Applied Materials’ shares sink on weak China demand, tariff risks

Shares of Applied Materials (AMAT.O), tumbled nearly 14% in premarket trading on Friday after the chip equipment maker issued weak fourth-quarter forecasts on sluggish China demand, fueling concerns over tariff-related risks.

The Santa-Clara, California-based company’s forecast comes after similar tariff warnings from ASML Holding (ASML.AS), the world’s biggest supplier of chip-making equipment, last month.

CEO Gary Dickerson flagged lower visibility and increased uncertainty in the near-term, citing “wide-ranging implications for the semiconductor industry” from the dynamic policy environment, during a post-earnings investor call.

China, Applied Materials’ top revenue source in the July quarter, accounting for 35% of sales, has emerged as a growing risk as U.S. export restrictions weigh on new orders for chipmaking tool suppliers.

“China volatility is significantly clouding visibility into core earnings potential both geopolitically and cyclically,” Deutsche Bank strategists said in a note.

Applied Materials expects revenue of $6.70 billion, plus or minus $500 million, for the fourth quarter, compared with analysts’ average estimate of $7.33 billion, according to data compiled by LSEG. Its projected profit also came in below estimates.

Some analysts, including J.P.Morgan’s Harlan Sur, noted that the slowdown in China demand and erratic orders from major foundry customers are “more a reflection of timing of spending rather than structural issues.”

The stock has risen 15.7% so far this year, compared with a 12.5% increase in the Nasdaq index (.IXIC), and a nearly 10% gain in the S&P 500 index (.SPX).

The company’s third-quarter revenue rose 8% to $7.30 billion from a year ago, beating estimates of $7.22 billion.

Source: www.reuters.com

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