''

The Semiconductor Industry Association forecast earlier this month that global chip sales would rebound 6 percent next year, after declining 31 percent this year, the biggest one-year drop ever in the notoriously boom-and-bust industry.


But Morgan, as in past quarters, said that customers with strong enough balance sheets are continuing to invest in chip-making equipment that uses the latest technologies, such as copper interconnects and smaller line-widths on chips. Intel Corp., for example, still is on track for its planned $7.5 billion capital spending in 2001.

While some chipmakers are investing in new equipment that can produce chips where the lines etched on them are 0.13 microns across and gear that makes chips from larger, dinner-plate-sized wafers, others are not, because of the economic slump. Smaller lines and bigger wafers allow for more powerful, smaller chips at lower production costs.

``What they're trying to do is delay as long as possible this major technology transformation because of its cost and the fact that they don't have much profitability in their old product lines,'' Morgan said in an interview. ``My concern is that there really is going to be a shortage of capacity at 0.13 (micron) and below.''

Only 4 percent of global chipmaking capacity is currently capable of producing chips manufactured using 0.13 micron technology, Morgan said.

Sales in North America accounted for 36 percent of the total, while Southeast Asia and China made up 22 percent. Japan accounted for 14 percent of sales in the quarter and Taiwan 16 percent. Korea was 6 percent of total sales, as was Europe.