Applied Materials (issue #277): A couple of weeks ago, the company confessed that business was getting worse and that it would fall short of its forecasts.
Fast-forward two weeks ... and Applied Materials admits that it couldn't even hit that drastically reduced target, either.
Applied Materials disappointed on BOTH the revenue and earnings side for the fourth quarter. It brought in $1.05 billion of sales, a staggering 27% decline from the third quarter.
The company reported that it broke even for the fourth quarter on a "pro forma" basis -- which means if it bends the numbers and squints at them the right way, it looks like it broke even. Pro forma baloney aside, Applied Materials really lost $66 million or 4 cents a share.
And things don't look like they'll improve anytime soon. After all, Applied Materials' amount of order backlogs fell from $3.19 billion last quarter to $3.05 billion this quarter. Why? Because customers are canceling orders.
Meanwhile, gross profit margins dropped to 37% from nearly 42% last quarter. This indicates that Applied Materials is cutting prices. It's a simple formula:
Lower sales + lower profit margins = look out below!
Also, Applied Materials will be shutting its production plants for two weeks this quarter. According to CEO James Morgan: "In the near term, we do not expect to see a significant upturn in capital spending."
Despite this litany of doom, the stock is still trading at 89 times forward earnings. That's ridiculous! Business is indeed going to get worse -- and the stock of Applied Materials still has a long, long ways to fall. Stay short!