Applied sees first phase of IC recovery; tool demand is strong except at Etec

Applied sees first phase of IC recovery; tool demand is strong except at Etec
SANTA CLARA, Calif. -- During a conference call on Tuesday, Applied Materials Inc. here declared that it is beginning to see the first phase of a recovery in the slumping semiconductor industry.

The chip-equipment giant also said it is experiencing relatively strong order growth across the board--with the exception of its photomask-writer tool lines from its Etec Systems subsidiary. The company is also seeing tool demand from the silicon foundries, especially in Taiwan.

"I think we can clearly see the first phase of a recovery," declared James Morgan, chairman and chief executive of Applied of Santa Clara. "The recovery is being driven by consumer demand," Morgan said during a conference with analysts.

But the Applied executive also warned that the downturn is far from over. "The overall environment in the electronics industry is still mixed," he said, adding that the company is still troubled by the slow migration from 200-mm (8-inch) to 300-mm (12-inch) chip production.

The comments reflected Applied's Q2 financial results, which beat Wall Street's expectations. On Tuesday, Applied reported sales of $1.16 billion for Q2, up 16% from Q1 of 2002, but down 46% from Q2 of 2001. It also reported a net of $52 million, or $0.03 per share, in Q2, compared to a loss of $45 million, or minus $0.03 per share, for Q1 of 2002, and net of $318 million, or $0.19 per share, for Q2 of 2001.

For the third quarter of 2002, Applied projects that its sales will range from $1.2-to-$1.3 billion, a 3-to-10.7% jump over Q2. Orders are projected to grow 10-15% over the second period (see May 14 story ).

The company attributed the results to stronger-than-expected tool demand, especially from the foundries in Taiwan. In fact, Taiwan made up 39% of Applied's business in Q2. The U.S. company reportedly benefited from a $200 million order from Taiwan Semiconductor Manufacturing Co. Ltd. (see April 8 story ).

The foundries represented 45% of Applied's bookings in the Q1, said David Wang, executive vice president of the company. "We expect to see wafer fab spending accelerate within the foundries in the second half of this year," Wang said during the conference call.

Applied also benefited from strong orders across the board, especially for tools that enable chip production at 0.15-micron and below, said Joseph Bronson, executive vice president and chief financial officer at Applied.

"Orders from DRAM vendors were strong," Bronson said. "Flat-panel orders were strong and approached record levels. Orders were up for all products except at Etec," he said, referring to the company's troubled subsidiary in Hayward, Calif. Etec makes electron-beam and pattern-generation tools for reticle-writing applications.

"This business is challenging," he said, "but the outlook looks better."

The Applied CFO said the company will continue to support Etec in spite of some problems with the group. Recently, Applied was reportedly reviewing a plan to pull the plug on the e-beam portion of its Etec Systems subsidiary, due to product delays and lost opportunities in the market, according to sources (see March 11 story ).

After reportedly considering a move to shutter its e-beam reticle mask-writer group, Applied has apparently given the operation a reprieve and will continue to back the organization, according to the company (see April 1 story ).