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

·4-min read

Applied Materials Inc. AMAT reported third-quarter fiscal 2022 non-GAAP earnings of $1.94 per share, which surpassed the Zacks Consensus Estimate by 8.9%. Further, the figure improved 2% year over year.

Net sales of $6.52 billion climbed 5% from the year-ago level and surpassed the Zacks Consensus Estimate of $6.26 billion.

Top-line growth was driven by the strong performance delivered by the Semiconductor Systems and Applied Global Services segments.

The company witnessed solid growth in geographies, namely the United States, Europe, Taiwan and Southeast Asia, which was another positive.

It experienced increased orders and backlog, as well as improvement in its supply chain. Also, the company’s factory utilization was high in the reported quarter.

Applied Materials, Inc. Price, Consensus and EPS Surprise

 

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 $4.73 billion of sales (which contributed 73% to its net sales), reflecting a year-over-year increase of 6.3%. A solid demand environment, strong orders and improved backlog contributed well.

Applied Global Services reported sales of $1.42 billion (22% of net sales), which rose 10.4% from the prior-year quarter. Growth of 9% in systems under subscription agreement contributed well amid supply-chain challenges.

Sales from Display and Adjacent Markets were $333 million (5% of net sales), down 22.7% from the year-ago level.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $725 million, $529 million, $438 million, $1.2 billion, $1.5 billion, $270 million and $1.8 billion, each contributing 11%, 8%, 7%, 19%, 24%, 4% and 27% to net sales, respectively.

On a year-over-year basis, sales in the United States, Europe, Taiwan and Southeast Asia increased 36%, 122.3%, 21.9% and 56.1%, respectively. Sales in Japan, Korea and China fell 2.4%, 5.2% and 20.2%, respectively, from the year-ago quarter.

Operating Results

The non-GAAP gross margin was 46.2%, contracting 180 basis points (bps) from the year-ago quarter.

Operating expenses were $1.1 billion, up 13.4% from the year-ago quarter. As a percentage of sales, the figure expanded 120 bps year over year to 16.6%.

The non-GAAP operating margin of 30% for the reported quarter contracted 270 bps from the prior-year period.

Balance Sheet & Cash Flow

As of Jul 31, 2022, cash and cash equivalent balance, and short-term investments were $3.5 billion compared with $3.9 billion as of May 1, 2022.

Inventories were $5.5 billion in third-quarter fiscal 2022 compared with $5.01 billion in second-quarter fiscal 2022. Accounts receivables increased to $4.95 billion in the reported quarter from $4.88 billion in the previous quarter.

Long-term debt was $5.456 billion at the end of the reported quarter compared with $5.455 billion at the end of the previous quarter.

Applied Materials generated a cash flow of $1.5 billion, significantly increasing from $415 million in the prior quarter.

AMAT returned $1.23 billion to its shareholders, of which share repurchases were worth $1 billion and dividend payments were worth $225 million.

Guidance

For fourth-quarter fiscal 2022, Applied Materials expects net sales of $6.65 billion (+/-$400 million). The Zacks Consensus Estimate for the same is pegged at $6.53 billion.

The company anticipates Semiconductor Systems, AGS and Display revenues of $4.93 billion, $1.43 billion and $250 million, respectively.

Management expects non-GAAP earnings per share of $1.82-$2.18. The Zacks Consensus Estimate for the same is pegged at $1.91.

Applied Materials expects a non-GAAP gross margin of 46.4% and non-GAAP operating expenses of $1.08 billion. It projects a non-GAAP tax rate of 11.8%.

Zacks Rank & Stocks to Consider

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

Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like Arista Networks ANET, Keysight Technologies KEYS and ASE Technology ASX. While Arista Networks sports a Zacks Rank #1 (Strong Buy), Keysight Technologies and ASE Technology carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks has lost 9.6% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 18.9%.

Keysight Technologies has lost 17.4% in the year-to-date period. KEYS’ long-term earnings growth rate is currently projected at 9.1%.

ASE technology has lost 19.2% in the year-to-date period. The long-term earnings growth rate for ASX is currently projected at 23.1%.


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