Stock under pressure: Applied Materials, Inc. (NASDAQ: AMAT)

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Applied Materials, Inc. (NASDAQ: AMAT), the world’s largest supplier of equipment used to make chips, stock fell over 4.2% on 17th August, 2018 (as of 9:05 AM GMT-4; Source: Google finance) though the company posted better than expected results but gave weaker outlook for the fourth quarter. The company’s net income grew about 27 percent to $1.17 billion in the third quarter.

 

AMAT in the third quarter of FY 18 has reported the adjusted earnings per share of $1.20, beating the analysts’ estimates for the adjusted earnings per share of $1.17, as per analysts surveyed by FactSet. The company had reported the adjusted revenue growth of 19 percent to $4.47 billion in the third quarter of FY 18, beating the analysts’ estimates for revenue of $4.43 billion. AMAT also beaten analysts’ estimates for revenue growth in its semiconductor and display businesses. Sales in the semiconductor division rose 8.5 percent to $2.75 billion, slightly ahead of FactSet estimates of $2.74 billion. Revenue in its display business grew 80.7 percent to $741 million, also above FactSet estimates of $722.1 million. The division makes flat panel displays for televisions, PCs and smartphones.

The company said it expects earnings adjusted for completed acquisitions and stock-based compensation of 92 cents to $1 a share and sales to be in the range of $3.85 billion to $4.15 billion. For the fiscal fourth quarter, analysts expect adjusted earnings of $1.17 a share on sales of $4.46 billion. The fourth-quarter forecast assumes a decline of about 4 percent in the company’s semiconductor systems revenue. AMAT’s forecast may add to concern that a four-year surge in chip demand is beginning to slow. The company gets most of its revenue from the semiconductor industry’s biggest producers, Samsung Electronics Co., Intel Corp. and Taiwan Semiconductor Manufacturing Co. Samsung is the biggest maker of Nand and TSMC is the largest foundry operator.

AMAT is one of the first suppliers that chip companies turn to when they’re ramping up production or making new semiconductors. The company is also the first to feel the effects when firms delay or cancel plans. These are long-term projects, so investors scrutinize Applied Materials results for early clues on the health of the chip industry.

After investing into new facilities over the last four years, the chipmakers may now be slowing further purchases of equipment as they wait to see if there’s enough demand for the production capabilities they’ve already built. The supply of Nand memory, which is a common type of data storage, is expected to grow slightly faster than demand this year. That will lead to flat or modestly lower spending by Nand manufacturers this year

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