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Applied Material : "Unknown Outlook hurts equipment market"
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Wednesday, February 12, 2003
Even giants like Applied Materials Inc. take a hit when new business slows down to the trickle that it has within the semiconductor industry.
With nobody adding volume 0.13-micron capacity, things get tough even for bellwethers like Applied.
The world's largest capital equipment supplier today posted a net loss for its fiscal Q1, which ended Jan. 31, of $66 million, or 4 cents per share, down from net income of $147 million, or 9 cents per share, in the previous quarter. Fiscal Q1 also marked a greater loss than the year-ago quarter, when Applied reported a net loss of $45 million, or 3 cents per share.
Applied's net sales of $1.05 billion, down 27 percent from the $1.5 billion it posted in fiscal Q4, but up 5 percent from $1 billion year over year.
As previously announced, seasonal orders decreased, with fiscal Q1 seeing $1 billion of new orders, down sequentially 35 percent from $1.6 billion in the previous quarter and down 9 percent year over year from $1.1 billion. While Applied traditionally has a relatively tough fiscal Q1, which includes the year-end holidays, and the first month of the calendar year, that is far from the whole story.
Applied's senior management said during an earnings conference call today with financial analysts that a big chunk of the problem is that on top of the industry being in its third year of reduced capital spending, few chipmakers are moving to 0.13-micron, in terms of production volumes. While a few leading edge companies like Intel and IBM are already looking at 90nm, the remainder of the industry still has to catch up to 0.13-micron.
There is currently a significant lack of new 0.13-micron product designs, said CEO Jim Morgan. On going geopolitical and economic problems have caused end demand for chips to continue to suffer, he explained.
CFO Joe Bronson suggested that the key to an industry upturn is 0.13-micron capacity. "That's where the technology sweet spot is," Bronson said. "But we haven't had a 130nm capacity ramp yet."
While Bronson reported order weakness across most product lines and regions, it's photomask patterning unit, Etec Systems, saw a significant shortfall, which would seem to support the contention that there are relatively few new designs coming out of the industry.
"It's not exactly a robust market at the moment," Bronson said of the mask patterning equipment market in general. He added that he had heard anecdotally that only three mask patterning equipment orders were placed in the entire world over the past three months.
Applied's service and spares business, which it has been concentrating on growing over the past couple of years, also suffered this past quarter. Low utilization rates at trailing edge fabs, coupled with permanent closures and holiday shutdowns all took chunks out of the service and spares profit, Bronson said.
On the plus side of that equation, with little new capacity being added and chipmakers particularly cost sensitive at the moment, the used equipment market is growing, namely in Asia, Bronson said. Applied has a division devoted to refurbishing and selling equipment, which is taking advantage of this phenomenon.
China in particular, which Applied expects to spend $2.7 billion in capital expenditures in 2003, is buying a lot of used equipment, much of it from foundries moving to or springing up in China, Bronson said. "In general, the business has been a growth area from a very small base about 2 years ago, and its growing pretty reasonably," he said of Applied's used equipment unit.
In conjunction with the growth in used equipment, Applied is experiencing what most capital equipment suppliers are: increased pricing pressure.
Some customers are looking for large concessions on large orders, Bronson said, but more typically, customers are spending a lot of time up front qualifying tools, particularly for advanced technologies. These companies typically don't balk at the asking price, because they understand the value, Bronson said.
Still, there are some companies that are looking for vendor financing to equip new fab projects. "We've said time and time again we're not going to do that," Bronson said. "That's why we have the cash that we have … we're not gong to go down that path."
Tue to the company's form, in spite of orders and revenue dropping Applied managed to improve its cash position quarter over quarter by $59 million to nearly $5 million.
Needless to say, Morgan and Bronson were reluctant to give much in the way of guidance. Bronson said the company expected revenues to be slightly higher and to post a profit of 1 cent to 2 cents per share for the current quarter.
He did suggest that orders toe up during the current fiscal quarter, which ends in April, but neither he nor Morgan would speculate beyond that. They did suggest that industry capital spending for the year would be up 10 percent, but Bronson pointed out that this isn't much, coming off a down year like 2002.
The industry is in a hurry-up-and-wait-mode, like it has been for much of the past two years. "Things are so volatile, the list of opportunities that we have are enormous," Bronson said. "The question is what percentage of those are you going to get?"
Chipmakers are reluctant to sign purchase orders these days, Bronson and Morgan said. "The number of orders I have that are missed is mind boggling," said Bronson.
"We don’t' see them going to competitors," Morgan added. "We just don't know if they are going to come in or not."
By: DocMemory
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