* Applied Materials warns of tough economy
* Novellus, Micron Technology disappoint
* Shares fall on sector worries
(Adds detail on KLA-Tencor, updates stock prices)
By Noel Randewich
SAN FRANCISCO, July 12 Chip manufacturing
equipment maker Applied Materials Inc (AMAT.O) said tough
economic conditions are hurting demand, adding to semiconductor
worries after warnings by Novellus Systems Inc (NVLS.O) and
Microchip Technology Inc (MCHP.O).
The negative news pushed shares of chip companies broadly
lower on Tuesday.
Comments from companies about weak economies in the United
States and Europe, as well as slow personal computer sales,
have hurt chip stocks already underperforming because of
concerns about a slowdown in the sector.
"The concern is consumer is weak, PC is weak, automotive
has been lumpy. Even the smartphone market on the margin is not
as strong as it was a few months ago," said CLSA analyst Srini
Applied Materials Chief Executive Mike Splinter said
investment by foundries and DRAM chipmakers remains soft,
although spending on equipment to make chips for Apple Inc's
(AAPL.O) iPad 2 has been a bright spot.
"We're seeing tablet buying power that's going to end up to
be 50 million units, and it seems to be all about iPad 2," he
said. "The number of other offerings we thought would come into
this market are starting to come, but the volume success really
has not happened yet." [ID:nN1E76B0MQ]
Late on Monday, Microchip Technology, which makes
semiconductors for cars, PCs and other consumer devices, cut
its sales outlook due to concerns about oversupply and slow
demand. Its shares closed down 12.14 percent at $32.93 on
Also late on Monday, chip gear maker Novellus said bookings
from its customers would be flat to down 20 percent in the
current quarter compared with the previous quarter. Its stock
slumped 11.24 percent to $31.75 on Tuesday. [ID:nL3E7IB313]
Applied Materials maintained its expectations for revenue
in the current quarter to be down 3 to 10 percent from the
previous quarter, implying revenue of $2.57 billion to $2.77
"We see the problems in Greece; we see unemployment and
slow economic growth here in the U.S., inflation in China,"
Splinter told investors at a conference. "These things are
weighing on the market and weighing on demand for the products
of our customers."
Many investors believe chip companies have spent too
quickly on manufacturing expansion and could find themselves
slashing capital expenditures next year.
Chip-equipment industry group Semi expects total chip gear
spending this year to rise 12 percent to $44 billion, followed
by a dip of about 1 percent next year.
Pajjuri said chip inventories at many electronics
manufacturers are at high levels, suggesting a possible
slowdown in orders to chipmakers.
Since the end of April, the Philadelphia Semiconductor
Index .SOX has fallen 12 percent, compared with a 2 percent
dip in the Dow Jones industrial average.
On an upnote, KLA-Tencor (KLAC.O), which makes chip
inspecting equipment, said revenue in the quarter ended in June
was likely near the upper end of its previous estimate of $840
million to $900 million and that earnings per share were also
at the top end of forecasts.
Analysts on average expected revenue of $872 million,
according to Thomson Reuters I/B/E/S.
But it said new bookings would fall in the second half of
Foundries like leading contract chip manufacturer Taiwan
Semiconductor Manufacturing Co Ltd (2330.TW) are cautious but
are pushing gear makers to reduce the time it takes to fill new
"They're taking the approach that business is soft at this
point; but (they) want to be ready to move quickly and put that
capacity in if it comes through from demand in a very, very
short period of time," Splinter said.
Shares of Applied Materials ended down 2.62 percent at
(Reporting by Noel Randewich; Editing by Gerald E. McCormick
and Richard Chang)