Applied Materials Reports Rising Orders

Applied Materials Inc. on Tuesday reported a net loss in its fiscal first quarter, as the world's largest maker of chip making equipment slashed costs to cope with the semiconductor industry's worst downturn on record.

New orders, however, rose for the first time in four quarters, and the Santa Clara, California-based company predicted another rise in orders for the second quarter.

Chip equipment makers, whose machines produce and test the microchips used in computers, mobile phones, and myriad other devices, have been slammed by the weaker economy and sharply lower spending on electronics.

Citing a few signs of what the company hopes is an emerging recovery, Applied Materials Chief Executive Officer James Morgan said semiconductor revenues have apparently reached a bottom, memory chip prices have risen, and activity in chip factories has increased.

"All these are signals for growth in the second half of 2002," Morgan said in a conference call with analysts.

In contrast with a year-ago profit of $157 million, or 19 cents a share, Applied Materials said it lost $45 million, or 6 cents a share, in the quarter ended Jan. 27.

The quarterly loss included pre-tax costs of $77 million related to previously announced job cuts and facilities closures, and $8 million for in-process research and development related to an acquisition.

Excluding those items, the company said it earned $15 million, or 2 cents a share.

Wall Street analysts on average expected Applied Materials to report a break-even quarter on a per share basis, with a survey of 28 analysts showing a range of a loss of 3 cents to a profit of 2 cents, according to research firm Thomson Financial/First Call.

"I think the company did exactly what most people expected them to do," said Goldman Sachs semiconductor equipment analyst James Covello. "They did a good job of cutting costs during the quarter."

New orders in the first quarter were $1.12 billion, down 54 percent from $2.43 billion in the same quarter last year but up slightly from fourth-quarter orders of $1.10 billion. Net sales were $1.0 billion, down 58 percent from $2.36 billion in the year-ago quarter.

In after-hours trade, Applied Materials stock rose to $45.15 from a Tuesday close of $44.71. The stock had already fallen 2 percent in regular Tuesday trade.

The stock has risen 11 percent this year amid investors bought into their hopes for a turnaround in business. Applied Materials outperformed the Philadelphia Stock Exchange semiconductor index <.SOXX> , which is up 5 percent for the year.


Specifically, Applied Materials said it expects new orders in the second quarter to be up 10 percent to 15 percent from the first quarter, with revenue at $1 billion or slightly higher.

The company said it expects to reach profitability as long as the revenue target is met.

Analysts on average expected a second-quarter profit of 2 cents a share, in a range of a loss of 5 cents a share to a profit of 8 cents a share, according to First Call.

The industry, however, may still suffer in 2002.

Applied Materials said it expects capital spending on chip-making equipment to drop 25 percent in 2002. That would represent two-straight years of rapid declines -- in 2001, capital spending fell about 40 percent last year, to an estimated $29.57 billion.

Banc of America analyst Mark FitzGerald said the expected improvement in business may already be priced into shares of Applied Materials shares, limiting potential growth in the stock.

"The stock price is way ahead of what those earnings would support at this point," FitzGerald said.