Applied rocks Wall Street

Applied Materials Inc. beat optimistic Wall Street estimates in its fourth quarter, posting a profit of $180 million, or 47 cents per share, on record revenues of $1.28 billion.

First Call consensus expected the semiconductor-equipment maker to return a profit of 46 cents per share.

Applied's results were buoyed by new orders of $1.37 billion in the quarter -- more than double the new orders of $683.2 million received in the fourth fiscal quarter of 1996 -- and an increase of 10.9 percent from new orders of $1.24 billion for the third fiscal quarter of 1997.

"During fiscal 1997, business conditions strengthened and we exited the year with significant momentum,'' said CEO James C. Morgan. "This was a challenging year for the semiconductor equipment industry, yet Applied Materials was able to outperform the industry and deliver strong financial results."

In the days leading up to Thursday's announcement, investors bought into the hype and started accumulating shares of company stock in record numbers. Applied's stock gained $2.81 per share to $37.75 as NASDAQ's most heavily traded issue Thursday with more than 19.4 million shares changing hands.

"It's better than I expected," said Jay Deanha, an analyst at Morgan Stanley Dean Witter. "I had them at 45 cents per share and revenues of about $1.2 billion. It's definitely a step in the right direction."

For the day, chip-equipment stocks rode the wave of Applied's presumed success. KLA-Tencor Corp. gained $1.88 per share to $47.50 while Novellus Systems Inc. and Lam Research Corp. shares shot up $3.25 and $1.13 per share, respectively.

Applied Materials' success comes at a critical juncture for the entire semiconductor industry as unstable currencies in Asia and lower-than-expected book-to-bill ratios in October had sent chip stocks into a tailspin for much of October.

The North American semiconductor equipment industry posted a preliminary book-to-bill ratio of 1.06 for October 1997, reported Semiconductor Equipment and Materials International on Wednesday.

Three-month average shipments declined slightly in October 1997 to $1.5 billion. The figure is 5 percent below the September 1997 level, but 44 percent above the October 1996 level. Three-month average bookings decreased in October 1997 to $1.6 billion. The bookings figure declined 8 percent below the September 1997 level, but is 97 percent above the October 1996 level.

"But that's a bit deceiving," Deanha said. "Those figures don't include Applied's numbers because they report in November. Despite what's been going on Asia, I haven't seen any equipment makers report bad earnings."

Excluding one-time charges, including an $11 million charge related to the settlement of a lawsuit from General Signal, operating earnings were $187 million, or 49 cents per share.

Of Applied's new orders in the quarter, 29 percent came from North America; 16 percent from Europe; 18 percent from Japan; 7 percent from Korea; and strong demand from customers in Taiwan and Singapore made the Asia-Pacific market the largest contributor at 30 percent.

"Order momentum started building in our second fiscal quarter and continued through the remainder of the year, allowing us to achieve record levels of new orders, net sales, and ongoing net income during our fourth fiscal quarter," Morgan said.

For fiscal 1997, Applied reported revenues of $4.07 billion, a slight decrease from fiscal 1996 net sales of $4.14 billion. Net income for fiscal 1997 was $498.5 million, or $1.32 per share, down from $599.6 million, or $1.63 per share, for fiscal 1996.