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If you've looked at Applied Materials' 1QFY08 results announced yesterday, your eyes are not deceiving you: the equipment company booked more new orders from its global services, display, and energy and environment solutions units combined than from its silicon segment---$1.385 billion for the threesome compared with $1.075 billion for the core semi equipment business.

AMAT's Mike "Big Kahuna" Splinter did not exaggerate during the company's conference call when he cited "extraordinary demand" in the display and solar sectors, with the company raking in a ridiculous $555 million in bookings for the flat-panel/LCD side and an impressive $260 million for the energy/enviro portion (mostly from solar). Those quarterly numbers are more than either the display or energy/enviro bizzes booked in all of fiscal 2007. Solar's even showing up in the global services segment, since the bossman also noted the signing of the first SunFab-related services contract during the quarter.

Although there were some semiconductor-related questions during the analysts' call-in during the telecon, most of the Q&A focused on the company's display business and especially its photovoltaic systems activities. Right out of the box the first questioner asked whether Applied was the recipient of the massive $1.5 billion thin-film equipment MOU announced the other day by Moser Baer's PV subsidiary. MBPV happens to be the tool company's first customer of its SunFab TFPV line and recipient of the first AMAT-equipped line, which is expected to have production output by mid-2008. Splinter would not confirm that his minions made the megadeal, although rumors are rampant--and other than Applied, only Oerlikon may have the capability to deliver integrated lines. But he did say that Applied is in discussions with as many as four customers about supplying tools for gigawatt-scale thin-film factories and that they hope to sign a GW-scale contract within 3 to 6 months.

His Kahunaness also said the company is talking with many new/potential customers about PV tool orders and with several existing customers about repeat orders. Later in the call, he also noted that nearly almost all the customers are thinking of follow-on factories significantly larger in capacity than their initial plants. When/if some of those big orders come in, Applied will move a lot closer to its stated goal of achieving a quarter of overall sales from its solar business---between $2.5 billion and $3 billion---by 2010.

CFO George Davis pointed to growing confidence in solar, both within AMAT and at the customers, as well as a continuation of the company's aggressive increase in its solar investment. He said some revenues will show up from sales of SunFab lines in FY08, with the bulk of the orders from 2007 expected to "be recognized" and hit AMAT's coffers by early 2009. Seven lines are expected to ship by the end of Q308, including the company's first tandem-junction-capable toolset by the end of March. The head beancounter also noted that the company believes the energy/enviro group will break even in 2009.

As for the company's crystalline-silicon solar business, the Baccini acquisition closed a few days after the quarter ended, so the impact won't really appear on AMAT's financials until the current quarter runs its course. But activity from the "precision wafering" piece, which came in with the purchase of HCT Systems, did show up for the first time in 1Q08. With the closure of the Baccini deal, AMAT has spent nearly $1.3 billion in acquisitions related to its solar business, also including the Applied Films buy in 2H06 (although that purchase helped the display unit as well).

Noting a key difference between the thin-film and c-Si markets, Splinter said that in the latter sector, sales tend to be made machine by machine---not line by line---more like the traditional business model. He also said that any further acquisitions or internal developments in the c-Si arena would be focused on "high-value-added" processes and tools: "We're not going to ever make an autoclave!" he exclaimed, because there would be no possibility of differentiating technology.

Speaking of the company's "traditional" business, whither semiconductor equipment? AMAT's recently restructured silicon systems group still led the way with $1.237 billion in revenues and net income of $445 million (which bested the combined totals from the other three units). Although the numbers are down from the previous quarter, and a bit disappointing to some on Wall Street, they still represent a decent sized piece of change when you consider that most semi tool companies don't even see that level of sales and profit figures on an annual basis.

Words like "soft," "challenging" and "uncertain" characterized comments about the chipmaking side of the biz. The big cuts in capacity spending at the DRAM companies (in the neighborhood of a 30% whack), which represent about a third of AMAT's orders, are the biggest culprit, followed by reduced foundry capex and flat logic investments. Only the flash segment should show an uptick in spending, the company believes, but not nearly enough to counteract the large sucking sound from its memory siblings and foundry cousins.

Davis noted that about 85% of orders in the silicon sector were for 70-nm or lower applications, a sign that advanced capacity buys and technology purchases continue, albeit at a slower pace than in previous quarters. He also said the AMAT brain trust believes that the market will return to some reasonable supply/demand balance in 3Q08, led first by the foundries opening their spending taps a bit, followed by the DRAM houses.

During his prepared remarks, Splinter quipped: "Unfortunately, the economic environment in the US and the world is not as bright as the outlook for solar," calling the "uncertain" US economy and its "potential effect on the global economy" the company's "near-term challenge" (though he did note the positive offset of continued strong "investment in clean energy.")

Although the term "recession" was not used once during the call, it's clear that the "R" word hovers around any discussion of forecasts and outlooks. Luckily for Applied, its robust display and solar tool growth, as well as its steady global services business, should help the company ride out the semiconductor equipment industry's current down cycle.