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Applied Materials (AMAT) Q3 Earnings & Sales Beat, Rise Y/Y

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Applied Materials Inc. (AMAT - Free Report) reported third-quarter fiscal 2021 non-GAAP earnings of $1.90 per share, which surpassed the Zacks Consensus Estimate by 7.9%. The bottom line improved 16.6% and 79% on sequential and year-over-year basis, respectively.

Net sales of $6.2 billion outpaced the Zacks Consensus Estimate of $5.9 billion. The top line climbed 41% from the year-ago period and 11% from the previous quarter.

Strong performance by all the segments, especially Semiconductor Systems, drove the company’s top line. Solid demand for semiconductors acted as a major tailwind.

The company witnessed a solid momentum in key geographies, namely the United States, Europe, Korea, Taiwan, Southeast Asia and China, which was another positive.

Management believes that the equipment spending demand for foundry/logic is expected to remain strong in the near term. Robust demand for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets is anticipated to act as a tailwind.

It expects DRAM spending to increase in the days ahead.

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. Quote

Segments in Detail

Semiconductor Systems generated $4.45 billion in sales (which contributed 72% to its net sales), reflecting year-over-year increase of 53%. This was driven by rising demand across foundry/logic and memory, which benefited the company’s ICAPS business. Robust process control and leadership businesses contributed as well.

Applied Global Services reported sales of $1.29 billion (21% of net sales), which surged 24% from the prior-year quarter. Well-performing recurring revenue business of parts, services and software drove the top-line growth within the segment.

Sales from Display and Adjacent Markets were $431 million (7% of net sales), up 1% from the year-ago level. The growing usage of OLED technology in several devices, such as smartphones, televisions and computers, remained positive.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $533 million, $238 million, $449 million, $1.29 billion, $1.26 billion, $173 million and $2.25 billion, contributing 9%, 4%, 7%, 21%, 20%, 3% and 36% to net sales, respectively.

On a year-over-year basis, sales in United States, Europe, Korea, Taiwan, Southeast Asia and China increased 33.6%, 21.4%, 22.8%, 83.6%, 44.2% and 54.1%, respectively. Sales in the Japan fell 4.9% from the year-ago quarter, respectively.

Operating Results

Non-GAAP gross margin was 48%, expanding 300 basis points (bps) from the year-ago quarter.

Operating expenses were $954 million, up 12.6% from the year-ago quarter. As a percentage of sales, the figure contracted 390 bps year over year to 15.4%.

Non-GAAP operating margin of 32.7% for the reported quarter expanded 630 bps from the prior-year period.

Balance Sheet & Cash Flow

As of Aug 1, 2021, cash and cash equivalent balance, and short-term investments were $6.5 billion compared with $6.8 billion as of May 2, 2021.

Inventories were $4.12 billion in the fiscal third quarter compared with $4.05 billion in the fiscal second quarter. Accounts receivables increased to $3.8 billion in the reported quarter from $3.4 billion in the previous quarter.

Long-term debt was $5.451 billion at the end of the reported quarter compared with $5.450 billion at the end of the previous quarter.

Applied Materials generated a cash flow of $1.7 billion, down from $1.2 billion in the prior quarter.

The company returned $1.72 billion to shareholders out of which it repurchased shares worth $1.5 billion and made dividend payment worth $219 million.

Guidance

For fourth-quarter fiscal 2021, Applied Materials expects net sales of $6.33 billion (+/-$250 million). The Zacks Consensus Estimate for the same is pegged at $5.98 billion. Further, it projects Display revenues at $400 million.

The company anticipates Semiconductor Systems and AGS revenues to be $4.6 billion and $1.3 billion, up 50% and 18% year over year, respectively.

The company expects non-GAAP earnings per share to be $1.87-$2.01. The Zacks Consensus Estimate for the same is pegged at $1.78 per share.

Zacks Rank & Stocks to Consider

Currently, Applied Materials carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Digital Turbine (APPS - Free Report) , Advanced Micro Devices (AMD - Free Report) and ASML Holding N.V. (ASML - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rates for Digital Turbine, Advanced Micro Devices and ASML Holding are currently projected at 50%, 44.6% and 33.5%, respectively.

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