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AMAT’s Weak Fiscal Q4 2018 Guidance Makes Investors Cautious

Puja Tayal - Author
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Nov. 20 2020, Updated 12:38 p.m. ET

AMAT stock falls after fiscal Q3 2018 earnings

Applied Materials (AMAT), the world’s largest chip manufacturing equipment vendor, reported strong fiscal Q3 2018 earnings but lowered its fiscal Q4 2018 guidance, which sent the company’s stock down 9.2% at the start of the August 17 trading session.

AMAT’s stock has fallen 17% YTD (year-to-date), underperforming peers KLA-Tencor (KLAC) and Lam Research (LRCX), which have fallen 4.6% and 10.8%, respectively. AMAT also underperformed the Market Vectors Semiconductor ETF (SMH), which fell 6% YTD.

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AMAT’s earnings highlights

For fiscal Q3 2018, AMAT’s revenue rose 19% YoY (year-over-year) to $4.47 billion, beating analysts’ estimate of $4.43 billion. The quarter was AMAT’s ninth consecutive quarter of double-digit YoY growth.

The 19% YoY growth was driven by 80.7% growth in display, 21.8% growth in services, and 8.5% growth in semiconductor systems. The growth in semiconductor systems was the weakest in two years. AMAT’s revenue fell 8% sequentially in fiscal Q3 2018 due to a 19% sequential decline in memory equipment sales.

LRCX, which has more than 80% exposure to the memory market, saw its sequential revenue growth from memory equipment slow from 22% in the March 2018 quarter to 3% in the June 2018 quarter. AMAT’s non-GAAP (generally accepted accounting principles) EPS (earnings per share) rose 40% YoY to $1.2, beating the analyst estimate of $1.17.

Fiscal Q4 2018 guidance

For fiscal Q4 2018, AMAT expects to report revenue of $4 billion at the midpoint, lower than the analysts’ estimate of $4.46 billion. This guidance represents flat YoY growth and would mark the end of AMAT’s double-digit YoY growth. Lam Research expects its revenue to fall 7% YoY during the same quarter because of its high exposure to the memory market.

The revised guidance also lowers AMAT’s full fiscal 2018 revenue guidance from $17.74 billion to $17.25 billion. AMAT’s weaker guidance comes as chip manufacturers make adjustments to their capital spending. Next, we’ll see what AMAT’s earnings say about the semiconductor’s capital spending for 2018.

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