Tags: Applied | Materials | downturn | AMAT

Applied Materials Braces for Tech Downturn

By    |   Tuesday, 18 Oct 2011 10:58 AM

Tech company Applied Materials (AMAT) is expecting a downturn in sales and profits. In the face of this slowdown, the company has built up a large amount of cash and continues to pay investors an attractive dividend, especially for a tech stock.

Applied Materials manufactures the equipment and provides software solutions which allow its customers to produce semiconductors, flat-panel LCD displays, and solar photovoltaic cells and modules. AMAT is classified as a semiconductor stock but also is involved in flat-panel and solar industries at the most basic level, providing manufacturing equipment.

For the first three quarters of its fiscal year through July 31 Applied Materials reported net earnings of $1.10 per share, up from 67 cents for the same period in 2010. Revenues for the nine months increased 25 percent to $8.33 billion. For the full fiscal year ending in October the company is expected to earn $1.31 per share on revenues of $10.6 billion.

Slowdown starting

For the 2011 fourth quarter, Applied Materials management expects sales to be down by 15 to 30 percent from a year earlier and that earnings will be in a range of 16 to 24 cents per share. For comparison, in the fourth quarter of 2010, the company earned 36 cents per share. The leading edge of the slowdown can be seen in the third quarter results: Sales to display solutions customers was down by 14 percent and sales to solar energy customers dropped by an alarming 48 percent.

As a cushion against the pending cyclical downturn, Applied Materials currently has cash and short-term investments of $5.7 billion, up from $2.5 billion a year ago. Long-term debt is less than $2 billion. The 8 cents per share quarterly dividend appears secure, giving shareholders a 3 percent yield if the elect to hold on to AMAT through the market down cycle.

Wall Street analysts are split on AMAT. Recently Oppenheimer & Co. analysts upgraded the stock to outperform from perform. In the same week, analysts at Goldman Sachs downgraded AMAT to sell from neutral.

The company reports next on Nov. 30.

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Tech company Applied Materials (AMAT) is expecting a downturn in sales and profits. In the face of this slowdown, the company has built up a large amount of cash and continues to pay investors an attractive dividend, especially for a tech stock. Applied Materials...
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Tuesday, 18 Oct 2011 10:58 AM
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