As most of the firms on Wall Street queue up to report their numbers for the first half of 2007, semiconductor equipment maker Applied Materials (NASDAQ:AMAT) is once again a step ahead of the pack. When reporting its earnings news on Tuesday, it's fiscal Q3 2007 that it'll be talking about.

What analysts say:

  • Buy, sell, or waffle? Applied Material appears to be popular on Wall Street, with 31 analysts covering the stock. Twenty of them are bullish, 10 place it on hold, and one recommends trimming this from your portfolio.
  • Revenues. Analysts don't expect sales to budge from last year's third quarter, meaning revenue should come in around $2.53 billion.
  • Earnings. A few days ago, profits were predicted to drop a penny to $0.31 per share, but it now looks like analysts have changed their minds and expect profits to be flat.

What management says:
When preparing these Foolish Forecasts, I generally skip over announcements of board of director comings and goings as basically irrelevant to the underpinnings of the businesses we're watching. Not today.

In July, Applied Materials made an addition to its board that I think holds real promise for the company, pulling out a chair for GE (NYSE:GE) alum and Synopsys (NASDAQ:SNPS) CEO Aart J. de Geus. The advantages for Applied Materials having access to de Geus' semiconductor industry experience, and knowledge of the workings of their shared customers such as Intel (NASDAQ:INTC), should be obvious -- but I do want to highlight the fact that he's now on board.

Also of note this quarter, Applied Materials continues to expand its reach into the solar power sector. In June, it announced its purchase of Swiss precision wafering system maker HCT Shaping Systems. The purchase price amounted to $475 million, but we don't yet know much about what Applied Materials got for its money. Neither revenues nor profits for its new prize were detailed in the announcement, but we'll be looking for this information next week.

What management does:
Applied Materials just keeps getting better and better. Gross and operating margins continue to rise, and even net margins -- which took a hit last quarter on charges related to its recent purchase of the software division of Brooks Automation (NASDAQ:BRKS) -- are clearly trending upwards.

Margins

1/06

4/06

7/06

10/06

1/07

4/07

Gross

44.3%

45.3%

46.1%

47.2%

47.5%

47.5%

Operating

20.4%

21.5%

23.3%

26.8%

27.4%

27.7%

Net

15.1%

15.7%

15.7%

16.5%

18.5%

18%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I have to tell you, I'm a bit in awe of Applied Materials' GAAP numbers. Even so, in an attempt at a reality check, I do want to keep a close eye on the firm's free cash flow to make sure that all of these recent acquisitions in the solar power sphere are really translating into the cash profits ... needed to make all of these acquisitions.

You may recall that I raised this issue last quarter, when I both criticized the firm's continued failure to include a cash flow statement in its earnings releases, and suggested that "we could see a deterioration in free cash flow generation once that document appears in the 10-Q filing."

As it turns out, that's exactly what happened. For at least the second quarter in a row, Applied Materials' free cash flow didn't measure up to the previous year's equivalent quarter: down 8% year over year in fiscal Q2, and down 13% year over year in fiscal Q1.

So I guess what we'll be hoping is that on Tuesday, the third time will be the charm that gets Applied Materials' free cash flow growing again.

For more Applied analysis, read:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.