Applied Materials gives a strong prediction with low chip hysteresis

(Bloomberg) — Applied Materials Inc., the largest U.S. maker of chip making machinery, offered a bullish forecast for the current quarter, suggesting the industry’s downturn may be fading.

Most Read from Bloomberg

The company said in a statement on Thursday that fiscal fourth-quarter sales will be approximately $6.51 billion. That compares to the average analyst estimate of $5.88 billion. Excluding some items, earnings will be $1.82 to $2.18 per share in the period ending in October, versus an expectation of $1.61 per share.

CEO Gary Dickerson said in the release that the shift toward AI computing and the rise of internet-connected devices are helping drive results, “enabling us to deliver consistently strong results in 2023 and positioning applied materials for a sustainable advantage.”

Shares of Applied Materials rose about 2% in late trading after the results were announced. It earlier closed at $137.59 in New York, which puts it up 41% this year.

Third quarter profit was $1.90 per share, excluding certain items. Sales fell 1.5% to $6.43 billion in the same period. Analysts estimated earnings of $1.73 per share and revenue of $6.16 billion.

After three years of strong demand, customers of chipmaker Applied have slowed expansion plans as they contend with a market glut for electronic components. But Applied Materials expects the industry to ignore short-term problems and accelerate to $1 trillion in total revenue by the end of the decade.

The use of semiconductors has spread far beyond the computer industry, with more and more chips entering cars, industrial equipment, and so-called Internet of Things products, such as smart home devices and security systems.

“Consumer devices, vehicles, buildings, factories, and infrastructure are all getting smarter and more capable,” Dickerson said on a conference call with analysts.

With an industry recovery looming, analysts see Applied Materials returning to sales growth in the second half of next year.

Semiconductor-related stocks have been the preferred pick of investors, who expect them to benefit from the explosion in artificial intelligence systems. Demand for chips from Nvidia Corp. has been particularly strong, which has helped vault that company’s valuation above $1 trillion.

But other regions are struggling. For Applied Materials, demand from memory chip makers has been a weakness. The Santa Clara, California-based company said memory customer spending is tracking to its lowest level in more than a decade.

On the conference call with analysts, CFO Bryce Hill said that about 5% of Applied Materials’ wafer equipment is for the AI ​​market. That compares to 20% for data center chips and 10% to 15% for IoT equipment.

“So if you look at 5% as a relatively small amount, we think it’s growing rapidly and it’s going to be an important burden going forward,” he said.

(Updates with comments from the conference call begin in the eighth paragraph.)

Most Read by Bloomberg Businessweek

© 2023 Bloomberg LP

Leave a Comment