Applied Materials sees weak outlook for consumer electronics and PCs

As far as electronics suppliers go, Applied Materials has pretty deep insight into the future demand for tech goods. It is the world’s largest supplier of equipment for manufacturing semiconductor chips. And today, the company said that it doesn’t really like what it sees.

Santa Clara, Calif.-based Applied Materials beat earnings targets for its fiscal third quarter, but chief executive Mike Splinter said in a conference call today with analysts that the outlook is weak.

“Consumer electronics and PCs are at the heart of what’s causing the supply demand imbalance here,” said Splinter said in the call.

He said chip makers are cutting back on orders for equipment because they are worried about the uncertainty in the global economy. Customers are reassessing their investments and pushing out orders, he said.

Applied Materials is a huge company with $9.5 billion in sales last year and 13,000 employees. It is a big player, not only in semiconductor manufacturing equipment, but also in display manufacturing equipment and solar equipment. The latter industry is suffering from a state of overcapacity, Splinter said.

The back-to-school season has been disappointing so far and that has led to weak PC sales. That has prompted makers of dynamic random access memory chips to scale back on capacity expansions scheduled for the second half of the year, Splinter said. Consumer electronics sales have also been weak. TV makers are scaling back orders for displays. Smartphone sales are strong but tablets are in line with expectations of hitting 65 million units this year. Still, these devices can’t offset the decline in the bigger markets.

Foundries, or contract chip manufacturers such as Taiwan Semiconductor Manufacturing Co. (not specifically pointed out by Splinter), are cutting back orders as the capacity utilization of their factories are falling. (That is, their factories are operating at 80 percent full or something like that).

Revenues for the whole industry are now expected to be about $1 billion less, at about $29 billion to $32 billion. Splinter said he sees about two quarters of softness in the sales of wafer fab equipment (or equipment used to make chip wafers). Applied is accordingly scaling back its hiring.

At some point in the future, smartphone and tablet demand will grow large enough to offset falling demand for PCs, but each PC uses a lot more memory than a current smartphone or tablet.

Applied shares are at $11.36 a share, down 8 cents, in after-hours trading. For the third fiscal quarter, Applied’s profits were good due to a strong TV display business. Excluding one-time items, earnings per share were 35 cents, up from 17 cents a year ago. Revenues were up 11 percent to $2.79 billion. Applied had expected 31 cents to 37 cents, with revenue of $2.57 billion to $2.77 billion.

The company forecast a fourth fiscal quarter profit of 16 cents to 24 cents, with revenue falling 15 percent to 30 percent sequentially to $1.95 billion to $2.37 billion. Analysts had expected 30 cents in earnings per share and $2.57 billion in revenues.