Applied Materials’ (AMAT) Strong Q4 Results Fuel Its Optimism About Outperforming A Weakening Market
2:42 pm Friday, November 18th, 2022
Applied Materials (AMAT) is receiving a nice push today after its Q4 (Oct) results were much higher than the semiconductor equipment giant forecasted just over one month ago. After the U.S. government implemented new export regulations for semiconductor technology sold in China, including wafer fab equipment (AMAT’s bread and butter), AMAT immediately slashed its Q4 EPS and sales forecasts. The company also cautioned that even after an estimated $250-550 mln hit to its Q4 sales, subsequent quarters would still be affected, predicting a similar sized ding to Q1 sales.
Therefore, even though AMAT’s Q1 outlook of $1.75-2.11 in adjusted EPS and $6.3-7.1 bln in sales was only in line with estimates, it is still considered a win. Furthermore, AMAT commented that it may be able to mitigate an estimated $2.5 bln impact on FY23 revs by around $0.5-1.0 bln depending on how quickly the U.S. provides licenses and approvals and how impacted companies refocus investments.
Adjusted EPS of $2.03 smashed AMAT’s previously cut outlook of $1.54-1.78 and lined up nicely with its initial forecast of $1.82-2.18.
Meanwhile, sales climbed 10.2% higher yr/yr to $6.75 bln, again easily exceeding AMAT’s prior forecast of $6.15-6.65 bln, lining up with its initial prediction of $6.25-7.05 bln.
AMAT’s backlog is also the highest in its history, positioning it to offset some market weakness next year.
The road ahead is anything but smooth. AMAT conceded that the economic backdrop is resulting in a pullback in overall wafer fab equipment spending in FY23. However, the company was optimistic that its business would be more resilient than the underlying market for three reasons: a robust backlog, demand exceeding supply in some cases, and a well-positioned service business where customers continue to convert to subscriptions. Lastly, long-term conditions remain unchanged. Technology complexity is increasing, helping equipment intensity stay at today’s levels or rise even further, translating to the wafer fab equipment market likely growing faster than the overall semiconductor industry.
