Applied Is Confident Of Retaining Its Growth Momentum In Fiscal ’15: Q1’15 Earnings Preview

Leading semiconductor equipment manufacturer, Applied Materials (NASDAQ:AMAT) is set to report its Q1 2015 earnings on February 11th. (Fiscal years end with October.) For full year 2014, the company reported revenues of $9.1 billion, which (excluding solar) was the highest company revenue in seven years, driven by strong growth momentum in Silicon Systems Group (SSG), its display equipment business and the Applied Global Services (AGS) segment. Applied also saw its non-GAAP gross margin reach a seven year high, at 44.1%. Additionally, the company achieved a three year high in both operating margin and net income for the year.

For fiscal 2015, Applied expects the industry growth to be driven by the technology transitions to FinFET and 3D NAND. The company believes that its unique position in precision materials engineering will help it outgrow the industry. Despite the weak guidance for Q1 2015 (Applied expects revenue to be flat to up 5% sequentially), Applied expects to increase revenue across all of its segments, gain share in SSG and further improve operating margin, in fiscal 2015.

Our price estimate of $21 for Applied Materials is approximately 10% lower than the current market price. We will update our model after the Q1 2015 earnings release.

See our complete analysis of Applied Materials here

Applied Anticipates Stronger Semiconductor Demand In Fiscal 2015

An uncertain macro environment in fiscal 2013 combined with soft demand for consumer devices forced many chip manufacturers to reduce or postpone their expansion plans. According to Gartner, global semiconductor capital equipment spending declined by 16.1% AND 11.6% in 2012 and 2013, respectively, to $37.8 and $33. 4 billion. However, the accelerated changes in device technology and the adoption of new materials in the industry re-accelerated demand for semiconductor equipment in 2014. Gartner forecasts that capital equipment spending in the semiconductor industry  will increase by 17% and 11% in 2014 and 2015 (calendar year), respectively. Rising mobile shipments, a recovering DRAM market, growing NAND demand and the pending technology transitions (22 nm and 16 nm, FinFET, and 3D NAND) are key factors driving demand for semiconductor equipment.

Applied remains focused on creating a strong pipeline of new, highly differentiated products to enable future technology inflections in logic, memory and display. Applied continues to estimate that Wafer Fab Equipment (WFE) spending will increase 10% to 20% in calendar year 2014. It forecasts 2015 WFE spend to be even higher, driven by the transition to FinFET by TSM and Samsung, more customers investing in 3D NAND, and increasing DRAM spending. As its customers aggressively push factory output, the company also expects expanded opportunities for its AGS business (which was also at a seven year high in fiscal 2014).

For calendar year 2014, Applied was confident of gaining at-least 3 percentage points of share in CVD and generating 2.5 times the sales (compared to 2012) in etch. It had expected its revenue in etch and CVD, combined with the revenue of Tokyo Electron, to grow by almost 50% in calendar 2014. We look forward to the company’s updates on the earnings call, both with regard to market share and its pending acquisition of Tokyo  Electron.