Export control affects sales, Applied Materials (AMAT.US) Q2 revenue guidance lower than expected.

Applied Materials, Inc. (AMAT.US), the largest chip manufacturing equipment manufacturer in the United States, reported earnings per share of $2.38 for the first quarter, excluding certain items, exceeding market expectations of $2.28 per share. Revenue also increased by 6.8% year-over-year to $7.17 billion, slightly surpassing market expectations of $7.15 billion. However, revenue guidance for the second quarter is lower than market expectations, as ongoing geopolitical tensions with GEO Group Inc are expected to put pressure on the company's chip manufacturing equipment sales. The company's second-quarter guidance was lukewarm, citing potential impacts from export controls on its business. The company stated in a statement on Thursday that sales for the second fiscal quarter ending in April are expected to reach around $7.1 billion. This falls below Wall Street's average expectation of $7.22 billion. Earnings per share are forecasted to be $2.30, in line with expectations. The company faces tax reform in Singapore, with expenses of $644 million expected in the 2025 fiscal year, equating to 79 cents per share. Chief Financial Officer Brice Hill noted that the company is "considering adverse factors related to export controls." Approximately one-third of the company's sales come from China, and stricter trade restrictions in the United States have made selling in China more challenging. The company stated that export regulations passed in the final months of the Biden administration will result in a revenue reduction of approximately $400 million in the 2025 fiscal year. Hill indicated that half of this impact will be seen in the second quarter. Company executives anticipate that half of the impact of trade restrictions on 2025 revenue will come from the service sector, as the company is unable to meet the needs of some Chinese clients. The company provides maintenance and optimization services for equipment in the service sector. Approximately half of the layoffs will occur in the current stage, with a significant portion affecting Applied Materials' service business. CEO Gary Dickerson stated during a conference call with analysts that this is because the company will have to discontinue on-site equipment repairs for some of its clients in China. In the long run, he expects the service business to return to healthy growth. In the previous quarter, the Chinese market accounted for 31% of the company's total sales, down from 45% in the same period last year. The company stated that the surge in orders from Chinese memory manufacturers has not continued into this year. Meanwhile, this has offset the positive impact of the growing demand for advanced chips needed to handle the large amounts of data used in generative artificial intelligence. Dickerson stated that Applied Materials, Inc. has a high demand for the most advanced equipment needed for artificial intelligence components. This offsets the decline in demand from less complex chip manufacturers. He said, "The biggest driver for the entire industry is artificial intelligence. The amount of silicon entering data centers (facilities that handle the majority of AI workloads) will soon exceed the levels consumed by personal computers and smartphones. These two areas have always been the two largest markets for chip manufacturers." The management of Applied Materials, Inc. remains confident in the overall growth of the industry. Dickerson believes that the rapid adoption of semiconductors in new products and the prosperity of artificial intelligence will help sustain demand. The complexity of chips has also increased the pressure for customers to upgrade equipment. Customers of Applied Materials, Inc. include some major companies in the chip industry, such as Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), Samsung Electronics, and Intel Corporation (INTC.US). These manufacturers order equipment before starting production, so the predictions from Applied Materials, Inc. serve as an indicator of future demand.