Applied Materials Sees Sharp Order Reductions, Plans Layoff of 1800 Workers
Applied Materials will lay off ~1800 employees as demand for equipment continues to drop. Although fiscal fourth quarter performance exceeded expectations, Applied saw a 30% reduction in orders during the quarter ending Oct. 26. CEO Mike Splinter said he is seeing "a rapid slowdown in many of our customers' investment plans."
David Lammers, News Editor -- PV Society, 11/12/2008
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Facing “an extended downturn,” Applied Materials Inc. (Santa Clara, Calif.) executives said they would streamline the organization by reducing the global workforce by ~12%, or 1800 employees, as part of a plan to gain an annualized cost savings of $400M.
CEO Mike Splinter said the company’s fiscal fourth quarter, which ended Oct. 26, was a volatile one, with customers facing reduced demand for chips and displays. “The last six weeks of turmoil in the financial markets is unprecedented, and the weakening global economy will have significant impact on all of Applied’s businesses,” Splinter said following release of the financial results Wednesday.
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| Investments in SunFab lines for solar panels may get a boost from the tax investment credit recently passed by the U.S. Congress. |
The markets for semiconductors and flat panel displays depend largely on consumer demand, Splinter said, adding, “The current negative trends in consumer spending and economic uncertainty have led our customers to reassess their spending plans. We are seeing a pattern of multiple spending revisions as the severity of the situation sets in.”
Due to “a rapid slowdown in many of our customers’ investment plans, the volatility in our customer forecasts will be very high,” Splinter said. “During the fourth fiscal quarter, orders were down more than 30% as customers put their own spending plans on hold.”
Applied expects overall orders to be down >30% as customers put spending plans on hold in the early part of next year. Moreover, the company will issue no order guidance until volatility subsides, and will put its stock buyback program on hold as a “prudent” measure intended to maintain the maximum amount of financial flexibility.
In the company’s mainstay silicon systems business, Splinter said, wafer fab equipment spending is expected to be down >25% in fiscal 2009. Capital investments in the display sector may decline >40% year on year, following a record year for display equipment in fiscal 2008 driven by large-screen LCD TVs.
The oversupply of memory chips was the overriding factor in Applied’s fiscal 2008, but Splinter said logic and foundry utilization is now &70%. “As demand for TVs, cellphones and autos drops off, we expect utilization to continue to fall in the first half of 2009.”
In fiscal Q4, revenue for silicon equipment actually exceeded expectations. The company’s four largest customers placed large orders, and one or more DRAM customers in Taiwan purchased equipment. Following an unusually weak fiscal Q3 in sales, Applied saw revenues grow 11% to $2.2B for silicon equipment in the fourth quarter. Chief financial officer George Davis called it “a highly concentrated quarter,” with 70% of silicon equipment orders coming from the company’s four largest customers. Nearly half of shipments in the quarter went to DRAM manufacturers, with foundries accounting for only 9% of silicon equipment revenues.
Orders from display manufacturers “fell significantly as forecasted, by 80%, as customers pushed out capital investments,” Davis said. Although orders dropped, the company recorded record sales for display equipment in the fourth quarter, with a 7% increase over Q3.
Applied’s solar equipment operation had sales of ~$800M in the fiscal year, up from just $65M in fiscal 2007. Although the company expects growth in solar equipment sales to continue in fiscal 2009, the picture is clouded by the global financial crisis.
Looking at macroeconomic issues, Splinter said he expects “a period of pullback and reassessment in 2009. Crystalline silicon solar cells have a large exposure to consumer demand, and we expect the global economic situation to have an impact on demand and pricing for solar modules.”
Although Applied is shipping its thin-film solar equipment to seven SunFab customers that have secured financing, the situation is less clear for future customers. Some prospective thin-film equipment customers “are in the process of securing financing, and we are seeing some delays as those financing issues are sorted out,” Splinter said. “We do expect 2009 to be a significant growth year for our solar business group.”
Splinter gave credit to the U.S. Congress, which passed an extended tax credit to utilities investing in solar energy production facilities, among other incentives. “The new and improved investment tax credit paves the way for utility-scale investments. Those developments will take time. We expect investments to grow in the United States in the next year, and we look forward to the Obama administration’s focus on renewable energy.”
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