Signage stands outside the Applied Materials Inc. facility in Santa Clara, California, U.S. (Photographer: David Paul Morris/Bloomberg)

Applied Materials Gives Weak Outlook for Chipmaker Spending

(Bloomberg) -- Applied Materials Inc., the biggest maker of equipment used to manufacture semiconductors, gave a weak forecast that indicates chipmakers are delaying spending as they wait for customers to work through stockpiles of unused parts.

The company’s customer list, which includes Samsung Electronics Co., Intel Corp. and Taiwan Semiconductor Manufacturing Co., makes Applied Materials’s results an indicator of future demand across the electronics industry. Chipmakers need to buy gear from Applied Materials well ahead of implementing new manufacturing plans.

The increasing difficulty of manufacturing chips and the addition of electronic functions in everything from cars to refrigerators have fueled a four-year boom. But there are signs of a slump this year as production has outrun demand in some areas. Analysts predict that Applied Materials’s revenue will shrink by more than 10 percent in 2019.

Key Insights

  • Applied Materials projected fiscal second-quarter sales of $3.33 billion to $3.63 billion, the company said Thursday in a statement. That compares with analysts’ average estimate of $3.65 billion, according to data compiled by Bloomberg.
  • Adjusted earnings per share will be 62 cents to 70 cents, the company said. Analysts projected 76 cents.
  • “As we navigate the current market dynamics, we remain highly optimistic about the long term and are investing in new technology, products and capabilities that position the company to play a bigger and broader role in the industry’s future,” Chief Executive Officer Gary Dickerson said in a statement.
  • Shares fell about 1.5 percent in extended trading following the announcement. They had closed at $40.71 in New York. The stock lost a third of its value last year.
  • Historically chip-equipment makers have had some of the most volatile earnings in the technology industry. Their machines, which cost tens of millions of dollars each, take months to make and even longer to install. So when a semiconductor company wants to cut costs quickly, an obvious option is to delay Applied Materials orders.

CFO Comments

  • Applied Materials sees a slow, gradual recovery from the current spending levels by customers, Chief Financial Officer Daniel Durn said on a conference call.
  • The company is resisting calls to say when the market will hit bottom, he said.
  • For this year, total spending on wafer fabrication equipment will decline from a year ago.
  • Most of the spending reduction by the company’s customers will come in the area of memory chips, Durn said.

More Information

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  • To see the statement, click here

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