How Will A Slowing Semiconductor Market Impact Applied Materials’ Q4 Results?

by Trefis Team
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Applied Materials (NYSE:AMAT), one of the largest providers of semiconductor capital equipment, is expected to publish its Q4 FY’18 results on November 15, reporting on a quarter that likely to see the company’s growth slow down significantly amid declines in chip and memory prices and weaker capital spending by major semiconductor manufacturers. The company has guided for net sales of between $3.85 billion and $4.15 billion, roughly flat at the midpoint year-over-year, with adjusted EPS projected to come in at a range of $0.92 to $1.00, marking a 3% increase at the mid-point. Below, we take a look at the key trends to watch as the company publishes results.

View our interactive dashboard analysis on what to expect from Applied Materials in Q4 FY’18. You can modify any of the key forecasts and drivers to gauge the impact changes would have on the company’s valuation.

Weaker CapEx For Semiconductor Companies Will Hurt Applied

Over the first nine months of the fiscal year, the company saw its revenues grow by 25% year-over-year to $13.24 billion, with operating income soaring by 36% to $3.78 billion, led by strong sales in the Semiconductor Systems segment, which provides semiconductor fabrication equipment. However, the market for semiconductor products appears to be peaking off, with NAND memory prices seeing declines over the last few quarters driven by oversupply, and DRAM prices also projected to drop from 2019 onwards after seeing a strong run. The market for smartphones, which have been a big driver of chip demand, is also saturating, hurting the outlook. Customers in the foundry space, who manufacture chips on a contract basis, are also scaling back on their investments as they look to optimize capacity.

For instance, Samsung, one of Applied’s largest customers and a major player in the memory and foundry space, indicated that it expects its capital expenditures to drop by 27% to 31.8 trillion Korean won ($28 billion) this year. Other semiconductor players such as Texas Instruments and Skyworks have also provided subdued near-term revenue and earnings guidance. Research firm Gartner expects industry-wide Semiconductor Wafer Fab Equipment (WFE) spending to cross $55 billion in 2018 before declining in 2019 and 2020. Applied has indicated that the figure could come in at about $50 billion in 2019, while noting that its customers are still moving ahead with their long-term technology transitions, continuing to invest in long lead time equipment.

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