July 12, 2011, 2:25 p.m. EDT
Applied materials backs outlook, cuts outlook
By Shara Tibken
(Updates with additional details and executive comments in the 13th through 18th paragraphs.)
--Applied Materials' chief executive says third-quarter results are tracking in line with expectations
--CEO cuts projections for the amount chip manufacturers are expected to spend on equipment this year
--CEO blames weakness on macroeconomic worries as well as soft PC sales and general caution among consumers
Applied Materials Inc.'s AMAT -2.89% chief executive again lowered projections on the amount chip manufacturers are expected to spend on equipment this year, adding to concerns about weak demand for computers and other devices.
The comments from Applied Materials Chief Executive Mike Splinter are the latest indications of cautiousness in the semiconductor industry, which has seen weakness of late. Consumer spending on PCs has remained soft, some large handset makers have been struggling and macroeconomic worries have hurt demand.
Splinter, at the Semicon West Conference in San Francisco, said the company--which makes tools used to produce semiconductors, television screens and solar panels--remains confident about its third-quarter guidance despite uncertainty about the short-term economic outlook.
In May, Applied Materials projected cautious fiscal third-quarter results and lowered 2011 expectations for spending on equipment to make chips.
Tuesday, Splinter again lowered expectations for such spending, this time to $30 billion to $33 billion, down from prior estimates for $31 billion to $34 billion. He noted that spending for dynamic random access memory, typically used in PCs, and by foundries, which manufacture chips for other companies, has been soft in the short term.
"But fundamental drivers remain strong," he said. "We continue to believe major semi companies are going to continue aiming at the goals of spending they set earlier in the year."
Applied Materials shares, down 11% year-to-date, recently slid 3.2% to $12.56.
Fellow semiconductor equipment maker Novellus Systems Inc. NVLS -11.46% also projected weak third-quarter results Monday and warned customers are feeling more cautious.
The comments from Applied Materials and Novellus, as well as a dismal forecast late Monday from chip maker Microchip Technology Inc. MCHP -12.43% , are raising investor concerns about the industry's second half. The Philadelphia Semiconductor Index fell 3.2% in recent trading.
A clearer outlook for the industry's second half should emerge when larger companies--such as Intel Corp. INTC -1.40% , Texas Instruments Inc. TXN -3.27% and Qualcomm Inc. QCOM -2.68% -- post results in the coming weeks.
Applied executives noted much of the weakness is coming from foundries responding to soft consumer demand.
"What foundries are seeing more and more, and what we're seeing overall, is a very tight linkage to consumer demand," Chief Financial Officer George Davis said. "All of us are disappointed with demand for PCs this year, and tablets probably will be 20 million units short of what people thought was possible for the year."
Despite near-term softness, Davis noted Applied has an "underlying tone of optimism for the markets."
And Splinter--who said tablets likely will total about 50 million units this year while PC shipments should grow less than 10%--added that factory utilization, or the percentage of a factory being used, is trending down to the 80% level, "substantially lower than we thought." Companies are leery to add capacity and buy new equipment unless their factories are more full.
But Splinter said Applied has been working closely with the foundries to respond quickly to demand fluctuations.
"Business is a bit soft at this point, but they want to be ready to move quickly and put capacity in if it comes through from demand in a very, very short period of time," Splinter said. "I don't think talk about big pushouts to 2012 is there at this point."
Meanwhile, Splinter said Applied Materials has received approval for its purchase of Varian Semiconductor Equipment Association Inc. VSEA -0.11% from half of the countries required, with approval still needed from the U.S., China and South Korea.
Applied Materials in April agreed to buy Varian for $4.9 billion in cash, betting that the demand for popular gadgets such as smartphones and energy-efficient technology will drive growth at a combined company.
"As we've gotten together planning integration work with Varian, we're even more impressed," Splinter said. "We think it's an even better deal than when we made it."
He said Applied Materials received a second request for information from the U.S. Department of Justice and expects to receive all approvals "sometime later in the year" to complete the acquisition.