Analysts Warn of $600 Million Guidance Shortfall for Applied Materials
Shares of Applied Materials Inc. experienced a significant decline in early trading on Friday, despite the company reporting strong earnings for its fiscal third quarter. The unexpected drop follows a series of analyst evaluations that highlight potential challenges ahead, particularly in relation to the slowing market in China.
Analysts Adjust Ratings and Price Targets
In a recent downgrade, Vivek Arya, an analyst at BofA Securities, lowered the rating for Applied Materials from Buy to Neutral and reduced the price target from $190 to $180. Arya noted that the company has considerable exposure to the oversupplied mature node market, specifically in areas related to Internet of Things (IoT), communications, automotive, power, and sensors, particularly in China. He expressed concerns that this exposure, along with reliance on leading-edge customers such as Intel Corp, could hinder growth prospects in the medium term.
In his assessment, Arya pointed out that uncertainty in the market may persist, complicating Applied Materials’ ability to outperform despite what he described as a reasonable valuation.
Conversely, James Schneider from Goldman Sachs maintained a Buy rating but reduced the price target from $225 to $215. Schneider attributed the company’s weaker guidance primarily to diminishing equipment spending in China, as businesses work to absorb recent capacity additions. He highlighted that Applied Materials anticipates a sequential revenue decline of approximately $500 million in China, which he described as a critical factor influencing the company’s outlook.
Management has projected revenues of $6.70 billion and non-GAAP earnings of $2.11 per share at the midpoint for the upcoming quarter. Both figures fall significantly short of consensus estimates of $7.30 billion and $2.37 per share, raising concerns among investors.
Revenue Guidance Misses Expectations
Another analyst, Charles Shi from Needham, maintained a Buy rating with a price target of $250. Shi reported that Applied Materials’ quarterly revenues exceeded the midpoint of its guidance by approximately $100 million, but the company issued a disappointing revenue outlook for October. The forecast fell short of consensus estimates by around $600 million, marking the largest guidance miss for Applied Materials in many years.
Shi detailed that the company expects a sequential decline in revenue of $700 million, which includes a $500 million drop in revenue from China and a $500 million shortfall in Gate-All-Around (GAA) revenue. He also noted a $300 million upside in non-China ICAPS revenue, indicating a complex and challenging landscape for the company.
Looking ahead, Shi emphasized that while management remains optimistic about demand for DRAM, there is a bearish outlook regarding the Chinese market and caution surrounding the timing of leading-edge logic demand.
At the time of publication, shares of Applied Materials had fallen by 13.26% to $163.27, according to Benzinga Pro data. The company’s performance and guidance will likely continue to be closely monitored as analysts assess how these factors will impact its future trajectory.
