All year long, semiconductor equipment maker Applied Materials (NASDAQ:AMAT) has confounded the critics, beating earnings estimates right and left. On Wednesday, the company aims to close out its fiscal year 2007 with a clean sweep.
What analysts say:
- Buy, sell, or waffle? Thirty analysts follow Applied Materials. Eighteen of them rate it a buy, 11 more a hold, and one a sell.
- Revenues. Analysts expect to see fiscal Q4 sales fall 5.5% to $2.38 billion.
- Earnings. Profits are predicted to drop a penny to $0.29 per share.
What management says:
Last quarter was a mixed one for Applied Materials. True, it "beat estimates," but then expectations were pretty low. To exceed them, all Applied needed to do was report a minuscule (1%) increase in sales, and a less-than-expected decline in profits. Meanwhile, new orders were down 14% year over year, suggesting continued sales weakness going forward. Where strength was found, it came in "memory demand," and additional new contracts for equipment to build thin-film solar power cells.
The company seems reticent to discuss just who is giving it the thin-film contracts. What we do know is that Applied Materials counts LDK Solar (NYSE:LDK) as one of its solar wafer making clients, and that First Solar (NASDAQ:FSLR), Energy Conversion Devices (NASDAQ:ENER), and Suntech Power (NYSE:STP) all work in the thin-film space. Whether they're the ones giving Applied Materials the business, though, remains a mystery.
What management does:
Gross margins have dipped a bit this year, as cost of materials ran slightly ahead of sales gains. Applied has mitigated the damage, however, by controlling operating costs -- which are growing less swiftly than sales. Result: A 70-basis point drop in gross margins over the past 12 months is roughly halved by the time we reach the net margins line.
|
4/06 |
7/06 |
10/06 |
1/07 |
4/07 |
7/07 | |
|---|---|---|---|---|---|---|
|
Gross |
45.1% |
46.2% |
46.8% |
47.1% |
47.2% |
46.5% |
|
Operating |
21.3% |
23.4% |
24.5% |
25.2% |
25.6% |
25.0% |
|
Net |
15.7% |
15.7% |
16.5% |
18.5% |
18.0% |
17.6% |
One Fool says:
As fellow Fool Anders Bylund discussed last quarter, post-earnings, it looks like Applied Materials may finally be getting its cash production machine back online. This seems primarily to be a function of better bill collection. Reviewing the last couple of quarterly reports, what I see is accounts receivable growing just 3% year over year, even as sales climbed 6% in the same period. Nice.
But while Anders believes Applied Materials is "putting to rest those cash-flow concerns," I still see one cause for concern: Namely, that inventories are up nearly three times as much as sales over the last two quarters (versus the same period from the previous year.) Inventories that stand 17% higher on average, versus the 6% rise in sales, suggest to me that the company still has room for improvement.
Sure, as I discussed on Friday, Applied Materials is now generating enough cash profits to put its stock in "cheap" territory. But I wouldn't be at all averse to seeing it wow us on Wednesday, and show us it's even more of a buy.
What did we expect out of Applied Materials last quarter, and what did we get? Find out in:
