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Applied Materials profit falls 18 percent

Applied Materials Inc. on Tuesday reported an 18 percent decline in quarterly profit as Taiwan chip makers delayed big orders for capital equipment.
/ Source: Reuters

Applied Materials Inc., the largest maker of semiconductor manufacturing equipment, on Tuesday reported an 18 percent decline in quarterly profit as Taiwan chip makers delayed big orders for capital equipment.

The Santa Clara, California-based company also said new orders, a closely watched indicator of future revenue, would decline another 5 percent to 10 percent in the current quarter after dipping 7 percent in the most recent quarter. The shares fell nearly 2 percent in after-hours trading.

William Lu, an analyst with PiperJaffray, said the numbers suggest that two of the world's largest chip makers — Taiwan Semiconductor Manufacturing Co. Ltd. and Germany's Infineon Technologies AG — delayed plans to buy new equipment.

"The downside is certainly the bookings number," Lu said. "Orders weakened in Taiwan and Europe with TSMC and Infineon being the two push-outs."

Earnings in the fiscal second quarter reached $304.8 million, or 18 cents a share, in line with analyst estimates compiled by Reuters Estimates. A year earlier, the company had a profit of $373.3 million, or 22 cents a share.

Sales fell 8 percent to $1.86 billion.

In a conference call with analysts, Chief Executive Michael Splinter confirmed that the weakness lied with chip foundries — the segment of the chip industry that manufactures chips designed by other companies. TSMC and United Microelectronics Corp., both based in Taiwan, are the two largest foundries.

"The big thing that we were all expecting to have happen this quarter was we thought foundries would come back by this time," he said. "And they have not."

However, Splinter said he believed that the third quarter would mark the end of the declines in quarterly orders, since chip factories are increasingly busy and are reporting high rates of utilization.

"We think that utilization is starting to move up at most factories," he said. "We expect this to be the bottom."

Weakness ahead
New orders, an indicator of future revenue, fell 7 percent from the first quarter to $1.55 billion. In February, the company said that orders could decline up to 10 percent from the most recent period.

Order activity in Taiwan and Europe declined as a percentage of overall bookings from the company's fiscal first quarter. Taiwan, the center of the foundry industry, represented 18 percent of Applied's orders in the second quarter, down from 31 percent in the first quarter.

Applied Materials also forecast a 10 percent to 15 percent decline in revenue from the recently reported second quarter, and earnings of 12 cents to 14 cents a share. Analysts on average were expecting earnings of 18 cents a share and sales of $1.83 billion.