KLA-Tencor Profit Drops 48%; Fewer Orders Predicted (Update2)

July 31 (Bloomberg) -- KLA-Tencor Corp., the second-largest U.S. maker of semiconductor equipment, posted a 48 percent drop in fourth-quarter profit after orders from memory-chip makers slowed.

Net income fell to $76 million, or 43 cents a share, the company said today in a statement. Sales declined 20 percent to $590.7 million in the period ended June 30, while orders decreased about 15 percent from the previous period.

Orders probably will plunge another 15 percent this quarter, Chief Executive Officer Rick Wallace said on a conference call. Global spending on chip equipment may decline by more than a fifth this year as the U.S. economic slump worsens and excess supply drives prices down, according to researcher Gartner Inc.

``In the final weeks of the quarter, we experienced a further slowdown in orders,'' said Wallace, 48. ``The outlook for near-term recovery is muted.''

The San Jose, California-based company fell 19 cents to $37.40 in extended trading after closing at $37.59 on the Nasdaq Stock Market. The shares have declined 22 percent this year.

Fourth-quarter net income last year was $147.3 million, or 75 cents a share. KLA-Tencor forecast that profit would amount to 32 cents to 36 cents this quarter, on sales of $510 million to $525 million. That compared with analysts' average projection of profit of 53 cents on revenue of $559.4 million.

Memory `Weak'

``Memory is weak, and it's going to be weak again in September,'' said Patrick Ho, an analyst at Stifel Nicolaus & Co. in Dallas. ``It could be better in December, but it's hard to tell.'' He recommends buying KLA shares and doesn't own any.

Excluding reorganization costs and other expenses, fourth- quarter profit was 60 cents, beating the 57-cent average of estimates compiled by Bloomberg. Wallace called the results a ``strong performance'' amid an industrywide decline in orders from makers of memory chips.

KLA-Tencor's machines test whether each stage in the semiconductor-manufacturing process is completed successfully. The company is cutting costs to improve productivity as it faces increasing competition from Applied Materials Inc., the world's largest maker of machinery used to make computer chips. That may prompt further price cuts, Ho said.

``When you have a large, well-capitalized competitor that comes into your marketplace like Applied Materials, it can put a lot more pricing pressure on you,'' Ho said.

To contact the reporter on this story: Whitney Kisling in Washington at wkisling@bloomberg.net