Applied Materials, Inc.
(
AMAT
) is scheduled to announce its fiscal fourth-quarter 2012 results
on November 15, 2012. We witness only one downward revision in
analyst estimates in the few days before the release.
Prior-Quarter Synopsis
Applied's third quarter 2012 pro forma earnings were above the
Zacks Consensus Estimate due to lower-than-expected operating
expenses.
Revenue of $2.34 billion was down 7.8% sequentially but better
than management's revised guidance of at least a 10% sequential
decline. Improvement in the Display business and in-line
performance of the Applied Global Services (AGS) segment led to
better-than-expected revenue.
Orders in the quarter were down 34.9% sequentially due to weak
orders across all segments. Gross margins also decreased
sequentially to 41.6% mainly on account of weaker volumes.
Fourth Quarter Guidance
Applied expects revenues and orders to hit the bottom in the
fourth quarter of fiscal 2012 unless the global economy
deteriorates further. Non-GAAP EPS is expected to come in at 0-6
cents a share. For the fourth quarter, the Zacks Consensus
Estimate is pegged at 3 cents, at the midpoint of the guided
range.
(Detailed earnings results can be viewed in the blog titled:
Applied's Outlook Disappoints
Agreement of Analysts
Out of the 15 and 17 analysts providing estimates for the
fourth quarter and fiscal 2012, respectively, there was one
downward revision each in the last 30 days.
A few analysts expect a decent fourth quarter with earnings in
line with the midpoint of the guidance of 0-6 cents due to cost
cutting measures taken by the new management. They believe that
SSG and AGS segments will likely benefit from the Varian
acquisition, partially offset by the uncertainties in the core
business.
On the contrary, a few analysts remain concerned about the
continued weakness in the semi capex spending trends. They expect
weak fourth quarter revenue due to likely push outs and
timing-related issues due to uncertainties in both foundry and
memory capex spending. They also expect the LCD and touch panel
equipment market to remain extremely weak in the upcoming
quarter.
However, the analysts remain encouraged by solid execution
from the new management and believe that the introduction of new
products in 2013 will likely increase revenue in the near future.
They believe that though new product development will increase
research and development (R&D) costs, selling, general and
administrative (SG&A) expenses will likely decrease,
benefiting gross margins in the coming future.
Additionally, the analysts believe that foundry spending will
remain robust in 2013 and Applied will likely benefit from
it.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate remained
unchanged for the fourth quarter at 3 cents but was down by a
penny to 72 cents for fiscal 2012.
Over the 90-day period, the Zacks Consensus Estimate witnessed
a decline of 9 cents for the fourth quarter and 8 cents per share
for fiscal 2012.
The recent weakness in semi cap orders and shipments could be
the reason for the decrease in estimates.
Our Recommendation
We expect the company to report weak fourth quarter revenue
due to slower overall semiconductor equipment spending levels.
Though we believe there is potential in the solar energy market
over the long term, we remain cautious about the company's
efforts since management has already missed several targets to
bring its solar division to profitability.
Applied, which competes with other large equipment makers,
such as
KLA-Tencor
(
KLAC
) and
Lam Research Corporation (
LRCX
)
,holds a Zacks #4 Rank that translates into a short-term 'Sell'
rating.
Nevertheless, we remain positive on Applied's strong position
in the semiconductor market, the solar business in China, a vast
portfolio and strategic relationships.
APPLD MATLS INC (AMAT): Free Stock Analysis
Report
KLA-TENCOR CORP (KLAC): Free Stock Analysis
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LAM RESEARCH (LRCX): Free Stock Analysis
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