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Applied Materials (AMAT) Q3 Earnings & Sales Beat Estimates

Zacks Equity Research

Applied Materials Inc. AMAT reported fiscal third-quarter 2020 non-GAAP earnings of $1.06 per share, which surpassed the Zacks Consensus Estimate of $0.95. Moreover, the figure increased 19.1% sequentially and 43% year over year.

Net sales of $4.40 billion surpassed the Zacks Consensus Estimate by 4.7%. Also, the figure improved 23% from the year-ago period.

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

Its demand for equipment and services remained strong in the quarter.

During the quarter, the company won critical new applications in advanced patterning, in turn strengthening its position in the foundry market. Management believes that 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.

In addition, the company expects DRAM spending to improve in the near term.

Let’s delve deeper into the numbers.

Applied Materials, Inc. Price and EPS Surprise

Applied Materials, Inc. Price and EPS Surprise
Applied Materials, Inc. Price and EPS Surprise

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

Segments in Detail

The Semiconductor Systems Group generated $2.9 billion sales (which contributed 66% to its net sales), reflecting an increase of 28.3% year over year.

Applied Global Services reported sales of $1.03 billion (24% of net sales), which increased 11.1% from the prior-year quarter.

Sales from Display and Adjacent Markets came in at $425 million (10% of net sales), up 25.4% from the year-ago level.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $399 million, $196 million, $472 million, $1.05 billion, $687 million, $120 million and $1.47 billion, contributing 9%, 5%, 11%, 24%, 16%, 2% and 33% to net sales, respectively.

On a year-over-year basis, sales in Europe, Korea, Taiwan and China increased, while sales in the United States, Japan and Southeast Asia decreased.

Operating Results

Non-GAAP gross margin was 45%, expanding 100 basis points (bps) from the year-ago quarter.

Operating expenses were $847 million, 12.2% 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 26.4% for the reported quarter expanded 340 bps from the prior-year period.

Balance Sheet & Cash Flow

At fiscal third quarter-end, cash and cash equivalent balance, and short term investments were $4.8 billion compared with $5.7 billion at fiscal second quarter-end.

Inventories were $3.95 billion versus $3.73 billion in the fiscal second quarter. Accounts receivables increased to $2.81 billion from $2.63 billion in the fiscal second quarter.

The company returned $200 million and $202 million through stock repurchases and cash dividends, respectively.

Applied Materials generated cash flow of $867 million, up from $635 million in the fiscal second quarter.

Guidance

For fourth-quarter fiscal 2020, Applied Materials expects net sales to be $4.60 (+/-$200 million). The Zacks Consensus Estimate for the same is pegged at $4.37 billion.

Non-GAAP EPS is expected in the range of $1.11-$1.23. The corresponding Zacks Consensus Estimate is pegged at $1.02 per share.

Zacks Rank & Key Picks

Applied Materials currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include Dropbox DBX, Lam Research Corporation LRCX and Analog Devices ADI. While both Dropbox and Lam Research sport a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate of Dropbox, Lam Research, and Analog Devices is pegged at 34.4%, 15.4% and 13.3%, respectively.

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