If you invest in semiconductor companies, you're probably well aware of the volatility of their businesses. Business conditions can change quickly, resulting in wild swings in revenue and stock prices. So even though Applied Materials
There was a wide divergence of results from Applied's individual business segments. The silicon segment, which is Applied's largest by far, delivered $1.49 billion in revenues for a 22% year-over-year increase. Sales to memory customers were very strong, while those to logic and foundry customers were somewhat weak. The outlook is also bright, depending on your view of the memory situation (more on that later), with new orders totaling $1.76 billion.
Applied's second-largest segment, fab solutions, which aims to help increase the productivity of its customers' fabs, delivered good growth with $525 million in revenue and orders totaling $686 million. This performance represented a 13% increase in revenue over the previous year and a 12% increase in orders.
The display segment, which sells manufacturing equipment to flat-panel manufacturers, also delivered decent results (at least compared to a year ago), but it looks poised to do a belly flop next quarter. Display segment revenues grew 39% over last year, to $230 million, but new orders were down a jarring 81% from the previous quarter. If you paid attention to the overcapacity issues that arose at flat-panel display makers during 2006, you probably aren't too surprised by the crummy outlook.
The big question mark for the rest of this year, in my mind, has to do with the memory customers, since they account for roughly 50% of new orders. The primary memory customers are those that manufacture DRAM (used as main system memory in computers) and NAND flash (used to store songs in some Apple
While chip equipment companies are fond of saying that capacity additions are much more rational now than they have been in the past, some poor decisions are still made. For example, when NAND flash began to get hot a couple of years ago, some DRAM fabs were converted to NAND flash production. At the same time, NAND flash manufacturers erected new facilities, resulting in significant price drops for NAND flash last year while DRAM prices strengthened.
In response, some companies decided to increase their DRAM manufacturing by converting NAND flash capacity back to DRAM. This action, combined with the new DRAM fabs that were built in anticipation of the release of Microsoft's
It is worth noting that Applied is not the only chip equipment firm tied to memory spending. Other chip equipment manufacturers, like Novellus
Apply yourself to further Foolishness:
- The Race for Zero in Flat Panels
- KLA-Tencor Cleans Up: Fool by Numbers
- Heavy Ge-Forces at NVIDIA: Fool by Numbers
- Cascade's Bubbly Quarter: Fool by Numbers
Or check out some related boards:
Fool contributor Dan Bloom and his wife own shares of KLA-Tencor. He'd like to own shares in some of the other companies that were mentioned, but he's too much of a cheapskate to pay the current price. The Fool's disclosure policy always applies itself.