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Applied Materials rises following 3Q report

NEW YORK (AP) -- Shares of Applied Materials traded higher Friday even though the chip-making equipment company's earnings and outlook fell short of Wall Street estimates as analysts focused on its long-term outlook.

THE SPARK: Applied Materials Inc. said Thursday that its fiscal third-quarter net income fell 23 percent while revenue fell 16 percent. Both totals came up short of analyst expectations. The company said revenue from its silicon system group unit fell 18 percent, and revenue from its next-largest business, applied global services, sank 14 percent.

The Santa Clara, Calif., company said it expects to earn between 16 and 20 cents per share in the fourth quarter. Revenue is expected to be about the same as the $1.98 billion it reported in the third quarter.

Analysts were expecting income of 21 cents per share and $2.15 billion in revenue, according to FactSet.

THE BIG PICTURE: Applied Materials said its income totaled 18 cents per share excluding special items. Analysts expected 19 cents per share on revenue of $2.06 billion. The company said it took $2 billion in orders, which was less than it received in the second quarter.

The company also said company President Gary Dickerson will replace Michael Splinter as CEO on Sept. 1. Splinter, 62, has been CEO since 2003 and chairman since 2009. He will become executive chairman of the company.

THE ANALYSIS: Stifel Nicolaus analyst Patrick Ho said investors were already aware of the market conditions that hurt the company's third-quarter results and fourth-quarter estimates.

"We do not believe management's commentary was a major surprise and is very consistent with current industry conditions," he wrote in a note to clients. Ho said 2014 should be a strong year for wafer fabrication equipment, and Applied Materials should pick up market share. He kept a "Buy" rating on the stock and raised his price target to $18 per share from $17.

SHARE ACTION: Applied Materials shares rose 50 cents, or 3.3 percent, to $15.82 in midday trading. The stock has climbed 38 percent in 2013 and reached a four-year high of $16.78 on July 17.