Applied Materials announces sharp drop in profits

Applied Materials Inc, the world's largest maker of semiconductor-production equipment, said second-quarter profit fell 18 percent and orders in the current period will decline as chipmakers slow expansion.

Net income fell to US$304.8 million, or US$0.18 a share, from US$373.3 million, or US$0.22 a share, a year earlier, the Santa Clara, California-based company said in a statement today. Sales for the period ended May 1 fell 7.8 percent to US$1.86 billion, the first quarterly decline in six periods.

Some semiconductor makers, facing demand shortfalls, cut back on plans to increase output and spent less on Applied Materials' machines. Chief Executive Officer Mike Splinter said customers such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) aren't getting enough orders to operate at full capacity or justify expanding production.

"While things have stopped getting worse, the rate of improvement is below" the expectations of some customers, said Kevin Vassily, an analyst at Susquehanna Financial Group in San Francisco, who rates the stock "neutral" and said he doesn't own it.

"When that happens, their first move is to say, `We can limit the amount of additional capacity we bring on line,'" Vassily said.

Orders, a predictor of sales in coming periods, will fall five to 10 percent this quarter from the preceding three months, and the current period will be the "bottom" for the industry, Splinter said on a conference call with analysts. He expects bookings to improve in the second half.

TSMC, United Microelectronics Corp (聯電), and other so-called foundries make chips for other semiconductor companies, such as Xilinx Inc and Altera Corp, which lack their own factories. The foundries aren't stepping up purchases of machines to boost production as their customers work off stockpiles of unsold products, Splinter said.

"We thought foundries would have come back by now but they have not and they are not forecast to for the next three months," Splinter said.

Applied Materials expects profit of $0.12 to $0.14 a share this quarter, missing $0.18, the average estimate of 31 analysts surveyed by Thomson Financial.

Third-quarter sales will decline 10 percent to 15 percent from the second quarter, the company said.

Second-quarter orders fell 30 percent to US$1.55 billion from US$2.21 billion a year earlier. They slipped 7 percent from $1.68 billion in the first quarter. Gross margin, a gauge of profitability, was 44 percent, compared with 46.5 a year earlier and 44.4 percent in the first quarter.

Applied Materials had forecast second-quarter profit of 16 cents to 17 cents on sales that will be flat to "slightly up" from the first quarter. Orders were forecast to be unchanged to down 10 percent from the first quarter.

By region, Japan supplied 33 percent of orders, North America 18 percent, Taiwan 18 percent, Korea 13 percent, Europe 9 percent and Southeast Asia and China 9 percent. The company had US$2.85 billion of orders in backlog at the end of the second quarter, compared with US$3.21 billion three months earlier.