(AMAT) Applied Materials Beats – very strong balance sheet with a very small amount of long term debt

August 12th, 2009

Applied Materials Leaves Worst Behind

Applied Materials‘ (AMAT) fiscal third quarter EPS beat the Zacks consensus by 5 cents.

Revenue

Revenue of $1.13 billion increased 11.1% sequentially but declined 38.7% year over year.

The sequential growth in revenue was driven by the Silicon segment, which generated 44% of quarterly revenue. Segment revenue increased 91.5% sequentially and declined 34.1% year over year.

The Applied Global Services segment generated 30% of revenue, growing 7.5% sequentially and declining 43.5% year over year.

The Energy and Environmental Solutions segment generated 20% of revenue, declining 37.3% sequentially and increasing 28.7% year over year.

The Display segment generated 6%, declining 17.9% sequentially and 77.8% from the year-ago quarter.

Silicon was the highest-margin segment in the quarter, with an operating margin of 11.2%, an increase of 4817 basis points (bps) sequentially. Applied Global Services generated 7.0%, a sequential increase of 731 bps. Energy and Environmental Solutions had an operating margin of -23.7%, which was up 239 bps sequentially. The Display segment generated an operating margin of -7.2%, down 844 bps from the Apr 2009 quarter.

Orders

Total bookings increased over 65% sequentially, yielding a book-to-bill ratio of 0.95. The strong growth in bookings follows two quarters of double-digit decline.

Despite the weak revenue in the last quarter, the display segment saw the strongest growth in bookings. The sequential increases in bookings by segment were Silicon 109.3%, Applied Global Services 26.3%, Display 638.5% and Energy & Environment Solutions -3.5%. The backlog at quarter-end was $2.95 billion, down from $3.16 billion at the end of the second quarter.

Operating Results

The gross margin was 28.7%, up 1,341 basis points (bps) from the previous quarter’s 15.2%. Production efficiencies and a higher utilization rate were responsible for the growth in gross margin. The operating expenses of $402.1 million were lower than the previous quarter’s $422.1 million. The operating margin was -6.8%, up 1,932 bps sequentially from -26.1%. Although lower COGS was the primary reason for the improvement in the operating margin, R&D, G&A and selling and marketing expenses also contributed.

The pro forma net loss of $54.9 million, or -4.8% of sales was much better than the loss of $407.0 million, or -39.9% in the previous quarter, but behind the year-ago performance of an income of $164.9 million or 8.9% in the year-ago quarter.

The fully diluted GAAP EPS was -4 cents per share compared to -38 cents per share in the previous quarter and income of 12 cents per share in the year-ago quarter. The comparable quarters included investment losses and restructuring charges that were absent in the July 2009 quarter. Our analysis of pro forma numbers does not exclude stock based compensation charges.

Balance Sheet

Applied Materials has a very strong balance sheet with a very small amount of long term debt. The net cash at quarter-end was $1.9 billion, up $74.2 million sequentially. Inventories declined 8.0%, with inventory turns increasing from 1.8x to 1.9x. DSOs went down significantly from 81 to 68 days.

Guidance

Management has guided to a revenue increase of 10-20% in the fourth quarter, with the non-GAAP EPS expected to come in at around 0-4 cents.

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(AMAT) Applied Materials Beats – very strong balance sheet with a very small amount of long term debt

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(AMAT) Applied Materials Beats – very strong balance sheet with a very small amount of long term debt

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