Applied Materials Inc, the biggest semiconductor-equipment maker, said fiscal third-quarter profit fell 95 percent because slowing demand for chips led customers to buy fewer machines to make them.
Net income in the period ended July 29 declined to US$28.5 million, or US$0.03 a share, from US$603.8 million, or US$0.70, a year earlier. Sales dropped 51 percent to US$1.33 billion from US$2.73 billion.
Applied said profit and sales in the current period will be about the same as the third quarter's, marking the first time in three quarters that the company hasn't lowered forecasts. That may signal that chipmakers such as Micron Technology Inc, which have slowed spending on production gear because of slumping demand for cellphones, pagers and computers, might boost buying again soon.
"This is exactly what happens in a semiconductor-equipment cycle," said Shekhar Pramanick, an analyst at Prudential Securities who has a "buy" rating on Applied's shares. "Business is hitting along the bottom and things are no longer getting worse." Orders, a harbinger of future sales, fell 63 percent from a year earlier to US$1.21 billion in the recent quarter. Bookings dropped 11 percent from the previous quarter, a smaller sequential decline than the previous two periods. In the second quarter, orders fell 44 percent from the prior period, and in the first quarter, they dropped 33 percent from the fourth quarter.
Applied Materials shares rose as much as US$1.50 to US$45.15 in trading after the regular close of the NASDAQ stock market on Tuesday. They lost US$1.19 to US$43.65 before the report and have gained 14 percent this year. Rival chip-equipment makers also rose. KLA-Tencor Corp gained US$1.18 to US$53.45, and Novellus Systems Inc rose US$0.74 to US$49.51.
Excluding charges of US$10 million for research and development associated with the purchase of Oramir Semiconductor Equipment Ltd and US$4 million related to severance and benefits costs, profit would have been US$41 million, or US$0.05 a share. On that basis, which doesn't comply with generally accepted accounting principles, the company was expected to earn US$0.03, the average estimate of analysts polled by Thomson Financial/First Call.
The company will have a fourth-quarter profit, Chief Financial Officer Joseph Bronson said. Applied is forecast to earn US$0.05 a share, the average analyst estimate in a First Call poll. In the year-earlier fourth quarter, Applied had net income of US$663.8 million, or US$0.77, on sales of US$2.92 billion.
"We continue to believe that orders are bottoming out," Bronson said on a conference call.
Applied expects industrywide spending on semiconductor equipment this year to fall 27 percent to US$42 billion, Bronson said.
After working to pare costs earlier in the year through a voluntary severance program, salary cuts and plant closures, Applied is now focusing on getting new products into the marketplace to boost sales. The company's workforce dropped to 19,000 from 20,000 last quarter, Bronson said. Santa Clara, California-based Applied offered voluntary severance packages to 1,000 workers in March and has cut some temporary workers.
The company in July announced a new machine capable of building smaller circuits on silicon wafers. It's also introducing new devices that let semiconductor makers build chips on larger wafers, and others that build the circuits out of copper, rather than aluminum.
"Our teams are doing what they have to do [financially], but that was last quarter's concern," Chief Executive James Morgan said in an interview. "Now, most of our efforts are focused on how we can leverage our way out of this." Gross margin, or the percentage of sales after subtracting production costs, narrowed to 40 percent from 51 percent a year ago, Applied said.
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