Applied Materials hurt by low demand for chipmaking machinery

Reuters News
Posted: Feb 11, 2015 4:12 PM

By Lehar Maan

(Reuters) - Applied Materials Inc said new orders in its business that makes semiconductor equipment and made-to-order chips fell in the first quarter due to weak demand from foundry customers.

The company, whose customers include Samsung Electronics Co Ltd and Taiwan Semiconductor Manufacturing Co Ltd, also forecast current-quarter profit and sales below analysts' expectations.

Applied Materials' shares fell 3 percent to $23.53 in extended trading.

New orders in the silicon systems group, the company's biggest business, fell about 9 percent to $1.43 billion in the first quarter.

Revenue in the unit, which accounts for about 60 percent of Applied Materials' total revenue, declined 2.6 percent.

"People were hoping for a little more foundry demand coming in a little earlier, and it's something they are not seeing yet," Pacific Crest Securities analyst Weston Twigg said.

Applied Materials said it expected adjusted gross margins in the current quarter to stay flat at 42.3 percent reported for the prior quarter.

Twigg, who had estimated second-quarter gross margins of 44 percent, said the lukewarm forecast was due to weakness in Applied Materials' foundry business, where margins are higher.

Applied Materials, which also provides equipment to make flat panel displays and solar cells, said it was still awaiting approval for its offer in 2013 to buy rival Tokyo Electron Ltd in an all-stock deal worth more than $10 billion.

"We are working to secure the remaining approvals and complete the merger as soon as possible," Chief Executive Gary Dickerson said on a conference call.

The company said it expected current-quarter net sales to be flat or rise by up to 2 percent from the prior quarter. This works out to $2.36 billion-$2.41 billion.

It forecast adjusted profit of 26-30 cents per share for the second quarter.

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Analysts on average were expecting a profit of 32 cents per share and revenue of $2.48 billion, according to Thomson Reuters I/B/E/S.

Applied Materials' net profit rose about 37.5 percent to $348 million, or 28 cents per share, in the first quarter ended Jan. 25.

Excluding items, the company earned 27 cents per share.

Total net sales rose 7.7 percent to $2.36 billion as contract chip manufacturers spent more on technology used to make smartphone and memory chips.

Analysts on average had expected earnings of 27 cents per share and revenue of $2.33 billion.

(Editing by Joyjeet Das and Kirti Pandey)