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Applied Materials sees end to downturn, shares upFont size: A
By Sinead Carew

NEW YORK, May 13 (Reuters) - Applied Materials Inc (AMAT) said on Tuesday the semiconductor equipment industry was nearing the end of its downturn, but industry capital spending this year would fall more than it previously expected.

The microchip equipment maker, which reported a drop in quarterly earnings, forecast a chip equipment spending decline of 25 percent to 35 percent for the calendar year compared with its previous expectation of a 5 percent to 15 percent drop.

"We think there will be an improvement in the next quarter and the first fiscal quarter," Chief Executive Mike Splinter told analysts on a conference call. "We would expect revenues and orders to be coming up in Q4."

The company's shares fell more than 1 percent after-hours when it reported a drop in its second-quarter profit, but were then 2.2 percent higher at $20.29 after it issued its outlook. It had closed at $19.86 in the regular Nasdaq trading session.

Needham & Co analyst Edwin Mok said he was disappointed with the outlook, but investors appeared to be focused on the promise of a turnaround.

"Its guidance is worse than expected. I think they're losing market share," said Mok, but he added: "Maybe people are more forward looking. At least they've put the trough in perspective."

Applied Materials forecast a 50 percent reduction in DRAM chip spending in 2008 and also cited a pullback among its flash memory chip maker customers that was worse than expected.

It forecast third-quarter earnings per share of 10 cents to 14 cents on revenue expected to be down by 10 percent to 18 percent, implying a $1.76 billion to $1.94 billion range.

Analysts, on average, had expected third-quarter earnings per share of 24 cents on revenue of $2.24 billion, according to Reuters Estimates.

The company's rivals include Lam Research Corp (LRCX), Novellus Systems Inc (NVLS) and KLA Tencor Corp (KLAC).

Applied posted a profit of $302.5 million, or 22 cents per share, for the quarter ended April 27, compared with a profit of $411.4 million, or 29 cents per share, a year ago.

Excluding acquisition charges and restructuring and asset impairments, it earned 24 cents per share, beating the average analyst forecast of 22 cents, according to Reuters Estimates.

Revenue fell to $2.15 billion from $2.53 billion, compared with analysts' average estimate of $2.13 billion.

Splinter said in an interview that the company's flat-panel display business was having its best year ever and that its solar equipment business was doing well.

"Our caution is about DRAM manufacturing, primarily," he said, agreeing that investors were focusing on Applied forecasting an end to the industry downturn. "We did call the bottom of the cycle and we are pretty positive that we are calling it accurately," he said.

The company reported new orders of $2.41 billion for the second quarter, down 9 percent from the year-ago quarter. It said the backlog at the end of the quarter was $4.59 billion, compared with $4.10 billion at the end of the first quarter. (Additional reporting by Peter Henderson in Los Angeles; Editing by Andre Grenon and Braden Reddall)