Shares of Applied Materials Inc. surrendered their early gains and closed lower after the world's largest chip-making equipment company topped fourth-quarter earnings expectations and provided an optimistic view of the current three months.
"In semiconductor capital equipment, Applied Materials is on a market share tear (to new secular highs) that is gaining further visibility into 2005," Ali Irani, an analyst with CIBC World Markets, said in a research note to clients. He rates the shares "sector outperform."
After the close of stock markets Wednesday, Applied Materials unveiled a first quarter profit of $82-million (U.S.) or 5 cents a share. That compares with a year-earlier loss of $66-million or 4 cents a share.
Excluding one-time pretax charges of $167-million or 7 cents a share, largely for consolidating facilities, Applied Materials earned $200-million or 12 cents a share. On that basis, analysts were calling for a profit of 8 cents a share, according to Thomson First Call.
Sales in the period ended Feb 1. rose to $1.56-billion from $1.05-billion, above analyst forecasts for $1.32-billion.
Goldman Sachs analyst James Covello said Thursday that the strong results will boost the company's stock in the short-term, but the industry is moving beyond the halfway point of the cycle.
"We believe that investors should be taking a more defensive stance on the stocks as we believe that Applied's strong report underscores that the industry has passed the mid-point of the fundamental cycle with another two quarters of 25-per-cent growth after April placing orders at their previous cyclical peak."
Mr. Covello rates the stock "in-line."
Applied Material stock pulling back from an early high of $24 and closed down 18 cents or 0.8 per cent at $22.13 in New York Thursday. The stock rose to a 52-week high of $25.94 in November.
"Semiconductor unit demand remained robust throughout the quarter, driven by higher consumer electronics and business IT spending," Mike Splinter, president and chief executive officer of Applied Materials said in the press release. "Based on these industry drivers, our customers have announced increased capital spending plans for 2004."
Applied Materials projected second-quarter profit between 17 cents and 19 cents a share, with sales rising 20 per cent from the first quarter to $1.87—billion. Analysts are calling for a second-quarter profit of 11 cents a share and sales of $1.5-billion.
The company also said orders are expected to rise by about 30 per cent sequentially.
"The guidance for the April 2004 quarter... is ahead of the market's expectations by at least one quarter," Nikolay Tishchenko, an analyst at Fulcrum Global Partners, wrote in a research note. He rates the stock as a "buy."
New orders were $1.68-billion in the first quarter, up 66 per cent from a year ago and up 32 per cent from the previous quarter.
Backlog at the end of the first quarter was $2.63-billion, compared to $2.50-billion at the end of the previous quarter.
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