By On August 17, Reuters reported a promising outlook for semiconductor equipment manufacturer Applied Materials (AMAT.O). The company foresees a substantial increase in its fourth-quarter profits, surpassing analyst projections. This positive projection is attributed to the growing demand for chips and the substantial investments made by governments in the semiconductor industry.
Following this news, Applied Materials’ shares experienced a 1.9% surge in after-hours trading. This boost came in the wake of the company’s announcement of better-than-expected third-quarter earnings, contributing to investor optimism.
Governments worldwide have allocated billions of dollars in subsidies over the past year to bolster domestic semiconductor production. This strategic move has not only benefited Applied Materials but also its industry peers like Lam Research (LRCX.O) and KLA (KLAC.O). These companies provide essential equipment for chip manufacturing, making them key players in the current semiconductor landscape.
According to Gary Dickerson, CEO of Applied Materials, these government incentives are projected to amount to hundreds of billions of dollars globally over the next five years. This substantial injection of funds is poised to drive growth in the semiconductor equipment sector.
Applied Materials anticipates fourth-quarter revenue to reach $6.51 billion, with a potential variation of plus or minus $400 million. This outlook significantly surpasses the average estimate by analysts, which stands at $5.86 billion. In terms of adjusted profit per share, the company expects to achieve between $1.82 and $2.18, outpacing the market consensus of $1.61.
The third-quarter financial results reported by Applied Materials also exceeded expectations. The company recorded $6.43 billion in revenue, surpassing the analysts’ average projection of $6.16 billion. On an adjusted basis, the company’s earnings per share for the quarter ending July 30 were $1.90, outperforming the estimated $1.74.
Brice Hill, the CFO of Applied Materials, highlighted the company’s resilience in the face of a year with lower overall chip equipment spending. Notably, the services business of the company is expected to continue its growth trajectory.
The semiconductor systems unit of Applied Materials, responsible for supplying equipment to chip manufacturers, experienced a marginal decline of approximately 1% in third-quarter revenue, amounting to $4.68 billion. On the other hand, the lucrative services unit, which generates revenue through consulting and spare parts to maintain the equipment at peak efficiency, witnessed a 3% increase, reaching $1.46 billion.
However, the display segment of the company faced challenges, with sales dropping by 29% to $235 million during the quarter.
Applied Materials and other industry players initially encountered setbacks due to U.S. export controls that restricted the sale of advanced equipment to Chinese customers. Nevertheless, recent months have seen an uptick in purchases from Chinese customers, particularly for equipment capable of older manufacturing processes. Notable companies such as Samsung Electronics (005930.KS), Taiwan Semiconductor Manufacturing Co (2330.TW), and Intel Corp (INTC.O) rely on Applied Materials’ advanced chip production tools to support their operations.
