May 17 (Bloomberg) -- Applied Materials Inc., the largest producer of chipmaking equipment, predicted third-quarter sales that may exceed some analysts’ estimates as customers spend to increase output of smartphone components.
Sales in the current period will be unchanged to down 10 percent from the previous quarter, the company said in a statement, indicating revenue as high as $2.54 billion. That compares with an average analyst estimate of $2.44 billion, according to data compiled by Bloomberg. Before certain costs, profit in the period ending in July will be 21 cents to 29 cents a share, Applied said. Analysts had estimated 26 cents.
Applied’s foundry customers, manufacturers that build chips for other companies, are increasing output to keep pace with surging demand for smartphones, tablets and other mobile devices. Semiconductors used in phones require the most advanced manufacturing, creating a need for more rapid upgrades in production, said Ben Pang, an analyst at Caris & Co.
“For the first time you have huge drivers,” said Pang, who has the equivalent of a hold rating on Applied’s stock. “Personal-computer units are in the hundreds of millions, versus the cell-phone market, which is in the billions.”
Shares of Santa Clara, California-based Applied Materials fell 1.7 percent to $10.48 at the close in New York. They have declined 2.1 percent this year.
“The market for smartphones and tablets is very strong,” Chief Executive Officer Mike Splinter said in a phone interview. “We’re seeing constraints in the chip-building parts of the supply chain.”
Improving demand for chip machinery is helping make up for a slowdown in orders for equipment that produces flat-panel displays and solar panels. Applied Materials expanded into these markets in recent years, seeking to counter swings in demand in its main business.
While solar-panel factories are getting closer to running at full capacity, that hasn’t yet translated into orders for new machinery, Splinter said.
For the year, Applied Materials expects industrywide spending on equipment for plants to be $32 billion to $35 billion, he said. That will help the company reach the “high end” of its full-year sales target of $9.1 billion to $9.5 billion. Profit will also approach the upper end of its 85-cent to 95-cent forecast range, Applied Materials said.
Investors and analysts track semiconductor-equipment orders as a harbinger of demand for the broader electronics industry. Chipmakers such as Intel Corp. and Samsung Electronics Co. vary spending on new equipment and plants based on their projections for demand as much as two years in advance.
Applied Materials said second-quarter net income fell to $289 million, or 22 cents a share, compared with $489 million, or 37 cents, a year earlier. Revenue in the period that ended April 29 dropped 11 percent to $2.54 billion. Analysts on average had estimated profit of 22 cents and sales of $2.4 billion.
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