Applied Materials Inc., the largest manufacturer of chip-making equipment in the U.S., experienced a decline in its stock after providing a cautious revenue outlook for the upcoming quarter, highlighting concerns over export controls impacting its operations. The company projected sales of approximately $7.1 billion for the fiscal second quarter ending in April, falling short of the Wall Street consensus estimate of $7.22 billion. Applied Materials also forecasted earnings of $2.30 per share, aligning with expectations. Chief Financial Officer Brice Hill noted that the company is factoring in challenges related to export controls.
China represents about one-third of Applied Materials’ sales, and increased trade restrictions from the U.S. have complicated sales efforts in that market. Following the announcement, the company’s shares dropped 5.3% to $174.53, although they had risen 13% year-to-date prior to this. The export regulations implemented during the latter part of the Biden administration are expected to reduce fiscal 2025 revenue by around $400 million, with approximately half of that impact occurring in the current quarter, particularly affecting the service segment. CEO Gary Dickerson indicated that the company would need to halt servicing equipment at certain customer locations in China, but he remains optimistic about the long-term growth of service operations.
In the last quarter, China accounted for 31% of sales, down from 45% the previous year, and the anticipated surge in orders from Chinese memory manufacturers has not materialized this year. However, Applied Materials is witnessing strong demand for advanced equipment required for artificial intelligence components, which is compensating for the weaker demand from producers of simpler chips. Dickerson emphasized that AI is the primary driver for the industry, with silicon consumption in data centers—key facilities for AI workloads—expected to surpass that of personal computers and smartphones, traditionally the largest markets for chip manufacturers.
In the first quarter, the company reported a profit of $2.38 per share, excluding certain items, exceeding the estimate of $2.28. Revenue increased by 6.8% to $7.17 billion, slightly above the projected $7.15 billion. Additionally, Applied Materials is facing tax changes in Singapore, leading to an anticipated expense of $644 million, or 79 cents per share, in fiscal 2025. Despite these challenges, management remains confident in the overall growth of the semiconductor industry, driven by the rapid integration of semiconductors into new products and the ongoing AI boom, which is expected to sustain demand. The increasing complexity of chips is also pressuring customers to upgrade their equipment. Applied Materials serves major players in the chip industry, including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co., and Intel Corp., who typically place orders well in advance of production.
