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Applied Materials Gives Bullish Forecast in Face of Slowdown

(Bloomberg) -- Applied Materials Inc., the biggest maker of machinery used to manufacture semiconductors, gave an upbeat sales forecast for the current period, saying it can weather the economic slowdown afflicting the industry.

Revenue will be about $6.65 billion in the fiscal fourth quarter, which runs through October, the company said in a statement Thursday. Analysts estimated $6.55 billion on average, according to data compiled by Bloomberg.

The outlook signals that the chip industry may be faring better than some had feared. Investors have grown increasingly concerned in recent weeks that the market is sliding into a slump, battered by too much inventory and weakening demand for electronic devices. Large customers such as Intel Corp. and Micron Technology Inc. have already cut their budgets for new plants and equipment following weak earnings reports.

But even with the economy softening, many customers are still investing to improve their production technology, Chief Executive Officer Gary Dickerson said in an interview. Applied Materials’ order backlog is increasing as it struggles to get enough supply of chips to make its equipment, he said.

“Demand is still exceeding supply by a fair amount,” he said. “We’re mindful of the macro headwinds.”

The stock gained more than 2% in extended trading. Applied Materials shares had dropped by 31% this year through Thursday’s close, part of an industrywide rout for the chip business.

While memory chipmakers have cut back on expansion plans, other types of companies are maintaining spending. That includes manufacturers of logic chips and so-called foundries, which produce semiconductors for other companies.

Until recently, the industry’s biggest concern was getting its products through the supply chain -- rather than softening demand. Like Cisco Systems Inc., which reported earnings Wednesday, Applied Materials said it’s still struggling with that problem, despite gradual improvements.

The company said it probably won’t be able to satisfy all the demand it’s getting for the next several quarters. And if even if there’s a drop in orders caused by the economy, earnings will remain stronger than in previous downturns because customers are competing to improve their production, Applied Materials said.

Excluding certain items, profit will be $1.82 to $2.18 a share in the current quarter. The midpoint of that range, $2 a share, topped the average prediction of $1.94.

The company also exceeded projections with its third-quarter results. Earnings amounted to $1.94 a share, minus certain items. Analysts estimated $1.79. Sales rose 5.2% to $6.52 billion, beating the $6.26 billion projection.

Applied Materials’ machines are crucial to the process of making semiconductors and are at the heart of factories operated by companies such as Samsung Electronics Co, Intel and Taiwan Semiconductor Manufacturing Co. Its projections offer a window into the chipmakers’ confidence about future demand.

Dickerson has argued that the growing use of semiconductors in new types of devices is lessening the industry’s dependence on personal computers and smartphones. That may help it avoid the severe ups and downs it suffered in past years. With phone demand slowing and PC demand falling off rapidly, his thesis is being put to the test.

(Updates with chart after sixth paragraph.)

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