Applied Materials (AMAT) shares moved firmly higher Friday following a fourth quarter earnings beat paired with a solid near-term demand outlook for the semiconductor equipment maker.
Applied Materials, which lowered its fourth quarter profit outlook last month after President Joe Biden unveiled new restrictions on the export of high-tech semiconductors and chipmaking equipment to China-based companies, said adjusted earnings for the three months ending in October came in at $2.03 per share, firmly ahead of Street forecasts, with revenues rising 10% to $6.75 billion.
Looking into the group's fiscal first quarter, Applied Materials said it sees sales in the region of $6.7 billion, with a margin for error of $400 million, a figure it says includes the impact of U.S. export restrictions. For the full year, Applied Materials said the restrictions could pare $2.5 billion from overall sales, but noted the total could be reduced to between $500 million and $1 billion.
"We expect 2023 to be a down year for wafer fab equipment spending, but we believe that Applied's business will be more resilient, thanks to our large backlog, growing service business, and strong customer demand for our leadership products that enable key technology inflections," CEO Gary Dickerson told investors on a conference call late Thursday.
"Longer-term secular trends create opportunities for Applied to outgrow the semiconductor market with our differentiated portfolio of materials engineering solutions," he added. "We are making strategic investments for the future while slowing spending growth in the near term."
Applied Materials shares were marked 41.4% higher in early Friday trading , compared to a modest decline for the Nasdaq, to change hands at $105.93 each.
The group's product backlog grew by 62% from last year to a record $19 billion, Applied Materials said, lead by a 90% surge in its semi systems offerings.
"Applied Materials wouldn’t forecast 2023 WFE spend specifically but did acknowledge headwinds from the Memory cycle, weaker demand for consumer-facing products, and China restrictions," said KeyBanc Capital Markets analyst Steve Barger, who carries a 'sector weight' rating on the stock.
"That said, it expressed confidence it can outgrow the underlying market due to its record backlog, demand for its differentiated product lines that continue to outpace supply, and its growing service business with an increasing share of subscriptions," he added. "But we can’t ignore risks that the Memory cycle worsens, slowing demand bleeds over into Foundry/Logic, or that the backlog may not be as firm as it appears."