Applied Materials' Q2 Revenue Outlook Below Estimates Amidst Escalating Tensions and Slowed Memory Chip Demand
Applied Materials (AMAT) released its Q2 revenue forecast on Thursday, which fell short of market anticipations. The company attributed this to intensifying geopolitical tensions and a decline in demand for memory chips in consumer electronics, factors expected to impact its chipmaking equipment sales.
Shares of Applied Materials, the leading U.S. semiconductor equipment manufacturer, declined around 5% in extended trading post-announcement.
China, Applied's largest market in terms of revenue share during Q1, faces potential setbacks due to tightened U.S. export restrictions on chipmaking technology. The U.S. government's implementation of controls on equipment exports necessary for advanced chip production in China directly affects Applied Materials.
The company estimates Q2 revenue to fall around $7.1 billion, with a margin of error of $400 million. This contrasts with analysts' consensus estimate of $7.21 billion, as per data from LSEG.
"In the current quarter, the company is factoring in headwinds related to export controls," said Brice Hill, Chief Financial Officer, in a statement.
China accounted for approximately 31% of Applied Materials' Q1 sales, a significant reduction from 45% during the same period last year.
Additionally, the softening market for memory chips utilized in smartphones and computers counteracts the growth witnessed in the demand for advanced chips that process data used in generative AI. Memory chip manufacturer SK Hynix recently informed analysts that its capital expenditure for 2025 will only slightly exceed last year's levels.
Despite the challenges, Applied Materials projects non-GAAP earnings of $2.30 per share for Q2, which aligns with analysts' expectations. In the quarter ended January 26, the company reported revenue of $7.17 billion, surpassing the consensus estimate of $7.14 billion, and non-GAAP EPS of $2.38 per share, also beating estimates of $2.29.