Applied Materials Earnings Preview: What We’re Watching
Applied Materials (NASDAQ:AMAT) is the leading semiconductor equipment manufacturer globally. It reports its earnings for the quarter ended Jan 31, 2012 on Thursday. Apart from Applied Materials, U.S based semiconductor equipment manufacturers include the world’s biggest testing tools firm KLA Tencor (NASDAQ:KLAC), circuitry-etching tools company Lam Research (NASDAQ:LRCX) and Novellus Systems (NASDAQ:NVLS).
The shares of Applied Materials have risen more than 20% since January 1, 2012, on the expectations of renewed orders and reduced inventories. We currently have a $11.50 price estimate for Applied Materials, which is around 20% lower than its current market price.
See our complete analysis of Applied Materials here
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- What To Expect From Applied Materials Q2 Results?
Market expects higher earnings
Applied Materials has beat EPS estimates in the past 4 quarters. This could translate to another earnings beat for Q4. Currently we estimate revenue growth of 4% from the previous quarter to $2.2 billion. Gross margins are expected to remain flat at 39%.
Rising orders and Tight capacity can drive growth
Though semiconductor equipment spending is expected to decline by 20%in 2012 to $34 billion according to Gartner, there are still reasons for bright outlook on Applied Materials.
Intel plans to increase capital spending to $12.5 billion in 2012, while Taiwan Semiconductor plans to spend $6 billion in 2012. Others — including Samsung, Hynix — could announce higher investment plans than anticipated, so fab spending for 2012 could improve.
Industry fundamentals are also improving for the following reasons:
1. Tight capacity: The capacity utilization rate among semiconductor producers is over 95%, which means that additional capacity can only be added by buying semiconductor equipment, which in turn implies large increases in capital spending.
2. Rising orders: Semiconductor equipment orders rose by 18% in December 2011, and billings rose by 11%. The three-month average of worldwide bookings in December 2011 was $1.16 billion.
3. New product-cycle: Handheld devices like smartphones and iPads require a new generation of semiconductors, especially flash memory devices, that must be produced with new equipment Moreover, the growing consumer appetite for these devices means that semiconductor manufacturers must increase their manufacturing capacity to meet demand.
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