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.

Best and worst industries in 2008

Software publishers and home-health care services were among the nation’s top-performing small-business sectors in 2008, with annual sales growth of 17.39 percent and 13 percent, respectively, according to Sageworks, a North Carolina company that develops financial analysis tools and provides financial information for private companies.

The list is based on annual revenue growth percentages for small businesses with revenues of less than $15 million per year.

Other industries that performed well last year based on annual sales growth were remediation and waste-management services (up 12.3 percent); direct-selling companies (12 percent); accounting, tax preparation, payroll and bookkeeping services (11.5 percent); investigation and security services (11 percent); computer systems design (10.7 percent); management of companies and enterprises (10.7 percent); medical equipment and supplies manufacturing (10 percent); and electrical equipment and component manufacturing (9.24 percent).

Businesses tied to auto, real estate and construction were among the worst-performing groups in 2008 based on annual sales growth.

According to Sageworks, real estate agents and brokers (–5.52 percent); credit-intermediation services (–5.47); lumber and construction materials merchant wholesalers (–5.45 percent); cement and concrete product manufacturing (–4.7 percent); motor vehicle parts, supplies and merchant wholesalers (–3.67 percent); nondepository credit intermediation (–2.11 percent); wood product manufacturing (–1.93 percent); furniture stores (–1.48 percent); chemical and allied products merchant wholesalers (–1 percent); and dry cleaning and laundry services (–0.84 percent).

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