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Thursday, November 16, 2006

How Many Times Will Applied Materials Call the Bottom?

By William Trent, CFA of Stock Market Beat

Last month we wrote a piece asking someone (anyone) to tell Applied Materials (AMAT) CEO Mike Splinter there’s a slowdown coming for semiconductor equipment manufacturers. Apparently someone gave him the message, but he is taking it only half-heartedly.

According to
Splinter said he expects Applied’s silicon business to grow by more than 10% in fiscal 2007, outpacing the broader industry.But executives warned of a “modest pullback” among customers in the current quarter.

Applied projected that sales will decline 5% to 10% sequentially in its fiscal first quarter. That suggests a revenue range of $2.41 billion to $2.28 billion, below the average analyst expectation of $2.46 billion.

When we wrote our plea for intervention, we noted that Mike Splinter called the bottom of the last slowdown for about 8 consecutive quarters, so what should we expect? Which brings us to a new (albeit slow-paced) drinking game. From now until there is actually a bottom in semiconductor equipment orders we will take a shot each time Splinter suggests that orders have/will bottom in the current/next quarter.

The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

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