By Kanchana Chakravarty
(Reuters) -Applied Materials shares slid about 15% in premarket trading on Friday after the company issued disappointing sales and profit forecast, stoking investor concerns that the U.S.-China trade dispute was eroding demand.
The chip-equipment maker joined Dutch rival ASML Holding in flagging continued uncertainty over the impact of U.S. tariffs, as two of the industry’s biggest players grapple with weakening demand.
Applied Materials CEO Gary Dickerson flagged lower visibility and increased uncertainty in the near-term during a post-earnings call, citing “wide-ranging implications for the semiconductor industry” from the dynamic policy environment.
China, Applied Materials’ top revenue source in the July quarter accounting for 35% of sales, has emerged as a growing risk for chipmaking tool suppliers as U.S. export restrictions weigh on new orders.
Smaller rival KLA Corp, which also has a significant presence in China, said last month it expects softer demand as Sino-U.S. trade tensions weigh on spending by Chinese chipmakers.
“China volatility is significantly clouding visibility into core earnings potential both geopolitically and cyclically,” Deutsche Bank strategists said in a note.
Applied Materials expects revenue of $6.70 billion, plus or minus $500 million, for the fourth quarter, compared with analysts’ average estimate of $7.33 billion, according to data compiled by LSEG. Its projected profit also came in below estimates.
If current losses hold, the company is set to lose more than $22 billion of its $151.06 billion market value as of Thursday’s close.
J.P.Morgan analyst Harlan Sur, however, noted the slowdown in China demand and erratic orders from major foundry customers are “more a reflection of timing of spending rather than structural issues.”
The stock has risen 15.7% so far this year, compared with a 12.5% increase in the Nasdaq index and a nearly 10% gain in the S&P 500 index.
Shares of chip-equipment makers KLA Corp and Lam Research fell more than 5% each after Applied’s results.
The company’s third-quarter revenue rose 8% to $7.30 billion from a year ago, beating estimates of $7.22 billion.
Applied’s stock trades at 19 times its estimate for earnings per share over the next 12 months, according to data compiled by LSEG. This trails ASML’s ratio of 26.04 times similar earnings estimate, Lam’s 23.56 and KLA’s 26.82.
(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Sonia Cheema and Leroy Leo)
