Applied Materials: Will Solar "Shed Some Light" On Future?


Applied Materials will report earnings after the bell later today and after strong reports from Intel ,NVIDIA , and so many of the biggest names in tech, the pressure's on this company to come up with something good.

Guidance, as usual, will be important, and of course anything the company has to say about the solar power industry, where Applied has shifted a chunk of its business to handle new, and steady flow, of solar panel manufacturing orders. The Street this time around is looking for 29 cents a share on $2.38 billion in revenue.

But here's the thing: the company seems stuck even though you've got to give them credit for drumming up new business by appealing to solar panel manufacturers. Applied shares are on the move today, up another 2%, which might just be the effects of a general recovery in big name tech after the steep slide so many of these issues suffered over the past week. But Applied's slide began in October when shares were trading at nearly $22 a share. "On the move?" It's a 2% move. "Slide" since October? From $22 to today's $19 and change.

And that's the big problem with this company: there just hasn't been any significant catalyst to generate any meaningful excitement in these shares. The company's attachment to the solar/green/clean tech momentum was interesting. But even that seems to be waning. Shares have a 15x P/E, and targets for them hover between $23 and $24. Of course, the company's nascent solar business is also the wild card in its earnings.

Right now, it seems like Applied is sitting pretty, but also sitting still. We don't know who the company's top solar customers are, and maybe that'll come up on its conference call. First Solar?SunPower?JASolar?SunTech? Are any of these companies buying from Applied? And how much? Maybe we're underestimating just how big a deal solar could become for the company. Clarification on this could be interesting today.


You'd also think that as Intel and AMD move toward the 45 nanometer manufacturing process--and what a big deal that will be for the broader chip industry--that equipment makers like Applied would be sitting pretty. But most of the CapEx that went into that industry shift has already occurred and big capital outlays may have peaked for the time being. That means that Applied can continue to expect steady business, but not the pops that could lead to similar action in its shares.

Orders have been declining, compared to the business Applied saw last year, yet if the company is using new solar-industry contracts to offset lagging business in the chip sector, that could be a positive no one is really anticipating. But it's a long shot.

Either way, the company's outlook will be key for its sector, as well as for chip companies Applied counts as key customers. Its comments on all things solar could also go a long way toward proving whether these companies are merely a flash in the pan, or truly growing at a clip that justifies the huge runs their stocks have enjoyed.

Questions? Comments?