Applied Materials Customers Say Downturn Deepest Ever

Applied Materials Inc. (AMAT) Chief Executive Mike Splinter said his customers have called the downturn the deepest they have ever seen, as demand for semiconductors falls amid the deepening recession.

"Unprecedented things are happening right now," he said in an interview with Dow Jones Newswires. "Being in this industry more than 35 years, I've never seen people shut down memory factories. You just always keep it going."

In recent months, the majority of memory chip makers have taken action to halt production amid the economic downturn.

The memory segment can represent almost half of total revenues for chip equipment makers. But in the fourth quarter, nearly all chip makers saw sales tumble as demand for semiconductors slumped.

While the Santa Clara, Calif., company, which makes the tools used to produce computer chips and also more recently solar panels, said it wouldn't provide specific guidance for its business segments, it expects overall revenue to decline by 30%.

Revenue is expected to decline in each of its businesses.

Splinter said that the chip equipment market needs to consolidate, and Applied Materials is working to preserve cash and cut costs so that it can pursue acquisition opportunities when they appear.

"There needs at least to be fewer players than there are today," said Splinter, though he added sparking any deals could prove difficult.

"Getting consolidation to happen has been quite difficult if you look over the history of this market," he said. "There needs to be a triggering event. What that will be is hard to say."

Applied Materials shares were recently down 3.5% to $9.35 in late trading after reporting its first quarterly loss since 2003 amid cutbacks by a wide variety of chip makers.

In addition to making tools used in producing semiconductors, the company has a fast-growing business in solar panel manufacturing. Splinter said that the fate of the U.S. stimulus package currently being negotiated in Congress could affect its work in the solar area, at least indirectly.

Currently, the Senate version of the bill contains a provision providing tax credits for manufacturing equipment used in solar power that is absent from the version approved by the House, Splinter said.

A final version sent to the White House that includes those credits would be important for the solar sector.

Splinter said customers need to regain confidence that the market deterioration is slowing in order to begin moving toward purchases of capital equipment, but he sees few signs that a bottom has been reached.