Applied Materials sees weak solar sales adding to PC woes

BANGALORE (Reuters) - Applied Materials warned that fourth-quarter revenue could fall as much as 30 percent, hurt by plummeting microchip and solar-cell demand, joining a growing list of U.S. companies hammered by a widening economic slowdown.

The world's largest chip-fab equipment maker said lower average selling price for silicon wafers and overcapacity at customers' plants will hurt demand.

"Their outlook was softer than their peer group and the problem I think was that their solar exposure is quite a bit (more than peers)," D. A. Davidson analyst Thomas Diffely said.

Orders in Applied's environmental solutions segment, which includes equipment used to fabricate solar cells, nearly halved.

Diffely said he sees growth stifling for the next couple of quarters before demand returns.

"What we are seeing is a cyclical downturn starting in our fourth fiscal quarter and we see it continuing for at least the next two quarters, which is about as much visibility as we can get," Chief Financial Officer George Davis told Reuters.

Subsidy cuts in Europe earlier this year triggered a global glut of solar panels and drove down prices sharply, denting profits and stock prices at leading solar manufacturers.

Applied had been pouring resources into the fast-growing solar and LED markets. Last year, it wound down an unprofitable thin-film solar power business to focus on crystalline silicon solar equipment.

Earlier this year, the company agreed to buy Varian Semiconductor Equipment Associates Inc for $4.9 billion to beef up its solar-cell business.

Santa Clara, California-based Applied said it expects fourth-quarter revenue to fall 15-30 percent, implying sales of $1.95-$2.37 billion, below $2.57 billion expected by analysts.

Applied expects fourth-quarter adjusted earnings of 16-24 cents a share, while analysts polled by Thomson Reuters I/B/E/S, on average, were looking for 30 cents a share.

The company said on a call with analysts it was planning selective factory shutdowns in the fourth quarter, with more broad-based shutdowns in the first quarter of 2012.

CFO Davis said the shutdowns would impact temporary workers and result in a cut in overtime usage.

PC DISAPPOINTS

Chip-equipment makers have been experiencing slowing demand as semiconductor makers cut down on orders on bleak sales outlook for PC and industrial equipment.

Back-to-school PC sales have been disappointing, the company said.

"I think PC growth is at the heart of the weakness in DRAM pricing and oversupply during this period," Chief Executive Mike Splinter said on the call.

"We would have to see PCs get back to more normal double digit growth than we're seeing at the current time."

Analysts expect the company's foundry customers, including contract chip manufacturer Taiwan Semiconductor Manufacturing Co Ltd, to go slow on or entirely hold capacity expansion, anticipating a decline in orders.

Average worldwide bookings for semiconductor equipment declined 16 percent -- the largest in over a year -- in July, according to Semiconductor Equipment and Materials International.

Earlier this month, Tokyo Electron, the world's No.2 supplier of chipmaking equipment, slashed its annual forecast by half, saying that investment by makers of chips used in PCs, smartphones and tablets had stalled.

Applied shares were trading at $10.87 after the bell. They had closed at $11.36 on Wednesday on Nasdaq.

(Reporting by Saqib Iqbal Ahmed and Himank Sharma in Bangalore; Editing by Joyjeet Das and Sriraj Kalluvila)