Applied Materials sees end to downturn, shares up

By Sinead Carew

NEW YORK (Reuters) - Applied Materials Inc (AMAT.O) said on Tuesday the semiconductor equipment industry was nearing the end of its downturn, but industry capital spending this year would fall more than it previously expected.

The company, which reported a drop in quarterly earnings, forecast a chip equipment spending decline of 25 percent to 35 percent for the calendar year compared with its previous expectation of a 5 percent to 15 percent drop.

"We think there will be an improvement in the next quarter and the first fiscal quarter," Chief Executive Mike Splinter told analysts on a conference call with analysts. "We would expect revenues and orders to be coming up in Q4."

The company's shares fell more than 1 percent in late trading after it reported a drop in its second-quarter profit, but then rose 2.22 percent to $20.29 after it issued its outlook. It had closed at $19.86 in the regular Nasdaq trading session.

Needham & Co analyst Edwin Mok said he was disappointed with the company's outlook, but investors appeared to be focused on the promise of a turnaround.

"Its guidance is worse than expected. I think they're losing market share," said Mok, but added: "Maybe people are more forward looking. At least they've put the trough in perspective."

Applied Materials forecast a 50 percent reduction in DRAM chip spending in 2008 and also cited a pullback among flash memory chip maker customers that was worse than expected.

Applied Materials forecast fiscal third-quarter earnings per share of 10 cents to 14 cents on revenue that is expected to be down in a range of 10 percent to 18 percent, implying a revenue range of $1.76 billion to $1.94 billion.

Analysts on average had expected third-quarter earnings per share of 24 cents on revenue of $2.24 billion, according to Reuters Estimates.

The company's rivals include Lam Research Corp (LRCX.O), Novellus Systems Inc (NVLS.O) and KLA Tencor Corp (KLAC.O).

Applied posted a profit of $302.5 million, or 22 cents per share, for the quarter ended April 27, compared with a profit of $411.4 million or 29 cents per share a year ago.

Excluding acquisition charges restructuring and asset impairments, it earned 24 cents per share, beating the average analyst forecast of 22 cents, according to Reuters Estimates.

Revenue fell to $2.15 billion from $2.53 billion. Analysts on average had expected revenue of $2.13 billion, according to Reuters Estimates.

In contrast with DRAM and flash, the company said its display and solar equipment business was doing well.

"We are ramping our display and solar businesses while addressing the challenges of a weaker global chip equipment market," said Chief Executive Mike Splinter in a statement.