Applied Materials sinks 13% on weak guidance due to China demand

Shares of Applied Materials plummeted over 13% following the semiconductor equipment manufacturer's disappointing guidance, largely driven by dwindling demand in China. The company announced expected adjusted earnings of $2.11 per share for the upcoming quarter, falling short of analysts' predictions of $2.39, as reported by LSEG. Additionally, Applied Materials anticipates revenues of $6.7 billion, which is below the forecasted $7.34 billion. During a recent earnings call, CEO Gary Dickerson highlighted the challenging macroeconomic conditions and trade complexities that have led to "increasing uncertainty and lower visibility," particularly affecting its operations in China. He noted that the current projections do not factor in pending export license applications and assume a considerable backlog. The company also pointed to a downturn from key customers and indicated that clients in China are scaling back their spending after a period of rapid equipment manufacturing expansion. Following the announcement, Vivek Arya from Bank of America downgraded the stock to a neutral rating and revised his price target downward, citing persistent challenges related to China and leading-edge segments. He remarked, "The uncertainty could linger, making it difficult for the stock to exceed performance expectations despite a reasonable valuation," adding that the slowdown seems more specific to the company. In contrast to the weak outlook, Applied Materials surpassed third-quarter earnings and revenue expectations, reporting adjusted earnings of $2.48 per share on revenues of $7.3 billion. The net income for the quarter reached $1.78 billion, or $2.22 per share, compared to $1.71 billion, or $2.05 per share, from the same period last year.