Why Applied Materials, Inc. (NASDAQ: AMAT) stock is under pressure

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Applied Materials, Inc. (NASDAQ: AMAT) stock lost over 5.2% on 15th May, 2020 (12:11 pm GMT-4  ; Source: Google finance) as the company posted lower than expected results for the second quarter of FY 20. The financial performance was negatively affected by the ability to ship systems to customers as shelter-in-place and lockdown orders impacted some of the suppliers’ operations, particularly in the Bay Area and Malaysia. Applied Materials has reported net income of $755 million compared to net income of $666 million, in the year-ago quarter. In March 2020, the company had suspended the Q2 guidance because of the global response to COVD-19 was creating significant challenges across the supply chain, manufacturing operations and logistics. Due to the extreme uncertainty, the company has also decided to borrow against our revolving credit facility. During the second quarter the company had returned $392 million to shareholders in buybacks and dividends and announced a dividend increase of about 5%. The company has ended Q2 with about $7.4 billion on the balance sheet, including $1.5 billion in credit facility proceeds. The company is continuing to prepare for the planned acquisition of Kokusai Electric. During Q2 the company had received Taiwan’s clearance for the transaction and the company has one final approval pending from China.

Despite the incremental challenges the company experienced in the last six weeks of the quarter, the company has delivered AGS and display revenue that was higher than the original expectations in February. The semi systems revenue was below the original outlook and that was entirely due to COVID related supply constraints and demand remains strong.

In semiconductor systems, the Q2 revenue would have been about $650 million higher absent COVID-related constraints. In the second quarter the semi systems orders were up significantly and demand is broadening to more customers. The company expects Q3 semi revenue could be up in the high single digits sequentially and higher again in Q4, resulting in strong double-digit growth for the fiscal year. Further, AGS posted its first $1 billion quarter ever in Q2 with about 60% of revenue coming from service agreements.

AMAT in the second quarter of FY 20 has reported the adjusted earnings per share of 89 cents, missing the analysts’ estimates for the adjusted earnings per share of 93 cents, according to analysts surveyed by FactSet. The company had reported the adjusted revenue growth of 12 percent to $3.96 billion in the second quarter of FY 20, missing the analysts’ estimates for revenue of $4.09 billion.

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