Shares of Applied Materials
While fourth-quarter sales were down 16% year over year, they were up 12% sequentially to $1.22 billion. More importantly, new orders increased 21% from the third quarter to $1.28 billion, giving the company a positive book-to-bill ratio.
Spurring further optimism, Applied Materials expects new orders in the current quarter to rise another 20% sequentially.
According to CEO Mike Splinter, strength in notebook PCs and communications products drove the current uptrend. He also said that chip makers are now running at 90% capacity. New order growth reflects confidence in the end markets, as chip makers would rather accept possible short-term overcapacity than risk not being able to keep up with demand.
In contrast to earlier this year, things are looking up. The company is in solid shape, with $5.5 billion in cash and about half a billion in debt. Along with sales, ongoing gross margins -- excluding charges from its restructuring program -- improved sequentially from 40.2% to 40.5%. Pro forma earnings came in at $95 million, or $0.06 a share.
For the first quarter, Applied Materials expects revenue between $1.28 billion and $1.32 billion, and pro forma earnings between $0.06 and $0.08. The company also expects to complete its restructuring program during the quarter.
While optimism abounds, this is clearly reflected in the company's $43 billion market cap. The stock has doubled over the past year, and leaves little margin of safety at over 50 times this year's earnings.
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Jeff Hwang can be reached at email@example.com.