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Applied Materials (AMAT) Q4 Earnings and Revenues Beat

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Applied Materials Inc. (AMAT - Free Report) reported modest fourth-quarter fiscal 2016 results, wherein the top- and the bottom line came ahead of the Zacks Consensus Estimate.

The company’s pro-forma earnings per share (EPS) of 66 cents in the fourth quarter beat the Zacks Consensus Estimate by a penny and came in at the higher end of the guided range.

This quarter Applied Materials’ revenues, orders and earnings were at an all-time high.

The company’s leadership and advanced packaging business stayed strong in this quarter. The company continues to see technological advancements in semiconductor and display areas. The ramp up of 3D NAND has led to significant market share gains.

Applied Materials remains strongly positioned in China where it continues to see strong growth in semiconductor orders. Growing investments from Chinese domestic manufacturers have been the main catalysts.

Notably, the company has gained considerable success in expanding beyond semiconductors, particularly in display.  New displays technologies like OLED are opening up new market opportunities for Applied Materials. The available market opportunity is now more than ten times that of traditional LCD.

Applied Materials has well-differentiated products and high market share and is efficiently delivering key enabling technology to logic and foundry customers. The company continues to expect strong products and services demand in the near future driven by continuous adoption of new technologies by semiconductor and display customers.

At the call, management seemed excited about emerging trends on the semiconductor and display fronts such as artificial intelligence, big data, cloud infrastructure, Internet of Things (IoT), virtual reality and self-driving cars.

Management believes that Applied Materials is in a great position to grow sustainably and profitably based on its strong pipeline of enabling technologies, supported by expanding opportunities on the semiconductor, service and display fronts.

APPLD MATLS INC Price, Consensus and EPS Surprise

Let’s delve deeper into the numbers.

Revenues

Applied Materials reported revenues of $3.31 billion, up 16.9% sequentially and 39.2% year over year. Revenues marginally beat the Zacks Consensus Estimate of $3.30 billion, backed by higher demand in Taiwan, Korea and japan and partially offset by lower demand in Southeast Asia, China and the U.S.

Revenues by Segment

The Silicon Systems Group (SSG) contributed 65% of revenues, up 19.1% sequentially and 42.4% year over year.

The second-largest contributor was Applied Global Services (AGS) with 21% revenue share. Segment revenues were up 5.5% sequentially and 8.8% year over year.

The Display segment was up 44.4% from the last quarter and a massive 136.6% from the year-ago level, contributing 14% to revenues.

Revenues by Geography

Taiwan contributed 35% to revenues, Korea 19%, China 13%, Japan 11% and U.S. 9%. While Europe contributed 8%, Southeast Asia contributed 5%.

Southeast Asia and China were the weakest, declining 46.9% and 22.8%, respectively, on a sequential basis. The U.S. remained flat. All the other regions increased from the previous quarter. Europe, Taiwan, Korea and Japan increased a respective 106.5%, 55.7%, 33.9 and 13.4%.

Orders

Total orders of $3.03 billion were down 20.8% sequentially but up 25% year over year.

Backlog for the quarter increased 46% year over year to $4.58 billion, nearly half of which was attributable to SSG, followed by Display, AGS and Corporate and others.

Margins

Applied Materials generated gross margin of 43.7%, down 4 basis points (bps) from the previous quarter’s margin but up 148 bps from 42.2% reported in the year-ago quarter.

Applied Materials’ adjusted operating expenses of $609 million increased 3.2% from the last quarter and 11.9% from the year-ago quarter. Operating margin of 25.2% increased 241 bps sequentially and 598 bps year over year.

Net Profit

On a pro-forma basis, Applied Materials reported net income of $722 million, or 66 cents per share compared with $550 million or 50 cents in the prior quarter. In the year-ago quarter, Applied Materials had reported a net income of $350 million or 29 cents per share.

Our pro-forma calculation excludes restructuring, acquisition-related, impairment and other charges as well as tax adjustments in the reported quarter.

On a fully diluted GAAP basis, the company recorded a net profit of $610 million (56 cents per share) compared with $505 million (46 cents per share) in the previous quarter and $336 million (28 cents per share) a year ago.

Balance Sheet

At the end of fiscal fourth quarter, inventories increased to $2.05 billion from $2.03 billion in the previous quarter. Accounts receivables increased to $2.28 billion from $1.85 billion in the prior quarter.

Cash and short-term investments balance was $3.41 billion compared with $2.83 billion in the prior quarter. Goodwill was 22.73% of the total assets.

The company generated $797 million in cash from operations. The company spent $88 million on capex and returned $279 million through stock repurchases and cash dividends to shareholders.

Guidance

Applied Materials also provided guidance for the first quarter of fiscal 2017. Revenues are expected between $3.20 and $3.34 billion. Non-GAAP EPS is expected to come in a range of 62 to 70 cents.

Zacks Rank and Stocks to Consider

Currently, Applied Materials has a Zacks Rank #2 (Buy) stock. Other stocks worth considering in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Kimball Electronics, Inc. (KE - Free Report) and Control4 Corporation (CTRL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, the consensus estimate for NVIDIA has gone up by 30.6% in the past 30 days. Estimates for Kimball Electronics and Control4 have gone up by 8.1% and 10%, respectivelyover the same time frame. 

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