Yahoo Finance AMAT’s Stock Jumped 7% on Strong Guidance for Fiscal 2Q16
How Investors Reacted to AMAT's Strong Guidance for Fiscal 2Q16
Bright outlook for SME suppliers
During the December 2015 earnings season, when semiconductor companies reported declining revenues and weaker guidance, SME (semiconductor manufacturing equipment) suppliers posted strong performance and guidance. We highlighted this trend in The Three Semiconductor Companies That Beat the Estimates, in which we saw that Lam Research (LRCX) and KLA-Tencor (KLAC) reported strong guidance.
Living by this trend is Applied Materials (AMAT), a supplier of manufacturing equipment, services, and software to the semiconductor, display, and solar photovoltaic companies. Applied Materials released its fiscal 1Q16 earnings on February 18, 2016, beating analysts’ estimates and posting better-than-expected guidance for fiscal 2Q16. In this series, we’ll explore the key drivers that played well for Applied Materials.
AMAT beats analysts’ estimates
In fiscal 1Q16, Applied Materials’ (AMAT) revenue fell 4% YoY (year-over-year) to $2.26 billion, beating the analysts’ estimates of $2.24 billion. The company reported strong growth in the Service segment, which was offset by declines in the other three segments: Silicon Systems, Display, and Energy.
New orders were almost flat at $2.27 billion during the quarter, with orders increasing in the Display and Service segments. China and Taiwan (EWT) are major markets for AMAT, accounting for 45% of the new orders. The company reduced its order backlog by 1% YoY to $3.11 billion.
During the quarter, the company’s non-GAAP (generally accepted accounting principle) EPS (earnings per share) fell 3.7% YoY to $0.26, topping the analyst estimate of $0.25.
AMAT’s stocks rise on strong guidance
Despite declining revenues, Applied Materials’ stock rose by 7.2% to $18.41 in the after-hours trading session on February 18, 2016. The stock jumped as the company posted strong guidance for fiscal 2Q16.
Profitability
On a non-GAAP basis, Applied Materials’ (AMAT) gross margin was almost unchanged at 42.4% in fiscal 1Q16 despite a decline in revenue. However, its operating margin fell from 18.9% in fiscal 1Q15 to 17.8% in fiscal 1Q16 as the company increased its research and development expenses by 6.5% YoY. The company expects to earn 40% of its revenue in fiscal 2016 from the products launched over the past three years.
AMAT provides equipment to almost all semiconductor companies, including Intel (INTC). In its fiscal 4Q15 earnings, Intel committed $10 billion in capital expenditures. This should benefit Applied Materials. In the next part of this series, we will look at the segments that could drive AMAT’s growth.
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