Applied Materials Inc. posted a higher quarterly profit Tuesday as the world’s top supplier of equipment for making microchips saw revenue jump by one-fifth due to growing demand for consumer electronics such as digital music players and cell phones.
The Santa Clara, California-based company also said it expected to post a higher profit in its current quarter as orders appeared to be climbing steadily and as it further boosts the efficiency of its operations.
Suresh Balaraman, an analyst with ThinkEquity Partners, said there might be some concern that Applied’s future order growth may be “lumpy” from quarter to quarter, but added that the company appeared poised for sustained, steady growth.
“The numbers are pretty decent, and once they digest the numbers and see where the revenue and margins are heading, that (stock decline) might change. We’ll have to see how the stock reacts tomorrow,” Balaraman said.
“The key to the story is that their margin expansion can still deliver double-digit earnings expansion for several quarters,” Balaraman said.
Applied’s stock has risen about 10 percent over the past year and trades at nearly 19 times expected 2006 profit, a discount to its chief rivals like Novellus Systems Inc and KLA-Tencor, which trade at 20 times and 25 times, respectively.
Applied said its net profit was $413 million, or 26 cents per share, versus $305 million, or 18 cents per share, a year earlier.
Excluding special items such as stock-based compensation, the company earned $453.3 million, or 29 cents per share, versus $304.8 million, or 18 cents a year earlier.
The company had been expected to earn 23 cents per share, including 2 cents of stock-based compensation, according to the average forecast on Reuters Estimates.
Chief executive Mike Splinter said Applied was benefiting from booming sales of electronics, a $1.3 trillion-a-year market that was expected to grow 7 percent in 2006.
“Customers have spent rationally on expansion, and are maintaining high rates of utilization. The industry is healthier than it has been in years,” Splinter said.
Revenue was $2.25 billion, up 21 percent from $1.86 billion a year earlier and better than the $2.14 billion Wall Street had expected.
Chief financial officer Nancy Handel said Applied would earn between 28 and 30 cents per share in its third quarter, ahead of the Wall Street average forecast of 27 cents per share on Reuters Estimates.
Revenue would rise 5 to 10 percent from the second quarter, while new orders would also rise 5 to 10 percent, Handel said.
“The electronics demand in the world has really been very strong — the consumer electronics, the gaming activity, obviously the proliferation of cell phones,” Handel told Reuters in an interview.
Handel said gross margins improved to 46.5 percent from 44 percent the previous quarter as a number of measures to raise operational efficiency by, for instance, cutting material costs and making greater use of common parts, gained traction.