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Applied Materials' 4Q Results Show Uptick in Revenue, Orders

15 November 2013

Although Applied Materials Inc. capped off fiscal 2013 with sales declines in three of its major product segments, the semiconductor equipment manufacturer believes that it has made key changes in its business strategy that will result in healthy sales growth in subsequent quarters.

Applied Materials (Santa Clara, Calif.) has increased its annual run rate investment in 300-mm product developments by more than $200 million, a move that will help its customers transition to FinFET technology and 3D NAND to improve manufacturing yields and device performance of chips aimed at the mobile market.

"As we are at the beginning of major technology transitions driven by FinFET and 3D NAND, we believe wafer fab equipment investment will be higher in 2014—up 10 percent to 20 percent," said Gary Dickerson, president and CEo of Applied Materials, in a conference call with analysts. The company also expects to see a rise in foundry, NAND and DRAM investments, with logic and other spending flat to down, he added.

With an uptick in foundry spending, Applied Materials expects overall net sales to be up by 3 percent to 10 percent in its first fiscal 2014 quarter, driven primarily by its Silicon Systems Group (SSG), in which sales are expected to be up 15 percent to 20 percent. The gains, however, will be offset by a 5 percent to 10 percent decline in Applied Global Services' (AGS) revenue, which is seasonally lower in its first fiscal quarter, and a 15 percent to 30 percent decrease in display net sales. Energy and Environmental Solutions (EES) sales are expected to be flat.

In its fourth fiscal 2013 quarter, Applied Materials posted a 1 percent sequential gain in sales of $1.99 billion and net income of $183 million compared with $163 million in the third fiscal quarter of 2013. Annual net sales declined 14 percent to $7.51 billion, with a 14 percent drop in SSG sales to $4.78 billion, 11 percent decline in AGS sales to $2 billion, and 59 percent decrease in ESS sales to $173 million. Display sales increased by 14 percent to $538 million.

However, Applied Materials is starting to see momentum pick up as orders in the fourth quarter jumped 5 percent sequentially to $2.09 billion, led by 16 percent growth in SSG. The catalysts for growth are the smartphone and tablet sectors.

"Demand for advanced mobileship is fueling strong foundry investment in leading-edge processes as they build out 20-nm and race to be first with FinFET technology. Mobility is also a driver for NAND flash and, when combined with a stronger adoption of solid-state drives, bit growth remains in the 40 percent to 50 percent range," Dickerson said.

Dickerson expects investment to grow by more than 30 percent in 2014, with incremental spending in advanced planar NAND and strong spending for 3D NAND. And with DRAM content in smartphones nearly doubling with each generation, mobile DRAM consumption is on the rise, he added.

"Prices have risen more than 120 percent over the past year and, due to supply constraints that we expect to extend until mid-2014, there is a good foundation for new capacity investments. Based on these factors, we are maintaining our view that wafer fab equipment spending for calendar 2013 will be in the range of $27 billion to $30 billion," he said.

In September, Applied Materials announced plans to merge with rival Tokyo Electron Ltd. in a blockbuster deal that values the combined company at about $29 billion.

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