Applied sees 20% drop in capital spending in 2001; its orders fall 33% in quarter

Applied sees 20% drop in capital spending in 2001; its orders fall 33% in quarter
SANTA CLARA, Calif.--Applied Materials Inc. here has significantly downgraded its outlook for worldwide semiconductor capital spending from a previous forecast of 20% growth to now a decline of 20% in 2001.

During a conference call today (Feb. 13) after releasing its earnings, the world's largest supplier of wafer fab tools said it had also lowered its forecast for semiconductor revenue growth to a range of 10-12% in 2001--a level that some analysts said was optimistic.

"Spending for wafer fab equipment will drop at least 20% for the year," said Joseph R. Bronson, executive vice president and chief financial officer at Applied.

Applied Materials today reported net sales declined 6% to $2.73 billion in the company's fiscal first quarter, ended Jan. 28, from $2.92 billion in the previous three-month period. Applied, which had downgraded its revenue estimates for the fiscal quarter last month, said its net sales were 59% higher than a year ago.

The semiconductor equipment giant beat Wall Street's revised earnings estimates with a net income of $0.66 per share compared to the $0.63 expected by analysts, based on a survey by First Call/Thomson Financial. Applied's net income of $558 million in the quarter was down from $664 million in the prior fiscal quarter but up from $327 million in the period last year.

"Slowing worldwide semiconductor sales resulted in a rapid decline in demand for manufacturing equipment late in January," said James C. Morgan, chairman and chief executive officer of Applied Materials.

New orders dropped 33% to $2.43 billion in the fiscal first quarter from $3.60 billion in the prior fiscal fourth quarter. Orders were down by 1% from $2.45 billion in the fiscal first quarter last year, said Applied.

"We are taking steps to effectively manage the company through the near-term uncertainty of this business cycle," Morgan said. He said Applied has historically used the slowdown periods to prepare for the next growth cycle. "We are working closely with our customers to enable their product transitions to 300-mm, copper and advanced process technologies for 0.13-micron and below device geometries," the CEO said.

Last month, Applied downgraded its growth outlook because of capital spending cuts resulting from a build up of inventories at semiconductor customers (see Jan. 30 story).

During today's conference call, chief financial officer Bronson confirmed reports last week that Applied has reduced its temporary workforce, deferred merit pay increases for all salaried employees, lowered salaries of top executives by 10%, implemented five mandatory shutdown days in the current quarter, and cut travel.

Bronson said Applied was now expecting a 26% to 30% decline in net sales in the current fiscal quarter to $1.9-to-$2.0 billion compared to $2.73 billion revenues in the just-ended quarter. Applied's anticipated earnings for the current fiscal quarter will fall to $0.32-$0.37 per share, said the CFO. He also told financial analysts that the company expects an operating margin of 20% in the current period vs. 27.5% in the fiscal first quarter.

In the last conference call with analyst during November, Applied Materials said it was expecting 20% growth in worldwide semiconductor capital spending in 2001 (see Nov. 16 story). Since the end of 2000, market conditions have deteriorated significantly with greater-than-expected cuts in capital spending by Applied's customers, according to Morgan and Bronson.

Both executives said the outlook remained clouded, and the company was managing itself with "a flexible series of contingency operating plans" while it waited to see how market conditions evolve. However, Applied continues to believe spending on 300-mm fabs will hold up in 2001.

"As we stated in our last call, we still believe that the 300-mm market in 2001 will be between $6-to-$8 billion," Bronson told the analysts.