Applied Materials Up as Sales Outlook Shows Better Chip Demand

Updated on
  • Forecast for equipment next year sees `upside' to flat market
  • Stock gain biggest intraday jump in more than a year

Applied Materials Inc., the largest maker of machinery used to produce computer chips, rose the most since August after giving a first-quarter forecast that may meet analysts’ estimates as orders from chipmakers showed signs of improvement.

Applied Material’s shares gained 4.3 percent to $17.24 at the close of trading in New York. The stock has lost 31 percent this year.

Chipmakers adjust their spending plans as they gauge demand for everything from mobile phones to flat-panel televisions. The first sign of any shifts in output show up in orders they place with suppliers such as Applied Materials. While orders from contract-chip manufacturers have been weak, others have been stepping up investment in memory used in mobile devices. One example: Intel Corp, the world’s biggest chipmaker, recently unveiled a $5.5 billion plant upgrade in Dalian, China, as returns to the market for computer memory.

“Intel has the potential to be a positive for them,” Craig Ellis, an analyst at B. Riley & Co., said of the impact on Applied Materials. He has a hold rating on the stock.

Revenue in the three months ending in January will fall 2 percent to 9 percent from the previous period, the Santa Clara, California-based company said in a statement Thursday. That indicates sales of $2.15 billion to $2.32 billion, compared with an average analyst estimate of $2.27 billion.

The company is predicting that the total market for machinery used to make chips will be little changed in 2016 from this year, “with some potential upside,” Chief Executive Officer Gary Dickerson said on a call with analysts.

Net income in the fiscal fourth quarter, which ended Oct. 25, rose to $336 million, or 28 cents a share, from $256 million, or 21 cents, a year earlier, the company said. Revenue climbed 4.6 percent to $2.37 billion. Analysts on average had projected net income of 27 cents on sales of $2.4 billion.

Applied Materials is also the largest maker of equipment used to manufacture flat-panel displays, helping diversify its revenue sources. It also gets about a quarter of its revenue from service contracts under which it supplies parts and maintenance for factory equipment