Perhaps my call for weakness in the semiconductor sector was a tad premature.
For the quarter, Applied Materials posted a profit of $0.18 on revenue of $2.19 billion, which easily surpassed the $0.12 profit and $1.97 billion in sales analysts had forecasted. Although revenue was down 19% from the previous year, net orders jumped 26% sequentially. Similarly, rival KLA-Tencor
The question now is: Should you buy Applied Materials after these encouraging results from both the stock and its peers? My answer remains a resounding, "Yes!" Now let me tell you why.
It's all about the cloud
Without question, the driving force behind Applied Materials' growth has been its foundry segment, which provides the equipment that semiconductor companies need to make the chips that go into smartphones and tablets. Taiwan Semiconductor, United Microelectronics, and Intel have been busy inking contracts with smartphone and tablet manufacturers to provide those chips, which has, in turn, kept Applied Materials' orders strong.
It isn't a surprise that Apple
If this is the trough, just imagine ...
What has me sold on Applied Materials is the same thing I saw in Whirlpool a few months back. If this company can perform this well when its other business segments are performing so poorly, just imagine how quickly its top line is going to grow when those other segments find solid footing. I'm speaking of the display and solar segments, which have been under incredible pressure as of late.
The television sector is in the midst of a multi-year decline -- as if Sony's eight straight years of losses wasn't enough indication. Television prices are in decline, and TV manufacturers have chosen instead to shutter production until either pricing or demand improves. Likewise, solar supply could be out of whack even worse than TV demand. With bankruptcies arising with some regularity now, it isn't surprising that Applied Materials' new solar orders dropped to just $33 million in the recent quarter.
Still, I see a lot of potential from these two segments -- particularly the company's solar segment, which could really augment the company's top-line earnings in a few years.
Applied Materials' guidance calls for 5% to 15% sequential sales growth in the second quarter and earnings of $0.20 to $0.28 -- well ahead of the $0.16 consensus. Who said being the biggest in the sector meant slower growth rates? Not this company!
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