Applied Materials Gives Strong Forecast on Machinery Demand

(Bloomberg) -- Applied Materials Inc. gave a bullish forecast for the current quarter boosted by orders from chipmakers rushing to add capacity to meet a flood of demand for their products.

Revenue will be about $5.92 billion in the three-month period ending in July, the Santa Clara, California-based company said Thursday in a statement. Analysts, on average, estimated $5.52 billion, according to data compiled by Bloomberg. Profit, minus certain items, will be $1.70 to $1.82 per share in the fiscal third quarter, Applied Materials said. That compares with an average estimate of $1.56.

Applied Materials is the biggest maker of machinery used to produce semiconductors, the essential electronic component at the center of shortages currently hurting industries from smartphones to autos. The company, with customers including Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co. and Intel Corp., provides forecasts that are a key indicator of future demand for electronics.

After two years of slowing investment, the chip industry has found itself unable to keep up with surging demand as the economy emerges from the depths of the pandemic lockdowns. It takes Applied Materials and its competitors months to build the complicated machines that are the most expensive part of multibillion-dollar chip factories. That inertia means that production lines being planned now won’t start operations until next year at the earliest.

The company sees the total market for chip factory equipment growing to the high $70 billion range this year, Chief Financial Officer Dan Durn said on a conference call after the results were reported. That will expand again in 2022 to bring the two-year total to more than $160 billion, he projected.

While Applied’s executives believe rising demand will continue over an extended period driven by the expansion of semiconductors into devices outside the historical concentration in computers and phones, some investors are betting this may be a peak for the company. The market for semiconductor equipment has been unpredictable in the past because of the difficulty chipmakers have in balancing their capacity increases, which take years to implement, with short-term fluctuations in demand.

“There’s some investor concern that we’re peaking and this is still a cyclical industry,” said Patrick Ho, an analyst at Stifel Nicolaus & Co. “I don’t believe that. Multiple markets now require semiconductor content.”

After rising initially in extended trading following the release of its earnings, Applied stock fell less than 1%. The shares closed at $130.31 in New York, gaining 51% this year.

Fiscal second-quarter net income increased to $1.33 billion, or $1.43 a share, from $755 million, or 82 cents, from a year earlier, the company said. Sales rose 41% to $5.58 billion in the period ended May 2. Analysts projected $5.41 billion.

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