Applied Materials (AMAT): It’s Not Easy Being Green

Applied Materials Inc. (AMAT) underscored just how weak the economy is earlier this week when it posted its first quarterly loss in five years and said it planned to cut both production and jobs.

The world’s largest maker of semiconductor production equipment said it lost $132.9 million, or 10 cents per share in its first quarter compared to a profit of $262.4 million, or 19 cents per share in the year ago quarter.

Excluding a $133 million restructuring charge AMAT would have posted breakeven per-share results. Sales fell 36 percent to $1.33 billion. Analysts polled by Thomson Reuters were expecting the break-even results albeit on slightly higher revenue.

It was the company’s forecast of revenue declining by an additional 30 percent this quarter from last that spooked investors and sent the shares south.

AMAT said it expects a 50 percent drop in demand for crystalline silicon equipment — showing that even the solar power business is in the doldrums.

CEO Mike Splinter said on a conference call that the company’s leading semiconductor customers say the fall-off in chip demand and pricing is the most severe they have ever experienced, with losses mounting almost universally.

Solar Not So Hot

Particularly troubling is the slowdown in the company’s solar sector. This sector was supposed to be AMAT’s savior but the return of cheap oil has taken some of the luster off of the Energy and Environmental Solutions group, as it is known, which produces solar panels and related technologies.

Suddenly solar power and ethanol don’t seem so important. The lack of available credit has also hurt the solar industry which has yet to reach the scale where reliable profits roll in.

Speaking to Reuters, Mr. Splinter said he doesn’t foresee an economic recovery anytime soon and that the company has suspended share buybacks in an effort to preserve cash. The company remains committed to paying its dividend (6 cents per share, quarterly).

Customers “have to have confidence that they can build new factories, which requires the economy to move into a positive direction on a global basis. And that, I think, is going to take some time,” he said.

Other measures taken to weather the storm include shutting down factories for weeks at a time, cutting the salaries of senior executives and eliminating their bonuses for this year. One analyst, at Caris & Co. said he’s looking to what these companies (in the chip sector) will look like when they come out of the downturn.

AMAT will likely look quite healthy. The company had about $1.9 billion in cash and short-term investments on its balance sheet at the end of the quarter and just $203 million in long-term debt. When the economy does turn, inventories will likely be depleted and the company’s products will be in high demand. Solar, too, should be back in vogue as oil prices rise anew.

This article was written by Jamie Dlugosch, contributor to For more actionable insight like this, visit

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