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The Day Ahead: Applied Materials sees big profits in 2Q

Second quarter revenue expected to reach $2.1bn

Applied Materials shareholders should be on a high today after the semiconductor equipment company beat estimates in the first quarter, issued a stock split and gave a bullish forecast. The earnings results and stock split were expected, but the big eye-popper was Applied Materials' second quarter outlook, which should boost other chip equipment manufacturers.

On a conference call with analysts, chief finance officer Joseph R Bronson told them to expect second quarter revenue up to $2.1bn (£1.3bn) and earnings per share of between $1 and $1.08 (60p to 66p). That forecast means Applied Materials will top current expectations by at least 17 cents (10p) a share.

Applied Materials' business may not be all that exciting, but it is quite profitable at the moment. Semiconductor demand is currently soaring, courtesy of the Internet and telecommunications industry. And PC chip and memory growth isn't all that shabby either. Of course, where the growth comes from doesn't matter, because Applied Materials products are used to manufacture most chips. "There's more potential for growth than anytime in our history," said chief executive James Morgan. Most analysts agree that there are only a few things that could trip up Applied Materials shares -- no stock split, lower than expected orders and a restrained outlook.

However, Applied Materials has delivered all three. For starters, there's the two-for-one stock split that will satisfy retail investors. But, more importantly, the company reported orders of $2.36bn (£1.5bn) ahead of Wall Street expectations. Chase Hambrect & Quist analyst Eric Chen said the order number was key because the other figures had been expected. Chen expected orders of about $2bn (£1.2bn). Applied Materials delivered, and Bronson said the company should have orders of at least $2.5bn (£1.6bn) in the second quarter.

The only thing one could possibly find wrong with Applied Materials is that it didn't beat estimates by enough with its first quarter earnings of 80 cents (49p) a share on sales of $1.67bn (£1bn). Wall Street was looking for 77 cents (47p) a share. Some whisper numbers were higher.

However, there's no need to worry. The company has said that it had problems implementing a new enterprise resource planning (ERP) system in November, and put a lid on profit and revenue gains. Analysts reckoned the software hiccups could have trimmed a few cents from the earnings per share figure. During the last quarter, some wondered whether Applied Materials had any upside left after a strong run. The answer to that question now seems pretty obvious.

Prudential Securities raised its price target on Applied Materials to $195 (£121), which might have been conservative.

More good news from Lycos

Lycos should also bolster the tech sector today with a better than expected operating profit of 3 cents (.01p) a share. The company reported a second quarter operating profit of $3m (£1.8m), or 3 cents (.01p) a share, on sales of $68.6m (£42.5m). These results were better than the consensus and well ahead of totals from a year ago.

Worldwide traffic grew to 122 million page views per day in the quarter. US traffic improved 23 percent to 101 million page views a day. On the e-commerce side, LYCOShop showed a 450 percent increase in shoppers during the holiday season as e-tailers increased to 2,400 stores in 11 weeks. LYCOShop e-tailers include The Gap, Barnes&Noble.com, LL Bean, Patagonia, KBkids and OfficeMax.

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