AMAT’s Fiscal 2Q16 Guidance Topped Analysts’ Estimates



Revenue drivers

Applied Materials (AMAT) reported declining revenues in fiscal 1Q16, but it has an optimistic outlook for fiscal 2Q16. The key areas that are expected to drive future sales are orders from NAND flash (negative AND) and display manufacturers in China, Southeast Asia, and Europe (IEV). Let’s look at the company’s financial strength to cater to its customers’ requirements for innovation.

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Cash position

In fiscal 1Q16, Applied Materials (AMAT) earned $207 million in cash from operations and spent $68 million in capital expenditures, $625 million in share buybacks, and $115 million in dividend payments. As of January 31, 2016, the company’s cash reserve stood at $2.96 billion and its long-term debt was $3.3 billion. This indicates that the company does not have sufficient cash to meet its long-term debt.

However, such a scenario appeared only in fiscal 1Q16. In the past four quarters, the company managed a strong cash position as seen from the above graph.

Fiscal 2Q16 guidance

For fiscal 2Q16, Applied Materials (AMAT) expects its revenue to remain almost unchanged between $2.37 billion–$2.49 billion, higher than the analysts’ estimate of $2.28 billion. Looking at the business segments, the company expects Silicon Systems’ revenue to grow by 11% to 17%, Applied Global Services’ revenue to grow slightly to 5%, Display’s revenue to fall by 20% to 30%, and Energy and Environmental Solutions’ revenue to grow by 22%.

In our earlier article, we saw that new orders from Display rose 71% YoY in fiscal 1Q16, but the impact of these orders on sales would be visible over fiscal 2016.

For Silicon Systems, the company expects the foundry’s investments in 2016 to be same as in 2015. Most of the investments made in the 10-nanometer node, which is being developed by Intel (INTC), Samsung (SSNLF), and TSMC (TSM). However, the impact of this investment would be visible in AMAT’s revenue in the second half of the calendar year 2016.

On the profitability front, the company expects to report non-GAAP (generally accepted accounting principle) EPS (earnings per share) between $0.30–$0.34, higher than the analysts’ estimate of $0.26.

Applied Materials’ better-than-expected guidance for fiscal 2Q16 resulted in the company’s stock rising by 7%. In the final part of this series, we will see the stock’s performance over the quarter.


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