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Applied Materials (AMAT) Q2 Earnings & Sales Miss, Rise Y/Y

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Applied Materials Inc. (AMAT - Free Report) reported second-quarter fiscal 2022 non-GAAP earnings of $1.85 per share, which improved 13% year over year.

However, the figure missed the Zacks Consensus Estimate by 2.1%.

Net sales of $6.25 billion climbed 12% from the year-ago period’s level. But the figure lagged the Zacks Consensus Estimate of $6.35 billion.

Top-line growth was driven by the strong performance delivered by the Semiconductor Systems and Applied Global Services segments.

The company witnessed solid growth in geographies, namely the United States, Europe, Taiwan, Southeast Asia and China, which was another positive.

Although the company witnessed strengthening demand for semiconductors, global supply-chain constraints remained its major headwind.

Nevertheless, management remains optimistic about the growing demand for semiconductor and wafer fab equipment. Further, the growing momentum in foundry/logic, and equipment markets remains a positive.

Applied Materials, Inc. Price, Consensus and EPS Surprise

 

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. Quote

Segments in Detail

Semiconductor Systems generated $4.46 billion of sales (which contributed 71.4% to its net sales), reflecting a year-over-year increase of 12%. A solid demand environment and strong orders contributed well.

However, the pandemic-led supply-chain disruptions were negatives.

Applied Global Services reported sales of $1.38 billion (22.1% of net sales), which rose 15% from the prior-year quarter’s level. Growth of 11% in systems under subscription agreement contributed well amid the supply-chain issues.

Sales from Display and Adjacent Markets were $381 million (6.1% of net sales), up 2% from the year-ago level.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $702 million, $489 million, $407 million, $968 million, $1.41 billion, $138 million and $2.13 billion, each contributing 11%, 8%, 6%, 16%, 23%, 2% and 34% to net sales, respectively.

On a year-over-year basis, sales in the United States, Europe, Taiwan, Southeast Asia and China increased 43.6%, 113.5%, 35.3%, 26.6% and 15.7%, respectively. Sales in Japan and Korea fell 7.9% and 32.2% from the year-ago quarter.

Operating Results

The non-GAAP gross margin was 47%, contracting 70 basis points (bps) from the year-ago quarter’s level.

Operating expenses were $1.03 billion, down 3.8% from the year-ago quarter’s level. As a percentage of sales, the figure contracted 270 bps year over year to 16.5%.

The non-GAAP operating margin of 30.6% for the reported quarter contracted 110 bps from the prior-year period’s level.

Balance Sheet & Cash Flow

As of May 1, 2022, cash and cash equivalent balance, and short-term investments were $3.9 billion compared with $5.7 billion as of Jan 30, 2022.

Inventories were $5.01 billion in second-quarter fiscal 2022 compared with $4.5 billion in first-quarter fiscal 2022. Accounts receivables increased to $4.9 billion in the reported quarter from $4.4 billion in the previous quarter.

Long-term debt was $5.455 billion at the end of the reported quarter compared with $5.454 billion at the end of the previous quarter.

Applied Materials generated a cash flow of $415 million, significantly down from $2.7 billion in the prior quarter.

AMAT returned $2.01 billion to its shareholders, of which share repurchases were worth $1.8 billion and dividend payments were worth $211 million.

Guidance

For third-quarter fiscal 2022, Applied Materials expects net sales of $6.25 billion (+/-$400 million). The Zacks Consensus Estimate for the same is pegged at $6.68 billion.

The company anticipates Semiconductor Systems, AGS and Display revenues of $4.48 billion, $1.43 billion and $310 million, respectively.

Management expects non-GAAP earnings per share of $1.59-$1.95. The Zacks Consensus Estimate for the same is pegged at $2.04.

Applied Materials expects a non-GAAP gross margin of 46% and non-GAAP operating expenses of $1.06 billion. It projects a non-GAAP tax rate of 12%.

Zacks Rank & Stocks to Consider

Currently, Applied Materials carries a Zacks Rank #4 (Sell).

Investors interested in the broader technology sector can consider some better-ranked stocks like Avnet (AVT - Free Report) , Monolithic Power Systems (MPWR - Free Report) and MaxLinear (MXL - Free Report) . While Avnet and Monolithic Power Systems sport a Zacks Rank #1 (Strong Buy), MaxLinear carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avnet has gained 4.5% in the past year. The long-term earnings growth rate for AVT is currently projected at 37.2%.

Monolithic Power Systems has gained 28.4% in the past year. The long-term earnings growth rate for MPWR is currently projected at 25%.

MaxLinear has rallied 7.5% in the past year. The long-term earnings growth rate for MXL is currently projected at 20%.