Applied Materials (AMAT) shares have fallen more than 4% on Friday. The company announced its third-quarter results after the market closed on Thursday.
AMAT reported revenues of $3.56 billion
Applied Materials reported sales of $3.56 billion—a fall of 14% YoY (year-over-year). The company’s adjusted EPS fell 29% YoY to $0.74. In the third quarter of fiscal 2018, Applied Materials reported sales of $4.16 billion and an EPS of $1.04.
Analysts expected Applied Materials to post revenues of $3.5 billion and an EPS of $0.70 in the fourth quarter. So, why did the stock fall despite an earnings and revenue beat?
Are investors cautious about an upcoming recession?
Investors might be treading cautiously after the yield curve inverted two days ago. An inverted yield curve has been a key indicator of a recession in the last 50 years. The semiconductor industry is in the midst of a downcycle. Investors want to wait and see before pumping money into these stocks.
Semiconductor stocks, including Applied Materials, have high exposure to China. They will be impacted since the trade war continues to escalate. Applied Materials shares have fallen more than 8.5% in August. Despite the recent pullback, the stock has risen almost 40% year-to-date. Advanced Micro Devices (AMD), Intel (INTC), and Lam Research (LRCX) have returned 1%, -7.7%, and -3% since the beginning of August.
What impacted AMAT’s sales in the third quarter?
Applied Materials’ CEO, Gary Dickerson, said that while foundry spending in the third quarter was strong, it was offset by lower investments in memory and display. Dickerson said, “We also remain mindful of the broader macroeconomic risks. During this industry down cycle, my primary focus is ensuring the organization is executing on the initiatives that will put Applied Materials in the best position for the future.”
Applied Materials looks for opportunities in high growth segments like Internet of Things, AI, and big data. So, what’s next for Applied Materials?
AMAT’s sales estimates in the fourth quarter
Applied Materials expects sales of $3.685 billion in the fourth quarter and an EPS between $0.72 and $0.80. The company reported sales of $4.01 billion and an EPS of $0.97 in the fourth quarter of 2018. Applied Materials’ sales will likely fall 16% to $14.5 billion in 2019. The company will return to revenue growth in 2020. The sales will likely rise 9.2%. The company’s earnings will likely fall 33% in 2019 and rise 22% in 2020, according to analysts’ estimates.
So, does this mean that the semiconductor downturn is coming to an end? Goldman Sachs certainly thinks so. For now, tech remains a volatile space. Investors need to be extremely cautious.