Applied Materials (AMAT.US) Q1 revenue guidance lower than expected, sparking concerns about chip demand.

United States' largest chip manufacturing equipment manufacturer Applied Materials (AMAT.US) has announced its fourth quarter performance. The data shows that the fourth quarter revenue as of October 27 increased by 5% to $7.05 billion, surpassing the expected $6.95 billion. Adjusted earnings per share were $2.32, also exceeding the expected $2.19. The company also announced disappointing revenue guidance, indicating that some semiconductor customers may delay orders. Applied Materials' first quarter revenue guidance is lower than Wall Street's expectations, indicating weak demand for the company's chip manufacturing equipment apart from artificial intelligence chips. While there is strong demand for cutting-edge equipment for artificial intelligence chips, softness in some markets has led to slower spending, impacting demand for companies like Applied Materials. According to data compiled by LSEG, Applied Materials expects first quarter revenue to be around $7.15 billion, lower than the analyst average estimate of $7.22 billion. The company expects adjusted earnings per share of around $2.29, slightly higher than the expected $2.27. Furthermore, the stricter export restrictions on high-end chips and certain equipment to China by the United States have contributed to the uncertainty for tool suppliers and chip companies. Applied Materials also faces competition from other chip manufacturing equipment suppliers, such as KLA Corp (KLAC.US), Lam Research (LRCX.US), and ASML Holding NV ADR (ASML.US). Applied Materials' revenue in China has also declined. The company had seen a surge in orders from China in recent quarters, partly due to demand for storage chip equipment. Applied Materials, Inc. stated that the market still remains healthy. In the previous quarter, China accounted for 30% of the company's total sales, lower than the 44% in the same period last year. Massive spending on artificial intelligence computing has stimulated demand for advanced chips, which in turn has driven demand for the machines needed to produce these chips. Competitor ASML Holding NV ADR had previously predicted in early October that sales and bookings for 2025 were below expectations, as despite the prosperity of artificial intelligence-related chips, some areas of the semiconductor market remained soft. Other sectors within the industry are also slowing down. For example, some industrial equipment and automotive chip manufacturers have reported weak demand. Demand for Applied Materials' ICAPS business remains lukewarm. The ICAPS business provides components for chip equipment used in internet-connected appliances, communications, automotive, power control, and sensors. Following the performance announcement, as of the time of writing, Applied Materials' stock price fell by approximately 5% in after-hours trading. The stock closed at $186 on Thursday in New York, up 15% year-to-date in 2024. However, Applied Materials CEO Gary Dickson stated that he still believes artificial intelligence and new chips will drive growth in the industry. He said in an interview, "Applied Materials is a leader in all high-end areas. Artificial intelligence is a huge driver for the entire industry." Major customers of Applied Materials, Inc. are some large companies in the chip industry, including Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), Samsung Electronics (SSNLF.US), and Intel Corporation (INTC.US). These manufacturers place orders well in advance of production, so Applied Materials, Inc.'s forecasts can serve as an indicator of future demand. Seeking Alpha analyst Bashar Issa mentioned in an email regarding the company's performance, "As expected, artificial intelligence will continue to drive growth for Foundry Logic. My only reservation is that, apart from artificial intelligence, the performance of other business lines is lackluster. We are still waiting for the promised Flash business recovery. DRAM is okay, but not up to standard either, despite the hype around High Bandwidth Memory (HBM). Clearly, these quarterly data should not distract us from focusing on long-term positive factors."