Applied Materials 2nd-Quarter Profit to Fall Short of Forecasts

Applied Materials Inc. on Tuesday reported a 71% rise in profit for its fiscal first quarter but said a slump in orders will cause fiscal second-quarter results to fall short of forecasts.

The No. 1 semiconductor equipment maker said it will cut some executive salaries by 10%, defer merit-based salary increases, eliminate some temporary workers and shut down operations on certain days to cope with the slowdown.

New orders, an indicator of future sales, in its first quarter ended Jan. 28 totaled $2.43 billion, down 33% from the prior quarter and little changed from a year earlier.

Demand for Applied’s equipment, which covers about three-fourths of the chip manufacturing process, slowed in step with weaker sales of personal computers, cell phones and pagers.

“Right now, things look bad,” said Eric Ross, an analyst at Thomas Weisel Partners who has a “buy” rating on the shares. “The Street is expecting some bad news. I think Applied internally is worried, although they think they can see through to the end of this.”

First-quarter profit rose to $558.1 million, or 66 cents a share, from $327.1 million, or 39 cents, a year earlier. Sales rose 59% to $2.73 billion.

The company was expected to earn 62 cents, the average estimate of analysts polled by First Call/Thomson Financial.

Applied Materials shares rose as high as $43.88 on the earnings report, which came after the markets closed, then dropped as low as $40.75. They had fallen $2.75 to close at $41.25 in regular Nasdaq trading. The stock has fallen 50% in the last year, and it has dropped 64% since reaching $115 on April 7.

Applied, based in Santa Clara, Calif., reduced its forecast for second-quarter earnings to 32 cents to 37 cents a share. It had been expected to earn 49 cents, according to First Call. Sales for the quarter are expected to be $1.9 billion to $2 billion, the company said, and it expects its book-to-bill ratio to be less than 1, which indicates a contracting market.

The company also said it’s limiting employee travel as part of the expense reductions.

On Jan. 30, the company said delayed and canceled orders caused first-quarter profit and sales to lag forecasts. Applied cited a buildup of inventories for telecommunications-related products, a slump in PC demand and an economic slowdown.