Applied Materials sees strong Q4 but solar wanes

LOS ANGELES Wed Aug 18, 2010 7:31pm EDT

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LOS ANGELES (Reuters) - Applied Materials Inc forecast quarterly results that beat Wall Street estimates, with demand for its chip-making gear holding up despite fears of weakening technology spending.

But the world's top supplier of semiconductor manufacturing equipment warned that sales of solar and energy equipment -- a fast-growing business that accounts for about 15 percent of revenue -- would slide 10 percent to 20 percent this quarter.

Executives blamed that slide on an unfavorable comparison with a strong fiscal third quarter ended August 1, as well as a lowering of subsidies for solar power in Germany. The world's top solar power market cut tariffs -- a lifeline for costlier solar energy -- by 13 percent in July and will cut them by another 3 percentage points starting October.

"We had an extraordinarily strong quarter in Q3 and so it's a little bit softer (in the current quarter) as more of a pattern of buying than a shift in the market," George Davis, chief financial officer, told Reuters in an interview.

The company also posted better-than-expected results for the quarter that ended August 1. Applied Materials' fast-growing solar division saw net sales more than double from the fiscal second quarter to $387 million, led by record demand for its crystalline silicon solar equipment.

It forecast earnings per share, excluding items, of 28 to 32 cents in the fourth quarter ending October, exceeding Wall Street's target of 26 cents.

The company also posted a gross margin of 44 percent, excluding a charge for a restructuring of its thin film solar unit, in the third quarter, and Davis said the company will likely be "at or above that level" in the current quarter.

Gary Hsueh, an analyst with Oppenheimer and Co, said there had been expectations contract chip makers or foundries such as world leader TSMC could postpone equipment acquisitions, but the company's upbeat outlook may help assuage such fears.

"The outlook is pretty solid considering there's some fears of a bear (cycle) because of how the economy is looking," said Andy Ng, an analyst with Morningstar. "There's obviously some fears about weakness in the PC-related part of the semiconductor industry, but I think, overall, the semiconductor industry as a whole is doing alright."

WHERE'S SOLAR?

Semiconductor equipment makers such as Tokyo Electron Ltd have seen brisk orders in the past year as chipmakers from Intel Corp to Samsung Electronics Co Ltd ramp up capacity to meet recovering demand and introduce advanced technologies. But analysts say spending may slow in 2011 as investment peters out.

"PC demand appears to be weakening a bit in Asia. That's been an important market so that's something that I know we're watching and our customers are watching," Davis said.

Michael Splinter, chief executive of Applied Materials, said on a conference call with analysts that the company expects to gain market share of at least 2 percentage points in its wafer business.

Applied Materials is in the process of overhauling -- and upgrading -- its small but rapidly expanding solar and energy unit. Last month, the company said it planned to eliminate 400-500 jobs from the division and shut down unprofitable thin-film solar panel production lines to focus on crystalline silicon.

Applied Materials reported a net income of $123 million, or 9 cents a share, in the fiscal third quarter, compared with a net loss in the year-ago period of $55 million, or 4 cents a share.

Excluding items such as inventory-related charges, it earned 29 cents a share, ahead of the average analyst estimate of 25 cents a share according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to $2.5 billion, beating Wall Street's consensus estimate of $2.4 billion.

For the current quarter, it expects net sales to range from flat to up 5 percent quarter-over-quarter. Analysts on average had been expecting a roughly 2.2 percent rise in revenue in the current quarter from the prior period.

The shares of Santa Clara, California-based Applied Materials closed at $11.38 on Nasdaq and gained 0.4 percent to $11.42 in extended trading.

(Reporting by Alex Dobuzinskis; editing by Andre Grenon)

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