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The Street
The Street
Martin Baccardax

Applied Materials Stock Slides After Cutting Profit Outlook On New China Chip Export Rules

Applied Materials (AMAT) shares moved lower Thursday after the semiconductor equipment maker cut its current quarter sales outlook by around $400 million following changes to U.S. rules on chip exports to China.

Applied Materials said it sees adjusted earnings for the three months ending in October, the group's fiscal fourth quarter, in the region of $1.54 to $1.78 per share, down from its prior range of 1.82 to $2.18 per share. 

Revenues were seen at around $6.4 billion, with margin for error of $250 million on either side, down from its prior forecast of $6.65 billion.

President Joe Biden unveiled new restrictions on the export of high-tech semiconductors and chipmaking equipment to China-based companies late last week as the administration moves to both shore-up domestic production while preventing sensitive technology from finding its way into the Chinese military.

"Applied is pursuing additional export licenses and authorizations where needed," the Santa Clara, California-based group said. "The company currently expects the new regulations will impact net sales in the first quarter of fiscal 2023 by a similar amount as in the current quarter."

Applied Materials shares were marked 1.76% lower in early Thursday trading to change hands at $74.66 each, a move that would extend the stock's six-month decline to around 36%. 

"We view the China impact as slightly larger than we expected, but still in the ballpark," said D.A. Davidson analyst Hans Chung, who carries a 'buy' rating with a $105 price target on the stock. "We also believe the China weakness is mostly priced in given the 15% pullback in the past week."

"On a positive note, improvement in the supply chain partially offset the downside risk in China," he added.

 Earlier this summer, Applied Materials CEO Gary Dickerson cautioned that the group would remain "supply-constrained" for the "several quarters" as it lowered its 2022 wafer fab equipment industry view to around $90 billion and said it expects to slow hiring in order to ensuring the full funding of R&D programs.

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