Applied Materials stock rises on earnings beat

Applied Materials (AMAT) stock was the top gainer in the NASDAQ on May 17, rising as high as 6.3% as the company’s fiscal 2019 second-quarter earnings results beat analysts’ estimates.

The market situation has been tough for the last six months as the US-China trade war has slowed demand and increased inventories in the smartphone, data center, and automotive markets. The trade war came after the memory industry saw a downturn and the crypto bubble burst, creating excess graphics inventory.

Applied Materials’ Q2 Revenue Beats Estimates

In such a weak demand environment, most semiconductor companies—especially memory chip makers—reported earnings misses and reduced their capital spending, affecting Applied Materials’ revenue in the first half of fiscal 2019. The company’s stock rose as its earnings fall didn’t turn out to be as bad as analysts had expected and because it maintained its full-year guidance in such an uncertain environment—one in which chip giants such as Intel had lowered their guidances.

Applied Materials’ fiscal 2019 second-quarter revenue

In the second quarter of fiscal 2019, AMAT’s revenue fell 22.7% YoY (year-over-year) and 5.6% sequentially to $3.54 billion, beating analysts’ estimate of $3.48 billion. The YoY decline was driven by steep double-digit declines in its Semiconductor Systems and Display revenue partially offset by mid-single-digit growth in its Services revenue.

AMAT’s revenue fell YoY for the second quarter in a row after rising in the double digits for more than two years. The fall was largely driven by the memory market downturn, which was partially offset by growth in the foundry and logic markets. Its rival Lam Research’s revenue fell YoY for the third consecutive quarter because of its high exposure to the memory market. On the other hand, its rival KLA Corporation continues to report YoY growth because of its high exposure to the foundry market.

Applied Materials’ fiscal 2019 third-quarter guidance

For the third quarter of fiscal 2019, AMAT expects its revenue to fall 21% YoY to $3.52 billion. It expects its Semiconductor and Display revenue to fall throughout the year and its Services revenue to grow steadily. Within the Semiconductor segment, it expects its memory revenue to fall and its foundry revenue to rise throughout the year, which means that its revenue should continue to fall on a YoY basis, but it could report sequential growth by the end of the year.

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