Applied Materials upbeat

August 14, 2001 Posted: 2150 GMT

NEW YORK (CNNfn) -- Applied Materials on Tuesday reported a fiscal third-quarter operating profit that dropped sharply from the same period a year ago but beat Wall Street's expectations.

And executives of the world's largest supplier of the equipment used to manufacture semiconductors said they still don't know when the chip industry will recover from what many are describing as one of the swiftest and sharpest in its history.

"We would be naïve to think that we can predict the timing of the upturn," Jim Morgan, Applied Materials' chairman and CEO, told analysts during a teleconference Tuesday evening.

"What is important for Applied Materials is to prepare for change and focus on building a great global growth company," Morgan added.

After the closing bell, Applied Materials said it earned $41 million, or 5 cents per share, during the quarter ended July 29. That excludes one-time items and compares with a profit of $604 million, or 70 cents per share, during the same quarter last year.

Including one-time charges, Applied Materials reported net income of $29 million, or 3 cents per share.

At $1.3 billion, Applied Materials' (AMAT: Research, Estimates) third-quarter revenue fell 51.8 percent from $2.7 billion a year ago. Analysts generally had expected a profit of 3 cents per share on $1.3 billion in revenue, according to a survey conducted by earnings tracker First Call.

During the teleconference held after the earnings news was released, Morgan and other executives of the Santa Clara, Calif.-based firm focused on new-product development and the strong strategic position they say the company will be in when the chip-industry does bounce back. Exactly when it will do so, however, has been the subject of much recent debate.

Historically, the semiconductor industry has been characterized by boom-and-bust cycles, with periods of undersupply and high prices followed by spells of overcapacity and slumping profitability. On the down slope of that cycle, chipmakers will move quickly to decrease their manufacturing capacity, which in turn weighs on chip-equipment makers' profits

The current downturn has persisted since last fall, and considerable debate remains on Wall Street as to where exactly the industry is in the cycle.

Chip-equipment analysts tend to look at ordering patterns to gauge of the broader conditions in the semiconductor industry.

During the fiscal third quarter, Applied Materials' new orders were $1.21 billion, generating a book-to-bill ratio of 0.9, according to Joe Bronson, the company's chief financial officer.

When they reported fiscal second-quarter results in May, executives had said they were expecting the company's book-to-bill ratio in the fiscal third-quarter to be at or slightly above 1. A book-to-bill ratio above 1 indicates a backlog of orders.

The company's third-quarter orders reflect an 11 percent decrease from orders taken in the fiscal second quarter and a 63 percent decline from the year-ago quarter.

On Monday, Lehman Brothers chip-equipment analyst Edward White told his clients he was expecting Applied Materials to report third-quarter bookings of $1.25 billion, suggesting a book-to-bill ratio of 1.04.

Looking ahead, Bronson said Applied Materials is expecting continued weakness in orders during the fiscal fourth-quarter but should be about even with the levels achieved in the fiscal third quarter.

"We continue to believe that orders are bottoming out at these levels, and look for some modest improvement in early fiscal 2002," he said.

At the same time, Bronson said he expects Applied Materials to post revenue that is flat with the $1.3 billion it just reported, which is in line with the Street's current expectations, while the company "will remain profitable."

By First Call's count, the most recent consensus earnings estimate for Applied Materials in the fiscal fourth quarter is 5 cents per share.

Shares of Applied Materials fell $1.19 to $43.65 on Nasdaq ahead of the earnings news. They rose 86 cents to $44.51 in extended-hours trade.

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