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Applied Materials Posts Record Earnings; Revenue and New Orders Disappoint

AMAT  Applied Materials, Inc. (NASDAQ: AMAT – $30.73), the world’s largest supplier of tools used to make semiconductors, reported lower-than-expected quarterly revenue, largely due to slowing smartphone sales. The company reported a 39.2% jump in fourth-quarter revenue to $3.30 billion, but narrowly missed analysts’ average estimate of $3.31 billion. Excluding items, the company earned $0.66 per share, beating the consensus estimate of $0.65, and well ahead of the $0.29 posted a year ago. In the latest quarter, new orders rose 25% to $3.03 billion, but the Street expected that figure to reach $3.21 billion. Full year fiscal 2016 ended with earnings of $1.75 per share vs. $1.12 in the last fiscal year and the upcoming year should see per share earnings closer to $2.15, providing a price/earnings ratio of 14 on the estimate. In the first quarter of fiscal 2017, the company forecasted per-share earnings of $0.62 to $.70 and revenue of $3.20 billion to $3.34 billion, both better than analysts’ expectations of $0.58/share and revenue of $3.12 billion.

       While I remain cautiously optimistic about long-term opportunities and potential market share gains within the semiconductor equipment segment, uncertain capital spending budgets by key customers can’t be ignored. Elsewhere, new technologies for mobile and TV applications have boosted demand in the Display and Adjacent Markets segment, a trend I expect to continue over the next several years. The Applied Global Services business should also do well to late decade. Assuming the fundamentals remain relatively intact, the shares can be retained for those investors willing to accept some risk.  However, AMAT has risen nearly 70% over the past twelve months and its shares can be vulnerable to any weaknesses in demand.

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