Applied Might Re-Affirm Tech Turnaround


It's no secret that Applied Materials has suffered its fair share of difficulties during the deep and sustained economic morass gripping the tech community.

Tonight however, the company might offer even more evidence that a turnaround in tech is real, and that a double dip might not occur.

The Street expects Applied to report an 8-cent loss on $955.2 million. Applied had earlier offered a loss range of 6 cents to 14 cents, and revenue between $827 million and $1.02 billion. But Applied's ranges came well ahead of strong indications from big customers like Intel, and market research from the Semiconductor Industry Association that thin inventories and sales increases might bode well for the chip industry. In fact, the SIA said global chip sales rose 17 percent sequentially to $51.7 billion during the second quarter, but they were still off 20 percent from the $64.7 billion reported during the same period a year ago.

Of course, those assumptions are a double-edged piece of silicon: on the one hand, signs of a turnaround are good; but on the other, that puts the pressure on Applied to meet or exceed expectations tonight, and offer a rosy outlook for its current quarter.

On now:

Slideshow: Evolution of Wireless Communication

But that pressure isn't stopping Credit Suisse from increasing estimates o the company and raising its target to $12.50 a share from $8.25. That's a big increase and speaks to the firm's third quarter expectations of a 9-cent loss on $1.029 billion in revenue. Credit Suisse also anticipates a 3-cent loss in the current quarter on $1.085 billion, along with another, and potentially deeper round of cuts.


But Applied's third quarter report tonight, and fourth quarter outlook, should continue the trends we have seen from other tech all-stars during this earnings season. Part of that was because expectations were so unreasonably low to begin with, but the other part is that IT spending should recover, and significant catalysts like the upcoming Windows 7 release from Microsoft are on the way.

Craig Berger from FBR Capital Markets sees almost an across-the-board improvement in so many key sectors of tech. Netbooks continue to sell well, and that's good for everyone from Intel, and by default Applied Materials, Google, Microsoft, Hewlett-Packard and others; smart phones are surging, and that's good for Research in Motion, Apple, Nokia and Palm; even LCD TVs are seeing a renaissance.


Lam Research and KLA Tencor have already reported their quarters, so it will all come down to Applied Materials tonight to keep the rally going. And that's why the company's commentary is so critical. There was a time when Applied could rely on its burgeoning solar panel business to juice revenue, but with concerns of a glut on the market, and new research yesterday indicating that more than half the solar panels already built won't be installed until next year, it appears that momentum may be stalling for Applied.

Shares are 50 percent since the March bottom, and judging by the 2 percent decline today, investors may be taking a wait-and-see. Applied tonight however is so much bigger than just itself. It's numbers will be taken as a referendum into broader tech and its report should generate some fireworks.

Questions? Comments?