Maker of Chip Gear Ekes Out a Turnaround

Times Staff Writer

Applied Materials Inc. said Wednesday that it ended three straight quarters of losses with a modest profit in its fiscal fourth quarter and predicted surprisingly healthy revenue growth for the next three months.

The upbeat results from the world's largest maker of equipment for producing computer chips coincided with an industry report predicting more than 20% growth in worldwide chip sales next year to nearly $210 billion.

That would be the highest level since 2000, when sales peaked at $223 billion, according to the report from Gartner Inc., a technology market researcher based in Stamford, Conn.

Applied Materials said restructuring costs held net income to $15.5 million, or 1 cent a share, in its quarter that ended Oct. 26. That's a 90% drop from a profit of $147 million, or 9 cents a share, in the same quarter last year.

But it breaks a string of three quarterly losses that together totaled $164.6 million.

Revenue for the quarter was $1.22 billion, down 16% from $1.45 billion for the fourth quarter of 2002.

More important, the Santa Clara, Calif., company said its bookings grew to $1.28 billion, a 22% increase since the end of the third quarter.

Wall Street considers this figure crucial because Applied Materials and its competitors plan orders far ahead of deliveries.

"The most important numbers were bookings," said Steven Pelayo, a chip analyst with Morgan Stanley. "It was a big surprise, and the stock will be up Thursday."

Pelayo doesn't own shares of the companies he covers, although Morgan Stanley has an investment banking relationship with Applied Materials.

The results boosted Applied Materials shares to $26.19 in after-hours trading. Before the earnings were released, the stock gained 54 cents to $25.44 on Nasdaq.

For the full fiscal year, Applied Materials lost $149 million, or 9 cents a share, compared with a profit last year of $269 million, or 16 cents a share. Revenue for the year was $4.48 billion, off 11% from $5.06 billion in fiscal 2002.

Chief Financial Officer Joseph R. Bronson said operating profit in the November-January quarter would be between 6 cents and 8 cents a share.

"Our customers' businesses are improving in sales and profitability, which will allow them to augment capital expenditure if current trends continue," Bronson told analysts during a conference call.

Growth in the computing industry -- mainly personal computers and servers that run corporate, government and university networks -- will drive chip sales next year, according to the Gartner report, which pegged 2003 sales at $174 billion.

"A lot of this is coming from consumer spending rather than the corporate sector," said Joe Byrne, a Gartner chip analyst based in San Jose. "When we start to see information technology spending bounce back, that will be a big contributor, too."

New features, such as wireless Internet connections and the ability to record television shows on computer hard drives, are expected to fuel consumer PC sales before significant corporate spending returns sometime next year, Byrne said.

Other chip industry experts are less bullish.

The Semiconductor Industry Assn. said last week that it expects worldwide chip sales to reach $163 billion this year and $195 billion in 2004.

Computing accounts for about 55% of the overall chip market.

But growth will have to occur in other sectors such as communications and in industrial applications for Gartner's heady prediction to come to pass, noted Dushyant Desai, a chip analyst with the investment bank C.E. Unterberg, Towbin.

Growth of more than 20% "is in my view optimistic," Desai said. It "counts on lots of things lining up -- the economic recovery picking up steam, and all these markets growing."

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