On February 13, Applied Materials provided a forecast for second-quarter revenue below market expectations, citing rising geopolitical tensions impacting sales of its chipmaking equipment. This led to a more than 5% drop in its shares during after-hours trading.
The company's revenue from China, its primary market in the first quarter, faces challenges due to increased U.S. restrictions on chipmaking technology exports. CEO Gary Dickerson mentioned that these restrictions are projected to decrease 2025 revenue by approximately $400 million, with half of this impact anticipated in the upcoming quarter according to CFO Brice Hill.
The impact of these trade restrictions is estimated to account for around 1.4% of the $29.18 billion revenue forecast for fiscal 2025 as per LSEG data. These controls were set by the U.S. government to limit the export of equipment necessary for manufacturing advanced-node chips to China.
Dickerson highlighted the constraints faced by U.S. companies in serving the Chinese market, emphasizing the implications of updated trade regulations.
Applied Materials' outlook for the second quarter predicts revenue of roughly $7.1 billion, with a range of plus or minus $400 million, falling short of the projected $7.21 billion.
The company foresees that half of the impact from trade restrictions on 2025 revenue will affect the services segment, impacting its ability to service certain customers in China. Sales to China constituted about 31% of Applied Materials' total first-quarter sales, a decline from approximately 45% in the previous year.
Additionally, President Donald Trump directed his economic team to devise plans to retaliate against countries imposing tariffs on U.S. imports, with a focus on major markets including China, Japan, and South Korea – key markets for Applied Materials.
Despite a surge in demand for advanced chips suitable for generative AI applications, this growth has been offset by these trade challenges. Applied Materials expects adjusted earnings per share of $2.30 for the second quarter, aligning with the estimated $2.30 per share. The company surpassed expectations in the first quarter with revenue reaching $7.17 billion.