Applied Materials sees Q4 at least break-even

SAN FRANCISCO/LOS ANGELES (Reuters) - Applied Materials Inc (AMAT.O), the world's largest producer of chip-making gear, said it would at least break even this quarter thanks to new orders and deep cost cuts, sending its shares up 3 percent.

Executives on Tuesday said they expect to post net earnings per share in the fiscal fourth quarter of break-even to 4 cents. They expect revenue to jump 10 to 20 percent in the period from the previous quarter.

That is above analysts' average expectations of a 4.8 percent revenue fall and a net loss of 5 cents per share, according to Reuters Estimates.

But the company warned that the division that includes Applied Materials' solar equipment business -- which saw orders and sales fall from the fiscal second quarter to the third -- was still a "big swing factor."

Overall, new orders for the third quarter ended July 26 totaled $1.07 billion -- a quarter of which came from China and southeast Asia -- versus $649 million in the second quarter.

New orders for the division that includes solar -- energy and environmental solutions -- held steady at $136 million in the third quarter versus $141 million in the second.

And sales for the division fell 37 percent from the previous quarter to $224 million, in line with a company forecast of a decline of at least 30 percent.

Investors scrutinize the solar business for signs of industry weakness. Applied Materials, which competes with Tokyo Electron Ltd (8035.T) and KLA Tencor Corp (KLAC.O), is relying on its solar equipment arm to bolster sales and growth as its traditional chip business falters.

But the company gained no new orders for thin-film equipment, a crucial segment of the burgeoning solar equipment market that has been walloped by tightening credit and slower than anticipated demand.

UNDER THE SUN

Credit Suisse asked whether Applied Materials should exit the thin film portion of its business -- anchored by its SunFab line of equipment -- with competition from Chinese rivals heating up and compressing margins.

Thin film panels are less efficient than crystalline at converting sunlight into electricity, but have historically been cheaper to manufacture because they use less silicon.

Now, with polysilicon prices plummeting as a result of collapsing semiconductor demand worldwide and helped by a Chinese government solar subsidy, Chinese rivals are making silicon-intensive crystalline modules at lower prices.

"If polysilicon prices stay where they are, I don't think anyone will want to buy a SunFab line," said Kaufman Bros analyst Theodore O'Neill.

"When silicon was $400 a kilogram last summer, it was an economical way to build solar panels. Now it's $40," he said.

New contracts now depend on the implementation of Chinese and U.S. policies and a thawing of credit markets.

"In the near term, yes, you're getting some module on panel competition. It starts to go away as the market capacity catches up with existing demand," Chief Financial Officer George Davis said in an interview with Reuters.

On Monday, research firm iSuppli said nearly half of all solar panels made in 2009 will not be sold, a massive glut it expects to persist until 2012.

Applied Materials, which has registered three consecutive quarters of losses, posted sharply narrower losses in the third fiscal quarter.

Shares of the Santa Clara, California-based company rose 3 percent in after-hours trading to $13.63, after closing down 1.86 percent at $13.22 on Nasdaq.

Applied Materials said revenue fell 38.9 percent in the fiscal third quarter ended July 26 to $1.13 billion from $1.85 billion a year ago, as the global IT spending downturn and a glut in solar materials continued to take their toll.

But that still surpassed expectations for $953.06 million, according to Reuters Estimates.

It also reported a net loss in the third quarter ended July 26 of $55 million, or 4 cents a share, versus a profit of $164.77 million, or 12 cents a share, a year earlier.

Excluding certain items, the company reported a non-GAAP loss of $2 million -- near break-even on a per-share basis -- versus a $228 million or 17 cent-per-share profit a year ago.

But including the impact of equity-based compensation, it had a loss of 3 cents per share, bettering expectations for an 8 cent-per-share loss according to Reuters Estimates.

(Reporting by Clare Baldwin in San Francisco and Nichola Groom in Los Angeles; Editing by Edwin Chan, Richard Chang, Gary Hill)