Applied Materials Decade-Long Earnings Concern (AMAT)

Imagine being the number one semiconductor capital equipment stock in the U.S., and finding your stock trading at a ten-year low.  That is essentially the case for Applied Materials Inc. (NASDAQ: AMAT), and the company has earnings right after the close of trading today.  With semiconductor stocks, tech stocks, and most sectors in the tank, you can imagine the mood for expectations here.

Thomson Reuters (First Call) has estimates pegged at $0.14 non-GAAP EPSand $1.94 billion in revenues.  These numbers have also been reeled inconsiderably in the last ninety days compared to lower-then-normaldownward revisions to estimates on most other big tech stocks. 

But estimates still seem to aggressive for this next quarterconsidering the verbiage and body language elsewhere.  Estimates nextquarter are $0.16 EPS on $1.95 billion in revenues.  Those have comedown, but it seems that these are at risk based upon peers. 

Applied’s customers are getting pinched to the point that many are noteven profitable, so it is feasible that today’s share price reflects a very long haul of Santa delivering coal for Christmas.  While therehas been a slowing in many solar companies, we do expect that this SunFab willactually continue to be a bright spot for Applied Materials. 

Options traders appear to be braced for a move of $0.90 in either direction.

Ninety days ago, this stock was north of $18.00.  With shares onlyabout 4% off of their recent lows (and 10-year lows), there isliterally no use referring to any chart metrics.  The only good news onthe chart is that if the news is somehow more stable than many wereexpecting, then it should get a monster rally. 

Analysts still have a target around $18.00, but we’d treat this as anumber which is likely subject to much lowered expectations as long asthe company doesn’t make some significant projections ahead.

We have questioned over and over the notion that the efficient markettheory actually prices in bad news ahead of known events is just out ofkilter right now.  The efficient market just doesn’t exist right now.We’d love to tell you that everything you could possibly know about badnews in tech-land is factored in, but the known events are stilldifferent than the reactions to the events.

Jon C. Ogg
November 12, 2008