Applied Materials’ stock plunges on a downbeat forecast that signals more misery for chipmakers – News

Shares of the semiconductor industry giant Applied Materials Inc. plunged in extended trading today after it provided analysts with a disappointing outlook for the current quarter.

The chip equipment maker beat expectations with its third-quarter results, posting earnings before certain costs such as stock compensation of $2.48 per share, easing past the analyst’s consensus estimate of $2.36. Revenue for the period came to $7.3 billion, up 8% from a year earlier and above Wall Street’s forecast of $7.22 billion.

All told, the company delivered net income in the quarter of $1.78 billion, up slightly from the year-ago period, when it posted a profit of $1.705 billion.

Applied Materials Chief Executive Gary Dickerson (pictured), hailed the company’s “record performance” in the third quarter, and insisted that it’s “on track to deliver our sixth consecutive year of revenue growth in fiscal 2025.”

However, any optimism investors may have had upon seeing the results were quickly undone when Applied Materials offered its guidance for the current quarter. The company said it’s targeting fourth-quarter revenue of $6.7 billion, plus or minus $500 million. That was extremely disappointing, as it fell well short of Wall Street’s forecast for $7.33 billion.

The lower guidance suggests that clouds are forming over the wider semiconductor market. Applied Materials is seen as a key barometer of chip demand, because it’s one of the world’s most important suppliers of the sophisticated machines used in chipmaking. It supplies its hardware to the most important semiconductor manufacturers, including Taiwan Semiconductor Manufacturing Co., Intel Corp., Samsung Electronics Ltd. and GlobalFoundries Inc., among others.

Those customers generally order machinery in advance of the opening of new production lines, or before upgrading existing ones. So if they’re ordering fewer products than expected, it suggests that they’re bracing themselves for lower demand.

Dickerson gave a strong signal that is the case, pointing out the “dynamic macroeconomic and policy environment. According to him, this is creating “increased uncertainty and lower visibility in the near term,” including with its China business. “Despite this, we remain very confident in the longer-term growth opportunities for the semiconductor industry and Applied Materials,” he added.

Chief Financial Officer Brice Hill was even more blunt, saying the expected decline in revenue in the current quarter is the result of digestion of capacity in China and “non-linear demand” from leading-edge customers, which means more advanced chipmakers such as TSMC. “We are navigating and adapting to the near-term uncertainties by leveraging our robust supply chain, global manufacturing footprint and deep customer relationships,” Hill added.

Dickerson later told Barron’s in an interview that the company has also struggled to obtain export licenses for some products ordered by Chinese customers, saying its applications have been “backed up.” He also spoke about the ongoing uncertainty with regard to future trade policies and tariffs, but reiterated that none of these issues affect his long-term optimism for industries such as artificial intelligence and robotics.

The lower guidance prompted a rapid sell-off of Applied Material’s shares, and its stock fell more than 13% in extended trading. Following that decline, the company’s stock is now up just 15% in the year to date, slightly ahead of the S&P 500 Index, which has gained just over 10% so far this year.

Photo: Applied Materials