Applied Materials Reports Record-Breaking Q3 Revenue Amid AI-Driven Chip Demand Surge

ASML rival Applied Materials reports record-high quarterly revenue

The US chip equipment maker, Applied Materials, reported fiscal third-quarter earnings that exceeded analysts' expectations, driven by strong sales growth in China. Despite this, Applied Materials' shares fell by more than 2% in extended trading hours after a 5% jump on Thursday. The company is a major global rival to Europe's largest tech company, ASML. Year-to-date, Applied Materials' shares are up 37%, while ASML's shares have risen by 25%. The US-based company reported adjusted earnings per share of $2.12 (€1.93) on revenue of $6.78bn (€6.18bn), surpassing the expected $2.03 and $6.68bn, respectively. Its revenue reached a record high, increasing by 5% year-on-year, driven by surging demand for AI chipmaking. CEO Gary Dickerson stated: "The race for AI leadership is fuelling demand for our unique and connected portfolio of products and services, positioning Applied to outperform our markets over the longer term." According to its earnings report, the revenue growth was largely driven by demand for its data storage, particularly Dynamic Random Access Memory (DRAM). Sales of DRAM accounted for 24% of its overall revenue, compared to 17% in the same quarter last year. Notably, sales in China accounted for 32% of its net revenue, up from 27% last year but down from 43% in the previous quarter. This suggests that semiconductor equipment makers may face further headwinds due to US regulatory restrictions. The company had previously warned that DRAM revenue in China might fall significantly in the fiscal third quarter (ending in July) and could approach zero in the fiscal fourth quarter of 2024. Additionally, sales in the United States remained at 16% of Applied Materials' net revenue, while sales in Europe saw a sharp decline to just 5%, down from 10% in the same quarter of 2023. The company provided slightly higher-than-expected guidance for the current quarter, forecasting earnings per share of $2.18 (€1.99) on revenue of $6.93bn (€6.31bn), representing growth of 2.8% and 3% from a year ago. The outlook suggests a slowdown in growth compared to the reported quarter, which may have contributed to the pressure on its share price. Applied Materials' earnings highlighted the intensifying competition with Dutch group ASML. As of market close on 15 August, ASML remains the world's largest chip equipment manufacturer, with a market capitalisation of $346bn (€315bn). Applied Materials ranks second, with a capitalisation of $175bn (€159bn). In the fiscal year 2023, ASML generated revenue of $29.83bn (€27.18bn), while Applied Materials recorded revenue of $26.52bn (€24.17bn). However, ASML has a much higher Price-to-Earnings Ratio (P/E ratio) of 49 compared to its rival's 24, which may make ASML less appealing to investors when comparing the two stocks. In the June quarter, ASML also reported earnings that surpassed market expectations. However, it provided weaker-than-expected guidance due to the potential impact of the US ban on chip exports to China. Despite exceeding expectations, Europe's largest semiconductor company's quarterly sales fell by 9.5% year-on-year. It generated revenue of $6.24bn (€5.69bn), which was also lower than that of Applied Materials in the July quarter. Both companies supply similar AI chip equipment to major tech firms, though their products differ slightly. ASML provides more advanced technology, known as High-NA EUV, a lithography system that supports the creation of smaller, more powerful chips with high energy efficiency. Applied Materials specialises in the production of integrated circuits, used in a wide range of electronic devices. Recently, the company introduced new technology called the Centura Sculpting system, which competes with ASML's High-NA EUV. Consequently, some analysts believe that Applied Materials may have stronger growth prospects than ASML.

Applied Materials delivers record third-quarter sales as AI fuels chip demand - SiliconANGLE

Applied Materials delivers record third-quarter sales as AI fuels chip demand Semiconductor industry equipment maker Applied Materials Inc. posted higher-than-expected revenue and profit today as it delivered its fiscal third quarter financial results, driven by demand from artificial intelligence chipmakers. The company reported third quarter earnings before certain costs such as stock compensation of $2.12 per share, beating the analysts' forecast of $2.03 by a comfortable margin. Revenue rose 5.5% from a year earlier to $6.78 billion, ahead of the $6.68 billion estimate. All told, Applied Materials delivered a net profit of $1.705 billion, rising from the $1.56 billion profit it recorded in the same period one year earlier. Chief Executive Gary Dickerson (pictured) said the $6.78 billion in revenue was a new company record for the third quarter, towards the high end of its own guidance range. "The race for AI leadership is fueling demand for our unique and connected portfolio of products and services, positioning Applied to outperform our markets over the longer term," he said. Applied Materials is a supplier of sophisticated chipmaking equipment that's used at the facilities of chipmakers such as Intel Corp., Samsung Electronics Co. Ltd. and Taiwan Semiconductor Manufacturing Co. It's this status that positions the company as a key barometer of future demand in the chipmaking industry. Its customers generally order machinery from it well in advance of the opening of new chipmaking factories and upgrades to existing lines, which can take more than a year to outfit for production. Both Intel and TSMC are constructing enormous new plants in the U.S. in the expectation that demand for domestic chip production there will increase. Rising demand for AI chips has increased the need for the expensive wafer fabrication equipment sold by Applied Materials. The company has also benefited from growing demand in the high-performance computing and cloud data center segments. Looking deeper, Applied Materials' semiconductor systems business unit delivered revenue of $4.92 billion, up 5% from a year earlier. Sales in the global services segment rose 8% to $1.58 billion, while the smaller display-and-adjacent markets unit posted $251 million in sales, up 7%. The company's prospects look good, but investors may have one or two concerns, the most notable of which is that its sales in the China region accounted for a smaller portion of its overall revenue than analysts had projected. That indicates sales to Chinese chipmakers are normalizing faster than anticipated. Like its market peers such as the Dutch chipmaking specialist ASML Holding NV, Applied Materials has been hit by restrictions on what it can and can't ship to China. The U.S. government has pressured chipmaking equipment manufacturers to stop supply China with the most advanced technology they build, citing national security concerns. Yet China has a rapidly growing domestic chipmaking industry, which is mostly focused on less advanced semiconductors, and this market has become a source of rapid growth for Applied Materials. In November, reports emerged that the U.S. Justice Department was investigating the company over its dealings with China's biggest semiconductor maker, Semiconductor Manufacturing International Corp. It has not yet been accused of any wrongdoing, but in May, the company received a second subpoena, this time from the U.S. Department of Commerce. It's a development that suggests the company may yet get into hot water regarding violations of the U.S. sanctions on Chinese chipmakers. Despite those potential future pitfalls, Applied Materials is optimistic for the coming quarter. The company said it expects fourth quarter sales to come in at around $6.93 billion, plus or minus $400 million, just slightly ahead of the consensus estimate of $6.92 billion. In terms of earnings, Applied Materials is forecasting a profit at a fairly wide range of $2 to $2.36 per share, the midpoint of which comes in just ahead of the Street's target of $2.14 per share. The chip fab machine maker's stock had risen more than 5% prior to today's results, but wavered between slight gains and losses after hours. At the time of writing, it was down just over 2% in extended trading. Running Point Capital analyst Ashley Schulman told Reuters the after-market pullback was probably due to the earlier gains in the regular trading session. "The mixed sales report from China and the wide variance in its fourth-quarter forecasts may have caused concern," Schulman said. "Some analysts may have been looking for a more robust next quarter forecast." Applied Materials' stock has gained more than 30% in the year to date.