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Applied Materials (AMAT) Q2 Earnings & Sales Miss Estimates

Zacks Equity Research

Applied Materials Inc. AMAT reported fiscal second-quarter 2020 non-GAAP earnings of 89 cents per share, which missed the Zacks Consensus Estimate by 2 cents. The figure declined 9.2% sequentially but increased 27% year over year.

Net sales of $3.96 billion missed the Zacks Consensus Estimate by 5.7%. However, the figure improved 11.9% from the year-ago period.

The company witnessed solid momentum in key geographies, namely Korea, Taiwan and China.

Although it saw weaker-than-expected demand due to the coronavirus outbreak, the demand for equipment and services still remained strong.

Let’s delve deeper into the numbers.

Applied Materials, Inc. Price, Consensus and EPS Surprise

 

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. Quote

Segments in Detail

The Semiconductor Systems Group generated $2.6 billion sales in the reported quarter (contributing 65% to net sales), reflecting an increase of 17.5% year over year.

Applied Global Services reported sales of $997 million (26% of net sales), which increased 3.5% from the prior-year quarter.

Sales from the Display and Adjacent Markets came in at $332 million (9% of net sales), up 4.9% from the year-ago level.

Revenues by Geography

United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $331 million, $181 million, $467 million, $753 million, $1.03 billion, $58 million and $1.14 billion, contributing 8%, 5%, 12%, 19%, 26%, 1% and 29% to net sales, respectively.

On a year-over-year basis, sales in all the countries declined except Korea, Taiwan and China, which witnessed growth of 70.7%, 36.5% and 14.6%, respectively.

Operating Results

Non-GAAP gross margin was 44.6%, expanding 110 basis points (bps) from the year-ago quarter.

Operating expenses were $817 million, 8.4% higher than the year-ago quarter. As a percentage of sales, research, development and engineering, as well as marketing and selling expenses decreased, while general and administrative costs increased.

Non-GAAP operating margin of 24.7% in the reported quarter expanded 230 bps from the prior-year period.

Balance Sheet & Cash Flow

At fiscal second quarter-end, cash and cash equivalent balance was $5.7 billion compared with $3.42 billion at the end of the fiscal first quarter.

Inventories were $3.73 billion versus $3.47 billion in the prior quarter. Accounts receivables decreased to $2.63 billion from $2.68 billion in the fiscal first quarter.

The company returned $199 million and $193 million through stock repurchases and cash dividends, respectively.

Applied Materials generated cash flow of $635 million, down from $987 million in the fiscal first quarter.

Guidance

The company did not provide any guidance for the June quarter due to manufacturing and supply-chain disruptions from the COVID-19 crisis.

Bottom Line

Management believes that the demand for foundry logic is expected to remain strong in the near term, thanks to the rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets.

Also, ongoing inventory correction in DRAM is a tailwind in the near term. The company expects more clients to upgrade their equipment ahead of the 5G rollout in key markets, which will help it expand top-line growth.

However, the company expects weakness in specialty markets due to slump in automotive and industrial sectors.

Nevertheless, Applied Materials remains confident about its relentless focus on research and development activities to develop new products.

Zacks Rank & Key Picks

Applied Materials currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Akamai Technologies, Inc. AKAM, Inuvo, Inc. INUV and Shopify Inc. SHOP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Akamai, Inuvo, and Shopify is currently projected at 12.3%, 30% and 25.8%, respectively.

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