Can Applied Materials Sustain Growth Momentum in Fiscal 4Q16?

AMAT’s better-than-expected fiscal 4Q16 guidance

Applied Materials (AMAT) has reported a strong guidance for fiscal 4Q16, beating the analyst estimates. For fiscal 4Q16, AMAT expects revenue to grow by 17% sequentially to ~$3.3 billion, which is higher than the consensus estimate of ~$2.9 billion and its fiscal 4Q15 revenue of ~$2.8 billion. (Estimates are taken at the midpoint of the guidance range.)

Can Applied Materials Sustain Growth Momentum in Fiscal 4Q16?

The company’s revenue is expected to be largely driven by 21% sequential growth in Silicon Systems sales and 35% sequential growth in Display sales. Growth in the Display segment is likely to be driven by orders from Samsung (SSNLF), which would reportedly manufacture OLED (organic light emitting diodes) display panels for Apple’s (AAPL) 2017 iPhone.

On the other hand, rival Lam Research (LRCX) expects only 5.2% sequential growth in revenue for the current quarter (ending September 30, 2016).

Profit guidance

On the profitability front, AMAT expects its fiscal 4Q16 non-GAAP (generally accepted accounting principles) gross margin to remain sequentially flat at 43.7%. The company expects to report non-GAAP operating expenses of $600 million, which would be lower as a percentage of sales. In fiscal 3Q16, the company reduced its operating expense as a percentage of sales to a five-year low, which helped it post an operating margin of 22.8%. For fiscal 4Q16, the company’s operating margin is expected to cross 23%.

EPS estimate

For fiscal 4Q16, AMAT expects its non-GAAP EPS (earnings per share) to rise by 30% sequentially to $0.65, beating the consensus estimate of $0.59. AMAT expects the strong demand from the industry to continue in fiscal 2017.

Now let’s look at AMAT’s outlook for the semiconductor equipment industry.