In beating analyst estimates every single quarter, Applied Materials (Nasdaq: AMAT) had a good 2007. Can it repeat that feat in fiscal 2008? We get our first clue tomorrow, when the semiconductor equipment maker reports its first-quarter numbers.

What analysts say:

  • Buy, sell, or waffle? Twenty-six analysts still follow Applied Materials, down one from last quarter. Fourteen of them rate it a buy, 10 more a hold, and two say "sell."
  • Revenues. Analysts expect to see sales fall 12% to $2.01 billion.
  • Earnings. Profits are predicted to tumble further, down 29% to $0.20 per share.

What management says:
Last quarter was a mixed one for Applied Materials. True, it beat estimates, but only by a penny -- and its per-share profits came in flat year over year. This year, Wall Street is looking for Applied Materials to post continued earnings declines in every quarter but Q4, as it continues to lose money growing its thin-film solar "panel" business. We know that business supplies LDK Solar (NYSE: LDK), and we suspect it counts similar industry players as customers.

But management isn't sitting idle, just waiting for the losses to roll in. Last month, it announced layoffs that it expects to cost $20 million this year in severance and restructuring costs, but which will also save $150 million annually in salaries and benefits.

What management does:
After suffering a drop in its rolling gross margins in the July-ended quarter, Applied Materials resumed growing that number last quarter. Operating margins followed suit, and the net is stable.

Margins

7/06

10/06

1/07

4/07

7/07

10/07

Gross

46.2%

46.8%

47.1%

47.2%

46.5%

46.7%

Operating

23.4%

24.5%

25.2%

25.6%

25.0%

25.3%

Net

15.7%

16.5%

18.5%

18.0%

17.6%

17.6%

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've said it before, and I'll say it again: Applied Materials is starting to look downright cheap. While last quarter, management's delay in including a cash flow statement in its earnings release forced me to speculate about just how cheap it was, that information is now out.

Last year, the company generated more than $1.9 billion in free cash flow, so it was significantly cheaper on that basis that when valued on its GAAP profits alone. As I see it, we're looking at a company selling for 13 times its trailing free cash flow, and expected to grow at about 14% per year over the long term. If management disappoints the Street tomorrow -- perhaps by clarifying just how much the restructuring costs will pinch GAAP profits, or perhaps by confirming worries that business is slowing at Intel (Nasdaq: INTC) and AMD (NYSE: AMD) -- I'd suggest you take a close look at its cash flow numbers.

If the stock remains as cheap as it appears to be today, or if it sells off and gets even cheaper, it could offer the buying opportunity you've been waiting for.

What did we expect out of Applied Materials last quarter, and what did we get? Find out in:

Fool contributor Rich Smith does not own shares of any company named above. Intel is an Inside Value selection. Why do we tell you this? Because The Motley Fool has a disclosure policy.