Cap comes off equipment: Applied Materials CEO says initial recovery phase is underway - News - Statistical Data Included

Electronic News, May 20, 2002 by Jeff Chappell

Applied Materials Inc. capped off this earnings season for capital equipment suppliers by reporting net orders were up 66 percent to $1.58 billion for its second fiscal quarter, which ended April 28, and projecting that order growth would continue.

Applied, which posted earnings of 3 cents per share on net sales of $1.16 billion, confirmed the trend established by its smaller rivals earlier in the reporting season: Chipmakers, particularly the Taiwanese foundries, are adding leading edge capacity with 200mm tools.

Recovery Underway

"Clearly, the first phase of recovery is underway," said CEO Jim Morgan in the company's quarterly conference call with analysts. "It's clear that many customers, particularly at the foundry level, are nearing full capacity on advanced technology lines."

Foundries accounted for about 45 percent of Applied's system orders for the quarter, and foundry capital expenditures will increase dramatically this year from earlier projections to about $5 billion, said Executive VP David Wang.

Consumer demand is driving the addition of advanced technology capacity, Morgan said. He likened the recovery in the industry as coming in two phases, with the first phase being limited demand for advanced semiconductors coming from the early adopters of next-generation consumer goods.

"And then, all of a sudden, those markets become global, so that changes dramatically and that pushes the production demand up a steep ramp. We're just seeing that beginning to occur," Morgan said.

Indeed, just last week Sony and Microsoft slashed prices on their respective PlayStation 2 and Xbox game consoles as a price war broke out in the gaming industry.

The second phase of the recovery will occur when business spending for next-generation information technology takes place, Morgan said. It is not clear when exactly this next phase will take place, and, as a result, visibility is limited, said CFO Joe Bronson.

Capital Spending Increasing

In spite of this, with trends in consumer spending projected to continue, Applied expects capital spending to increase over earlier projections.

Bronson predicts it will reach $30.6 billion this year. Applied expects orders fonts third quarter to increase by 10 percent to 15 percent, with $1.2 billion to $1.3 billion in revenues.

While 300mm capacity only accounts for about 6 percent of the available capacity in the industry, Applied also expects 300mm tool sales to grow as a percentage of orders in the coming quarters, as four new pilot lines get underway this year.

They will join the 11 fabs and five R&D and pilot lines in existence.

In fact, Applied said that its increase in 200mm orders isn't coming at the expense of 300mm sales, as the early adopters of 300mm tools placed orders last quarter.

Wang also suggested that Applied would see some 300mm capacity orders coming from Taiwan in the second half of this year, as companies continue to move from pilot to production on 300mm tools.

More Good News

While the front-end bellwether reported sequential orderly growth, two large back-end automated test equipment (ATE) suppliers reported similar trends last week.

LTX Corp. reported a loss of 25 cents per share for its third quarter ended April 30 but reported net new orders for the quarter were approximately $36 million, an increase of 24 percent for the quarter and 140 percent above the first quarter's bottom.

LTX competitor, chipmaker Agilent Technologies Inc., reported a net loss of 55 cents per share on orders of $1.6 billion and revenue of $1.46 billion for its second fiscal quarter ended April 30.

But total net orders were up 9 percent, the second consecutive rise for orders, while revenue showed the first sequential rise in six quarters with a 2 percent gain.

Agilent management reported that both its chip and ATE businesses continue to improve and that it expects to show gains for several more quarters at least.