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By Himank Sharma and Nicola Leske
Tue Jul 10, 2012 11:41am EDT
(Reuters) - Top chip gearmaker Applied Materials Inc said on Tuesday it will miss its full-year targets due to weaker-than-expected demand from foundry customers, echoing warnings from other companies on slower spending.
Applied Materials said demand from foundry customers who build chips for other companies was slowing down and could hurt full-year profitability by about 15 cents to 20 cents per share, compared with previous estimates.
As a result, it said it will not meet its targets of full-year net sales of $9.1 billion to $9.5 billion or adjusted profits of 85 cents to 95 cents per share.
Applied Materials said it will provide a more detailed outlook on August 15.
Investors often look to Applied Materials and other suppliers of semiconductor manufacturing equipment as early indicators for global microchip demand, because they supply the machines that Intel, Samsung Electronics and other chipmakers need to expand capacity.
The warning came less than two months after it assured investors that sales of its 28 nanometer capacity chips reflected increased demand after months of a prolonged slowdown as chipmakers kept a lid on spending.
Twenty-eight nanometer chips have transistor features measuring 28 nanometers, or billionths of a meter, and are the newest technology from contract manufacturers -- critical for small-yet-fast chips used in cellphones and tablets.
Applied Materials' update followed chipmaker Advanced Micro Devices Inc, which cut its outlook on Monday, citing weaker-than-expected sales in China, Europe and weak demand.
Qlik Technologies Inc and Informatica Corp also issued forecasts far below market estimates -- an early indication of potentially weak earnings from tech companies this earnings season.
Analysts said the warnings do not come as a total surprise in light of the continued European financial crisis, an ongoing decline in personal computer sales and warnings from other companies.
Manesh Sanganeria, an analyst at RBC Capital Markets, noted that rival Tokyo Electron Ltd said in June that orders were 28 percent below expectations.
"It's not specific to Applied Materials," Sanganeria said, adding that "PCs have been weak and Europe has been weak. Since the overall demand has gone down they're adjusting."
Ben Pang, an analyst at Caris and Co, said spending plans at larger companies such as Intel Corp, Samsung Electronics Co Ltd and TSMC were still intact.
"The market share leaders (in foundries) are probably okay. But the market share laggards are having more difficulty right now," Pang said.
"It's pretty clear that a company like Intel -- which announced the ASML investment yesterday -- has a long-term plan on how they want to build capacity," he said.
Dutch chip equipment maker ASML Holding NV said on Monday it had signed up Intel to bankroll its research into costly next-generation chipmaking technology.
"But some of the smaller companies -- the ones which plan for more short-term demand -- are the ones cutting down spending," Pang added.
Applied Materials also said it expects third-quarter revenue at the low end of its previously projected range. It had forecast third-quarter net sales to be flat to down 10 percent sequentially.
The company forecast adjusted profit in the lower half of its previous outlook of 21 cents to 29 cents per share.
Applied Material shares were down 1.5 percent at $10.84 after touching a low of $10.40 on the Nasdaq.
Advanced Micro slid 10.2 percent at $5.05, while Intel lost 1.8 percent to $25.70.
(Reporting by Himank Sharma in Bangalore, Nicola Leske and Sinead Carew in New York; editing by Joyjeet Das and Jeffrey Benkoe)
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