November 15, 2018 / 9:13 PM / a month ago

Applied Materials' forecast disappoints as chip revenue set to fall

(Reuters) - Applied Materials Inc (AMAT.O), the world’s largest supplier of equipment used to make chips, forecast first-quarter revenue and profit below analysts’ estimates on Thursday, sending its shares down about 8 percent.

The company’s results and performance are seen as a barometer for the industry and will likely further fan worries that a two-year chip boom may grinding to a halt.

The earnings per share guidance provided reflects a significant reduction in semiconductor revenue along with an unfavorable mix within the product portfolio, Chief Financial Officer Dan Durn said on a post-earnings call.

On the call, company executives also said heightened macroeconomic risks, global trade tensions and a pullback in memory chip investments pressured industry wide spending.

“AMAT is likely to see further downside from both memory and display capex spend from its customers,” said Kinngai Chan, an analyst with Summit Insights Group.

“The semiconductor and the display capita equipment spend cycle can stay muted for the next one to two quarters before rebounding,” he said.

AMAT also pointed to a recent restriction on chip exports for the disappointing forecast.

The United States last month cut off a Chinese state-backed chipmaker from U.S. suppliers amid allegations the firm stole intellectual property from U.S. semiconductor company Micron Technology Inc (MU.O).

The company said it expects first-quarter adjusted profit of between 75 cents and 83 cents per share, on net sales of between $3.56 billion and $3.86 billion.

Analysts on average were expecting a profit of 92 cents per share and revenue of $3.94 billion, according to IBES data from Refinitiv.

Applied Materials also flagged risks from the adoption of extreme ultraviolet (EUV) technology for chip making, starting 2019, which the company said would create a mixed headwind for its overall wafer fab equipment (WFE) share.

“ASML (Holdings) will gain WFE share as they will enable the industry to move to EUV (higher ASP tools) and both AMAT and LRCX (Lam Research) will lose dollar share as they will sell less of their tools,” said Summit’s Chan.

The company posted a small rise in fourth-quarter revenue to $4.01 billion, slightly ahead of estimate of $4 billion.

However, sales in its semiconductor business fell about 5 percent to $2.31 billion, while analysts had expected $2.42 billion, according to research firm FactSet.

Sales from the company’s display business — which makes flat panel displays for televisions, PCs and smartphones — rose nearly 4 percent to $702 million, beating estimates of $690.6 million.

Reporting by Akanksha Rana in Bengaluru; Editing by Maju Samuel and Sriraj Kalluvila

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