(Reuters) – Applied Materials, the world’s largest supplier of tools used to make semiconductor chips, forecast a higher-than-expected third-quarter profit on the back of strong demand for chips used in smartphones and solid-state drives.
Shares of the company (AMAT), which also posted second-quarter earnings above analysts’ expectations, rose 7.6% in after hours trading on Thursday.
The strong forecast bodes well for the overall chip industry as Applied Materials is considered an industry bellwether and its results are seen as an indicator for the health of the sector.
The company said it expects strong demand from mobile-handset makers this year as they increasingly shift to Organic LED (OLED) displays.
“In the display area, customers are moving to OLED, particularly in mobile, and that increases our total available market by a factor of three,” Chief Executive Gary Dickerson told Reuters.
For the third quarter, net sales in the display business, which makes products used to manufacture LCD and OLED screens, are expected be up by 70 to 90% to about $300 million, Chief Financial Officer Bob Halliday said.
The company has also been benefiting from strong demand for technology used to make 3D NAND memory chips, which can hold more data and are used in smartphones.
Applied Materials said it expects an adjusted profit of 46 to 50 cents per share for the third quarter and net sales to rise 14-18% from the second quarter.
Analysts on average were expecting a profit of 36 cents, according to Thomson Reuters I/B/E/S.
Orders for the second quarter were $3.45 billion, up 37% from a year earlier.
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“In our second quarter, we booked our highest orders in 15 years and we expect to deliver record earnings in fiscal 2016,” Chief Executive Gary Dickerson said.
Revenue in the silicon systems business, the company’s biggest, rose 1.7% in the second quarter, while orders rose 15.3%.
Revenue in the display business, where orders jumped to a record of $700 million, rose 2.5% in the second quarter.
For the second quarter ended May 1, net income fell to $320 million, or 29 cents per share, from $364 million, or 29 cents per share, a year earlier.
Excluding items, the company earned 34 cents per share.
Revenue was flat at $2.45 billion for the second quarter.
Analysts on average had expected a profit of 32 cents per share and revenue of $2.43 billion, according to Thomson Reuters I/B/E/S.