Applied Materials Inc. (NASDAQ: AMAT) is set to report earnings after the close.  What is odd is that the company might be given a total pass over this last quarter and perhaps even one quarter out now that so many chip stocks and chip cap-ex stocks have reported.  If you review the analysis and metrics below you’ll likely determine that the news isn’t expected to be great nor is it expected to be horrible.

First Call estimates for this last quarter are $0.14 EPS on $1.84Billion in revenues.  Next quarter also marks its fiscal year-end andestimates for that quarter are $0.19 EPS on $2.02 Billion in revenues.The fiscal-2008 (OCT) is expected to be $0.78 EPS on $8.08 Billion inrevenues.  It is unlikely that the company will give guidance to 2009as there is no reason for it to stick its neck out, but if it doesthose estimates are about $1.07 EPS and $9.26 Billion in revenues.  Itsbacklog at the end of last quarter sat at $4.6 Billion (after a $210million adjustment).

This stock is still somewhat in the middle of its 52-week trading rangeof $16.13 to $22.10.  What has been confusing is that traders andinvestors are trying to decide whether they should be evaluating thisstock as a slow growth semiconductor equipment and cap-ex provider orwhether they should be evaluating this as a chip play with a hiddenhigh-growth solar cap-ex play. The company spent $900 million in the first six months to repurchase shares of common stock.

This solar operation is still too small for it to make a substantialdifference in the orders already received when looking backwards atquarterly reports before this year.  But its energy & environmentalorders booked as of last quarter were $257 million and its bookedrevenues were as net sales were $45 million.  Out into fiscal 2009Applied looks different with SunFab contributing more on new ordersthat have been added to backlog but not as current or past revenuesyet.  In theory, out a year or so you could even almost begin toevaluate the SunFab unit completely on its own as the unit could be 15%to 20% of Applied Materials’ total business.

For most of the year this has traded in a range mostly between $17.50and $21.00.  Based upon options analysis, it doesn’t even seem as though options traders expect a move of $0.70 or almost 5% in eitherdirection.   Analysts still have an average price target of about$23.00 but in reality is you take out some of the extreme readings mostseen to value it closer to $22.00 on average.

With an identity crisis being present between the old stodgy AppliedMaterials of yesterday and the high-growth SunFab unit or tomorrow, it’s no wonderwhy there seems to be confusion on analyzing the company.

Jon C. Ogg
August 12, 2008

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