Healthy chip industry boosts Applied Materials

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Applied Materials, the biggest maker of equipment for chipmakers, reported revenues up by more than one-fifth and profits up more than one-third due to strong demand from an industry in its best health in years.

Applied beat its own forecasts and market expectations with second-quarter sales of $2.25bn, 21 per cent higher than the previous quarter and a year earlier. Profits of $413m or 26 cents a share were up from $305m or 18 cents a share in its 2005 second quarter.

Analysts had expected sales of $2.14bn and earnings of 23 cents a share, according to Reuters Estimates.

Applied’s results provide an indication of the state of the semiconductor industry – it sells tools and equipment across a number of sectors and its orders are a measure of chipmakers’ confidence and growth levels.

Applied said its order book grew 22 per cent over the previous quarter and 60 per cent on a year ago to $2.49bn. South Korea was responsible for 22 per cent of orders, Taiwan 19 per cent, North America 18 per cent, Japan 17 per cent, South-East Asia and China 14 per cent and Europe 10 per cent. Applied said that with 55 manufacturing plants in the works, there was good reason for optimism. “The industry is healthier than it has been in years and I’m confident that 2007 will be a year of continued capital expenditure expansion,” said Mike Splinter, chief executive, on a conference call.

For its current quarter, Applied forecast revenues and orders would both be up 5 to 10 per cent on the second quarter and earnings per share should be in the range of 28 to 30 cents.

“The growth rate of electronic products demand is increasing,” said Mr Splinter, citing Dataquest estimates of 7 per cent growth this year. “We believe these products are fundamental in growing economies and will continue to grow ahead
of GDP in years to come.” He said Applied’s customers had spent rationally on capacity and were maintaining high rates of utilisation. The company would continue to expand its equipment offering in new areas such as the solar industry and flat-panel televisions.

Applied’s shares were down 3.7 per cent in after-hours trading at $17.18 after closing 0.8 per cent higher.

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