October 26, 2014

Applied Tames Projections on Chip-Maker Spending

Applied Tames Projections on Chip-Maker SpendingApplied Materials Inc.’s chief executive again lowered projections for spending by chip manufacturers on equipment this year, adding to concerns about weak demand for computers and other devices.

The comments from Applied CEO Mike Splinter are the latest indications of caution in the semiconductor industry, which has seen weakness of late. Consumer spending on PCs has remained soft, some large handset makers have been struggling and macroeconomic worries have hurt demand.

Nonetheless, Mr. Splinter, at an industry conference in San Francisco, said the company—which makes tools used to produce semiconductors, television screens and solar panels—is keeping to its third-quarter projections.

In May, Applied issued a cautious fiscal-third-quarter outlook and lowered 2011 expectations for spending on equipment to make chips. Tuesday, its projection slipped again, to a spending range of $30 billion to $33 billion, down from prior estimates for $31 billion to $34 billion.

Fellow semiconductor-equipment maker Novellus Systems Inc. also projected weak third-quarter results Monday.

The comments from Applied and Novellus, as well as a dismal forecast late Monday from chip maker Microchip Technology Inc. are raising investor concerns about the industry’s second half.

A clearer outlook for the second half should emerge when larger companies—such as Intel Corp., Texas Instruments Inc. and Qualcomm Inc.—post results in the coming weeks.

Applied executives said the culprit is soft consumer demand.

“What foundries are seeing more and more, and what we’re seeing overall, is a very tight linkage to consumer demand,” Chief Financial Officer George Davis said.

Mr. Splinter, who sees PC shipments growing less than 10% this year, said factory utilization, or the percentage of plant capacity being used, is trending down to the 80% level, which he said is “substantially lower than we thought.” Companies are leery to buy new equipment unless their factories are busier.

“Business is a bit soft at this point,” he said, though he said chip makers are ready to move quickly on equipment purchases. “I don’t think talk about big pushouts to 2012 is there at this point.”

Meanwhile, Mr. Splinter said Applied has received approval for its purchase of Varian Semiconductor Equipment Association Inc. from half of the countries required, with approval still needed from the U.S., China and South Korea. Applied in April agreed to buy Varian for $4.9 billion in cash, betting that the demand for popular gadgets such as smartphones and energy-efficient technology will drive growth at a combined company.

This news is originally written and published at http://online.wsj.com/article/SB10001424052702303812104576442212624550474.html

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