conference date: May 24, 2011 @ 1:30 PM Pacific Time
for quarter ending: May 1, 2011 (second quarter fiscal 2011)
Overview: Excellent quarter exceeds expectations.
Basic data (GAAP) :
Revenues were $2.86 billion, up 7% sequentially from $2.69 billion, and up 25% from $2.30 billion in the year-earlier quarter.
Net income was $489 million, down 3% sequentially from $506 million, but up 92% from $264 million year-earlier.
EPS (earnings per share) were $0.37, down 3% sequentially from $0.38, but up 85% $0.20 from year-earlier.
Fiscal Q3 2011 revenues expected to shrink 3 to 10%. Non-GAAP EPS range of $0.31 to $.37. Expects 2011 to be a record year, but toned that down on a flattening of growth in the 2nd half.
Customer interest in advanced technologies and record solar division sales led revenue growth. Orders grew to $3.19 billion in the quarter. Varian Semiconductor acquisition is planned, cost of $4.3 billion. The dividend was raised to 8 cents per share per quarter.
Earnings per share were at the high end of guidance range, but revenues exceeded the range. 24% operating margins.
Non-GAAP results: operating income $685 million, net income $501 million (up 3.5% sequentially from $484 million and up 72% from $292 million year-earlier), EPS $0.38.
Short term macroeconomic outlook necessitates caution, so we have seen some customers push out orders. However, fundamentals for Applied
Semiconductor (silicon systems) and wafer fabrication equipment segment affected by soft PC market in the quarter, orders were mainly for technology transitions. Sales were $1.45 billion, orders $1.71 billion. 28 and 22 nanometer node planning is being accelerated. Expect 2nd half to be flat from 1st half.
Applied Global Services are seeing a minor reduction from expectations due to lower capacity utilization. But orders were up 9% to $603 million, with sales of $614 million. Divested parts cleaning operations.
Display segment overall is weak as end demand growth was only 14% y/y. Orders still up 80% from q1 (but flat from year-earlier) to $255 million, with sales just $158 million. Small panel display demand is strong, large panel equipment demand is weak.
Solar power (EES) end demand was sluggish after a strong Q4, with an inventory buildup in Europe. Sales were $637 million, orders lower at $612 million. But Applied had an outstanding quarter as factories bought equipment to meet future demand, particularly in China. Orders and backlogs are healthy, but down 8% from Q1.
Operating cash flow was over $700 million. $4.6 billion cash and investment balance at end of quarter.
Full year forecast? To meet our prior guidance, Q4 would need to ramp from Q3, particularly in silicon equipment. 65nm node has been weak. Most expansion is now at the 32nm node.
Silicon segment revenue guidance? Just to be flat, we would need a Q4 bump. However, we could get a bigger bump.
LCD outlook? In calendar 2011 we see it down 10 to 15% from 2010, but 2012 could see a very strong if large panel capacity has been digested in China.
Results will depend on whether order push-outs come back into Q4 or spill into 2012.
Customer response to Varian acquisition has been positive. We are very excited because the products are very complementary.
A lot of the growth is focused on smartphones, which require 40nm or below nodes. Tablets are also driving capacity and require larger dies. The surprise is that 65nm demand has been below expectations.
Strong Q2 bookings versus down Q3 guidance? It is not just push-outs, part of the order book is long-term.
A reasonable scenario is a push out in Q3 followed by a bump in Q4. We need to see the consumer demand side pick back up to pull in some orders.
Memory segment? Largest impact is from bit growth rate. At 40 to 50% it does not drive significant capacity expansion. So NAND and DRAM investment could pick up in 2nd half, but still low compared to historical peaks. The only driver is to go to smaller nodes.
Are you expecting margin improvements in the 2nd half? Significant increases would require silicon system revenues to ramp.
Intel Tri-gate effects? This technique or a similar one will be adopted by all logic makers eventually. This will require more epi steps and plasma doping.
Everyone is constrained on the leading edge, so there is competition for capacity there and people are moving to expand capacity.
Could push outs become cancellations? We monitor order quality, we have seen no significant cancellations so far.
Nature of silicon system order backlog? Distribution of orders is broad. Revenue is more concentrated in a few customers, but they do more turns.
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