Semiconductor equipment supplier Applied Materials (AMAT) expects weakening demand from memory chip makers but its fiscal 2023 outlook still came in slightly above expectations. AMAT stock reversed down on Friday as the Nasdaq fell and analysts mulled guidance.
XApplied Materials late Thursday reported fiscal third-quarter profit and revenue that topped analyst estimates. The company is working through supply constraints amid a large backlog of orders.
"The debate from here remains how revenue and EPS will fare once we get into the (April 2023) time-frame as memory shipments will be much lower by then, supply will have caught up with demand, and weakness starts to spill over into foundry as double ordering throughout the entire electronics supply chain unwinds," said UBS analyst Timothy Arcuri in a report.
AMAT Stock Rises After Report
On the stock market today, AMAT stock fell 3.4% to close at 104.63. The stock had initially climbed on the earnings release. AMAT stock has retreated 32% thus far in 2022.
Adjusted earnings came in at $1.94 a share on sales of $6.52 billion. Wall Street had expected earnings of $1.78 a share on sales of $6.27 billion, according to FactSet. On a year-over-year basis, Applied Materials earnings rose 2% as sales increased 5%.
A year earlier, Applied Materials earned $1.90 a share on revenue of $6.19 billion. Wall Street had forecast earnings per share of $1.94 on sales of $6.55 billion.
For the current quarter, Applied Materials predicted adjusted earnings of $2 a share on sales of $6.65 billion. That's based on the midpoint of its outlook.
"We expect flattening revenue at a high level and, in the absence of growth, driving margin expansion could be difficult," said KeyBanc Capital analyst Steve Barger in a report.
The Santa Clara, Calif.-based company repurchased $1 billion of AMAT stock in the July quarter.
Equipment Group Ranking Lags
"Commentary around demand remains strong with backlog continuing to rise and recent discussions with customers are providing the company with very good visibility over the next three-plus quarters," said Deutsche Bank analyst Sidney Ho in a report. "Management is particularly bullish on foundry/logic demand. That said, AMAT commented that there have been some memory customers rescheduling delivery and canceling orders, which we believe should be understood by investors by now."
Heading into the earnings report, AMAT stock owned a Relative Strength Rating of only 21 out of a best-possible 99, according to IBD Stock Checkup.
The semiconductor equipment group ranks No. 108 out of 197 industry groups that IBD tracks. Groups within the top 40 are preferred.
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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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