Applied Materials Forecast Fails to Impress Following Rally

(Bloomberg) — Applied Materials Inc., the largest US maker of chipmaking machinery, failed to impress investors with its latest forecast following a rally in the shares this year.

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Fiscal third-quarter sales will be roughly $6.65 billion, the company said in a statement Thursday. Though that topped the average Wall Street estimate, some analysts had predicted revenue as high as $7.13 billion. Excluding some items, profit will be $1.83 to $2.19 a share in the three-month period, which runs through July. Analysts projected $1.98.

Investors have been looking to Applied Materials for signs that a chip recovery is well underway. The company is a major supplier to the industry’s biggest manufacturers: Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and Intel Corp. That makes its outlook an indicator of demand in a crucial part of the electronics supply chain.

Shares of the Santa Clara, California-based company fell 1.5% in extended trading. They had earlier closed at $214.17 in New York on Thursday, leaving the stock up 32% for the year.

Second-quarter profit was $2.09 a share, excluding some items, while revenue amounted to $6.65 billion. That compared with a $1.99 estimate for earnings and $6.52 billion for sales.

Applied Materials said that demand for machines used to manufacture artificial intelligence processors is growing. But some customers that make semiconductors used for what the company calls ICAPS — internet-connected appliances, communications and the auto industry, as well as power and sensors — are pausing orders while they install machinery that they’ve already received.

“Near term, there will be some digestion,” Chief Executive Officer Gary Dickerson said in a phone interview. “This year is not going to be significant growth year for us.”

Dickerson said he’s extremely bullish about the prospects for AI-related chips and is predicting that such processors will soon overtake the smartphone and personal computer industries in terms of the amount of silicon consumed.

China accounted for 43% of the company’s revenue last quarter. Like some peers, Applied Materials is benefiting from huge investments by Chinese companies — part of an effort by that country to carve out greater independence in the production of vital electronic components.

While US companies are restricted from supplying the most advanced manufacturing gear to China, they’re getting a flood of orders for equipment used to make simpler types of chips — semiconductors that typically go into cars and industrial machinery.

That rapid run-up in orders from one country has stoked concern among investors, who fear that geopolitical tensions might ultimately cut off that source of growth. Washington and the European Union have already placed restrictions on the export of cutting-edge machinery, but officials are now worried that China may gain an edge in the manufacturing of certain less-advanced chips.

Last November, Applied Materials shares tumbled on a report that the Justice Department was investigating the company over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International Corp. Applied Materials has said that the investigation had been previously disclosed and that it is cooperating.

“We see China staying resilient,” Dickerson said. Still, he added, “you’re not going see the growth rate you’ve seen over the last couple of years.”

(Updates with more from results starting in fifth paragraph.)

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