Applied Materials Q3 Earnings Shine $AMAT

During yesterday’s earnings call Applied Materials CEO Mike Splinterand CFO George Davis discussed the company’s third quarter results.Overall the company exceeded its third quarter guidance driven by strong results in our semiconductor, display and crystalline silicon solarbusinesses.

A look at our Solar Business

Net sales for the Energy and Environmental Solutions (EES) segmentwas $387 million dollars, an increase of 133% and was the third highestbooking quarter for EES despite the absence of any thin film orders. Our Baccini business was particularly robust, as net sales from that groupwere more than 75% above the previous high, achieved in Q4 ’08.

Applied had record profitability in crystalline silicon (c-Si) solarthis quarter, led by the highest-ever sales in Baccini. Baccini is theplatform of choice in China which is driving 60% of the world’s capacity additions this year. We’re pleased with our product roadmap — which we see driving further increases in panel efficiency over the next coupleof years. In our Precision Wafering Systems business, we set a newrecord for orders. We also recognized revenue on a single-junctionSunFab line. Our thin film solar backlog ended the period at about $300million dollars with two more factory sign-offs expected over the nexttwo quarters.

As we detailed earlier this year on July 21, Applied Materialsannounced the restructuring of EES to focus on our industry-leadingopportunities in c-Si solar and discontinue sales to new customers ofour SunFab fully-integrated lines for manufacturing thin film solarpanels and would offer individual tools for sale to thin film solarmanufacturers.

While we expect EES net sales to be down 10 to 20% in the fourthquarter, it is possible there could be upside to this number if weachieve customer acceptance for a major SunFab factory in China duringthe quarter.

The Solar Industry

In the solar industry, worldwide panel installations are trendingabove 12 gigawatts for the year — driven by pull-ins related to thefeed-in-tariff in Germany. It’s likely that Germany’s growth willmoderate in 2011, but we see panel demand increasing next year withstrength in Europe, China, Japan and parts of the U.S. Fab utilizationhas improved throughout the crystalline silicon supply chain. Panel ASPs have remained stable, and leading panel makers reported sold-outconditions through the end of the year, with visibility into the firsthalf of 2011.

We now believe net capacity additions will be in the range of 11 to13 gigawatts for the year, with equipment spending likely to exceed 9billion dollars. While early indications for 2011 are positive, we’llkeep a close eye on equipment demand as this year’s capacity is absorbed by the industry. Over time, we expect ratable reductions in panelprices to continue, resulting in a market that is less dependent ongovernment support.



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