Applied Materials Earnings Top View on Strong Demand

Applied Materials (AMAT) reported third quarter results Wednesday after the close, posting earnings and sales that beat analysts' estimates. The company's outlook also exceeded analysts' expectations, so why hasn't the stock reacted much?

The world's top semiconductor manufacturing equipment company reported a fiscal third-quarter profit of $123 million, or 9 cents a share, compared with a loss of $55 million, or 4 cents a share, for the period in 2009. Excluding a restructuring charge, adjusted income would been 29 cents a share, topping estimates of 25 cents a share.

Revenue more than doubled to $2.52 billion from $1.13 billion. Analysts had estimated revenue of $2.4 billion, according to Thomson Reuters.

For the fourth quarter, the company forecast earnings per share, excluding items, of 28 to 32 cents, exceeding Wall Street's target of 26 cents. It also says it expects net sales to grow in a range from flat to 5% quarter-over-quarter, or about $2.64 billion. Analysts on average had been predicting a roughly 2.2% rise in revenue, or about $2.44 billion.

Declining Demand Predicted in Chip, Solar Markets

"Applied had strong results across our semiconductor, display and crystalline silicon solar businesses, and we now expect Silicon Systems Group net sales to be up by more than 160% over fiscal 2009," said Chairman and CEO Mike Splinter in a statement. And in a Bloomberg interview, CFO George Davis added that the company still expects rising orders even though chip makers actually anticipate weaker consumer demand.

Not everybody agrees: Other watchers suggest the anticipated weakness in the PC demand, mainly coming from Asia, could eventually affect AMAT's business.

The company also has a rapidly growing solar energy business, which accounted for 15% of revenue last quarter. But Applied warned that sales of solar and energy equipment would slide 10% to 20% this quarter, according to Reuters. Applied Materials isn't the only solar company expecting lower demand: Germany, one of the world's top solar markets, has been cutting subsidies for solar power.

Applied Materials shares were up 6 cents, or 0.5%, to $11.44 in after-hours trading Wednesday.