The Forecast for Applied Materials is Not Convincing After the Rally - Latest Global News

The Forecast for Applied Materials is Not Convincing After the Rally

(Bloomberg) — Applied Materials Inc., the largest U.S. maker of chip-making machines, failed to impress investors with its latest forecast after a stock rally this year.

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Third-quarter revenue will be about $6.65 billion, the company said in a statement Thursday. Although that beat Wall Street’s average estimate, some analysts had predicted revenue of up to $7.13 billion. Excluding some items, earnings for the three months ending in July will be between $1.83 and $2.19 per share. Analysts forecast $1.98.

Investors have been looking to Applied Materials for signs that a chip recovery is well underway. The company is a key supplier to the industry’s largest manufacturers: Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and Intel Corp. This 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 previously closed at $214.17 in New York on Thursday, representing a 32% year-to-date gain for the stock.

Second-quarter earnings were $2.09 per share (excluding some items), while revenue was $6.65 billion. This compares to $1.99 billion in profit and $6.52 billion in sales.

Applied Materials said demand for machines to make artificial intelligence processors is growing. But some customers that make semiconductors used for what the company calls ICAPS — internet-connected devices, communications and automotive, and energy and sensors — are pausing orders while they install machines they’ve already received.

“There will be some digestion in the short term,” Chief Executive Gary Dickerson said in a telephone interview. “This year will not be a significant year of growth for us.”

Dickerson said he is extremely optimistic about the prospects for AI-related chips, predicting that such processors will soon overtake the smartphone and PC industries in terms of the amount of silicon used.

China accounted for 43% of the company’s revenue last quarter. Like some of its competitors, Applied Materials is benefiting from huge investments by Chinese companies, part of that country’s efforts to gain greater independence in the production of vital electronic components.

While U.S. companies are blocked from shipping the most advanced manufacturing equipment to China, they are receiving a flood of orders for equipment used to make simpler types of chips – semiconductors typically used in cars and industrial machinery.

This rapid increase in orders from one country has raised concerns among investors, who fear that geopolitical tensions could ultimately stall this source of growth. Washington and the European Union have already imposed restrictions on exports of cutting-edge machines, but officials now worry that China could gain a head start in making certain less advanced chips.

Last November, shares of Applied Materials plummeted when news broke that the Justice Department was investigating the company over deals with China’s largest chipmaker, Semiconductor Manufacturing International Corp. Applied Materials said it had previously disclosed the investigation and was cooperating.

“We expect China to remain resilient,” Dickerson said. Still, he added, “You’re not going to see the growth rate that you’ve seen in the last few years.”

(Updates with additional results starting in the fifth paragraph.)

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