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Applied Materials Profit Falls; Orders Top Estimates (Update3)

By Ian King

Feb. 12 (Bloomberg) -- Applied Materials Inc. reported a 35 percent drop in fiscal first-quarter profit after chip- equipment sales fell. Orders for machines that make flat screens surged, lifting the shares 5.2 percent in extended trading.

Net income declined to $262.4 million, or 19 cents a share, from $403.5 million, or 29 cents, a year earlier, Santa Clara, California-based Applied Materials said today in a statement. The company said orders would rise as much as 5 percent this quarter, exceeding some analysts' estimates.

Applied Materials, the biggest maker of chip equipment, is expanding into machinery for flat-screen displays and solar panels as demand from semiconductor companies slows. The new orders helped offset a slump in memory chips, which has forced some of its biggest customers to curb expansion plans.

``They are still expecting the flat panel and the solar business to keep this fairly high run rate,' said Bill Ong, a San Francisco-based analyst for American Technology Research, who has a neutral rating on the shares. ``The stock will probably trade up tomorrow.'

Applied rose 93 cents to $19 in extended trading after the report. The stock had fallen 36 cents to $18.07 in regular Nasdaq Stock Market trading. The shares dropped 3.7 percent last year.

Sales Forecast

Sales in the first quarter, which ended Jan. 27, declined 8.3 percent to $2.09 billion.

Second-quarter sales will rise as much as 5 percent from the previous period, the company said on a conference call. The midpoint of its forecast range equates to $2.14 billion, topping the $2.07 billion estimated by analysts in a Bloomberg survey.

The company projected second-quarter earnings of 18 cents to 22 cents a share, compared with the 22 cents projected by analysts.

Orders, a sign of future sales, will range between a 5 percent drop and a 5 percent increase, Applied Materials said. Steven O'Rourke, an analyst at Deutsche Bank, had expected the company to predict a decline of as much as 10 percent.

First-quarter orders were $2.5 billion. That was a gain of 13 percent from the preceding three months and down 2 percent from a year earlier.

`Robust Demand'

The gain from the previous quarter ``reflects robust demand for our display products,' Chief Executive Officer Mike Splinter said in the statement.

Splinter had forecast that orders would drop between 5 percent and 15 percent last quarter, compared with the previous three months, as memory chipmakers cut spending.

Analysts had estimated a first-quarter profit of 20 cents a share and sales of $2 billion.

The company also announced plans to buy back $300 million to $500 million in stock this quarter.

South Korea's Hynix Semiconductor Inc., Germany's Qimonda AG and Japan's Elpida Memory Inc. all reported losses in their most recent quarters after prices for memory fell below the cost of production. Hynix and other chipmakers have cut their spending plans for this year.

Applied gets about 10 percent of its sales from liquid- crystal-display makers, which are boosting spending on new plants. The company also has about $700 million in contracts to equip solar panel plants.

The majority of its revenue comes from machines that add layers of metals and other materials to silicon wafers, turning them into computer chips.

The company accounts for about 20 percent of the $40 billion chip-equipment industry, so its results serve as an indicator of total demand. Investors also use its order figures to gauge confidence levels at customers such as Intel Corp. and Samsung Electronics Co.
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