Applied Materials Declines After Forecasts Miss Estimates

Applied Materials Inc. (AMAT), the world’s largest producer of chipmaking equipment, declined after forecasting third-quarter profit and sales that missed analysts’ estimates, raising concern that semiconductor makers are trimming orders.

Profit excluding certain costs in the current period will be 31 cents to 37 cents a share, and sales will drop 3 percent to 10 percent from the prior quarter, Santa Clara, California- based Applied said in a statement yesterday. That would indicate sales of about $2.57 billion to $2.77 billion. Analysts in a Bloomberg survey on average projected profit of 38 cents and revenue of $2.83 billion.

Applied Materials and rivals are facing delayed sales because customers are still assessing whether disruptions to the supply of electronic parts, created by the March earthquake and tsunami in Japan, will curb demand for semiconductors. That’s leading chipmakers to hold off on or cancel equipment orders, said Patrick Ho, an analyst for Stifel Nicolaus & Co.

“There’s a lot of stuff that’s going on out there that could stall the overall consumer-electronics marketplace,” he said. Ho, based in Dallas, recommends buying Applied’s shares and owns some of the stock. “We’re seeing push-outs. We’re seeing timing delays.”

Applied lost 8 cents to $13.63 at 9:46 a.m. New York time on the Nasdaq Stock Market.

Emerging Markets, Japan

Net income in the second quarter, which ended May 1, increased to $489 million, or 37 cents a share, from $264 million, or 20 cents, a year earlier, the company said. Sales rose 25 percent to $2.86 billion. Analysts on average projected earnings of 37 cents and sales of $2.76 billion.

Gross margin, or the percentage of sales remaining after deducting the cost of production, was 41.5 percent in the second quarter. That compares with an average analyst estimate of 42.9 percent.

Rising emerging-market inflation, reduced consumer confidence, unrest in the Middle East, fuel prices and the economic impact of Japan have caused some chipmakers to push out orders, Applied Materials said in a separate e-mailed statement.

Industrywide, spending on equipment for plants will range from $31 billion to $34 billion this year, the company said. Spending will be little changed to “modestly higher” in the second half of the year compared with the first half, Applied said.

Smartphones, TVs

In March, the company said sales in fiscal 2011 would be more than $11 billion and profit, before certain items, would be more than $1.50 a share. On May 4, Applied announced the acquisition of Varian Semiconductor Equipment Associates Inc. (VSEA) for $4.9 billion, seeking to get back into a part of the equipment business where it had lost market share.

Even though weaker sales of smartphones, televisions and tablet computers in the past month have caused some of Applied’s customers to delay equipment orders, fundamentally strong demand for these products will drive the industry in the long term, Chief Financial Officer George Davis said in a telephone interview.

“You’ve seen some real softness in these really strong markets,” he said. While Applied isn’t backing off its fiscal year forecast, to reach it, “we’d have to see the semiconductor-equipment market pick up in the fourth quarter,” Davis said.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.