Applied Materials fell sharply Friday after the semiconductor equipment manufacturer beat Wall Street's targets for its fiscal third quarter but badly missed with its outlook. Applied Materials stock shed more than 14% on the news.
Needham analyst Charles Shi said the company posted "the largest guidance miss we have seen from AMAT in many years."
The Santa Clara, Calif.-based company late Thursday said it earned an adjusted $2.48 a share on sales of $7.3 billion in the quarter ended July 27. Analysts polled by FactSet had expected earnings of $2.36 a share on sales of $7.22 billion. On a year-over-year basis, Applied Materials earnings rose 17% while sales climbed 8%.
For the current quarter, Applied Materials forecast adjusted earnings of $2.11 a share on revenue of $6.7 billion. That's based on the midpoint of its guidance. Wall Street was modeling earnings of $2.39 a share on sales of $7.33 billion for the fiscal fourth quarter. In the same quarter last year, Applied Materials earned an adjusted $2.32 a share on sales of $7.05 billion.
"We are currently operating in a dynamic macroeconomic and policy environment, which is creating increased uncertainty and lower visibility in the near term, including for our China business," Chief Executive Gary Dickerson said in a news release. "Despite this, we remain very confident in the longer-term growth opportunities for the semiconductor industry and Applied Materials."
On the stock market today, Applied Materials dropped 14.1% to close at 161.76.
Applied Materials Blames Lumpy Sales, China For Q4 Guidance Miss
The company expects a drop in fiscal Q4 revenue because of "digestion of capacity in China and nonlinear demand from leading-edge customers given market concentration and fab timing," Chief Financial Officer Brice Hill said in a statement.
He added, "We are navigating and adapting to the near-term uncertainties by leveraging our robust supply chain, global manufacturing footprint and deep customer relationships."
Needham's Shi said Applied Materials' outlook was surprising following "bullish China commentary" from other chip gear firms like Lam Research and KLA. "Unfortunately, AMAT surprised us to the downside by reporting a large surge of China revenue in July and guiding to a large decline in October," he wrote in a client note.
At least 12 Wall Street analysts cut their price targets or downgraded Applied Materials stock after the company's report.
Its weak forecast was due to China slowing equipment purchases after a period of overspending. Also, Intel's pause on fab spending is impacting Applied Materials, analysts said.
Applied Materials stock recently had regained support at its 50-day moving average line. But it crashed through that key technical level on Friday.
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