Revenue versus estimates
In fiscal 2Q16, Applied Materials’ (AMAT) revenue was almost flat at $2.45 billion, beating the analyst estimates of $2.43 billion and on the higher end of its guidance of $2.37 billion to $2.48 billion. While AMAT maintained flat revenues on a YoY (year-over-year) basis, rivals KLA-Tencor (KLAC) and Lam Research (LRCX) reported declines of 3.5% and 5.67%, respectively, during the same quarter.
AMAT’s new orders reach a 15-year high
What’s interesting is Applied Materials’ order book, which shows its future earnings potential. Semiconductor companies are increasingly investing more on device technology than on production capacity, and this is driving AMAT’s order books.
In fiscal 2Q16, new orders rose by 37% YoY to $3.5 billion—its highest level in 15 years. The growth was primarily driven by a fivefold increase in order from display segment, which accounted for 20% of the company’s new orders in fiscal 2Q16, as compared to just 5% in fiscal 2Q15.
Another key driver was a 15% YoY increase in orders from Silicon Systems segment, which accounted for 57% of the company’s total orders in fiscal 2Q16. The orders are being driven by the memory market’s transition to 3D NAND technology, with companies like SanDisk (SNDK) and Micron Technology (MU) building 3D NAND fabrication plants.
On a geographical front, new orders from China rose by 157% YoY, and in Southeast Asia, new orders almost tripled in fiscal 2Q16. These figures show strong revenue growth in the coming quarters. However, the company already has an even greater order backlog, which it has yet to deliver.
At the end of fiscal 2Q16, AMAT’s order backlog rose by 34% quarter-over-quarter to $4.2 billion, with 49% of the backlog coming from the silicon systems and 25% and 23% coming from display and services, respectively. The silicon systems backlog of $2 billion was the highest in nine years. But while the order books show strong growth, the timing of the order realization determines the company’s revenue growth.
We’ll look at revenue and order distribution across various geographies in the next part.