Important takeaways from Applied Materials’ (AMAT) Q4 report

Semiconductor technology company Applied Materials, Inc. (NASDAQ: AMAT) has reported better-than-expected fourth-quarter sales that remained unchanged year-over-year. The company also issued positive guidance for the first quarter but the stock declined, reflecting investors’ concerns over a recent investigation into potential evasion of restrictions on exports to China.

Stock

The stock suffered a loss soon after the announcement last week and slipped below the $ 150 mark. But it is still trading above the long-term average, after gaining an impressive 42% since last year. Experts are of the view that AMAT has what it takes to return to the growth path and cross the record highs of January 2022. The recent dip has created an opportunity to own the stock.

The Santa Clara-based tech firm, the largest semiconductor equipment maker in the US, is well-positioned to take advantage of its broad product portfolio and high demand from customers, given the strong growth the industry is witnessing. However, the company is not immune to the near-term challenges the broad sector is facing, like the squeeze on enterprise spending amid macro uncertainties and the post-pandemic slowdown in PC sales.

Meanwhile, as 2024 progresses, a potential recovery in the PC market and continued expansion of the cloud/AI markets could ease the impact of economic and geopolitical uncertainties, driving sales growth for Applied Materials.

Flat Revenue

Adjusted profit rose to $2.12 per share in the October quarter from $2.03 per share last year. Net income, including special items, was $2.0 billion or $2.38 per share in the fourth quarter, compared to $1.59 billion or $1.85 per share in the corresponding period of 2022. Meanwhile, net sales remained broadly unchanged at $6.72 billion during the three-month period. The results topped expectations, as they’ve done in each of the trailing six quarters. The main Semiconductor Systems business contracted by 3%, offsetting growth in the other divisions of Applied Global Services and Display and Adjacent Markets.

Commenting on the Q4 results, CEO Gary Dickerson said, “While semiconductor and wafer fabrication equipment spending were both down in 2023, Applied was able to demonstrate the strength of our broad portfolio, as well as the central role we play in enabling major industry inflections. Our semiconductor systems business delivered mid-single-digit growth for the fiscal year and remains on track for growth in calendar 2023, which will be the fifth consecutive year that we’ve outperformed the wafer fab equipment market.”

Guidance

The company distributed $968 million to shareholders and ended the quarter with an operating cash flow of $1.56 billion. For the first three months of fiscal 2024, it expects net sales to be around $6.47 billion, plus or minus $400 million. First-quarter earnings per share, excluding special items, are expected to be in the range of $1.72 to $2.08. The guidance is broadly in line with the market’s projection but indicates a decline from the prior-year numbers.

According to media reports, the Justice Department is investigating charges that the company potentially evaded export restrictions on Chinese chipmaker SMIC. It is alleged that Applied Materials exported advanced semiconductors and chipmaking gear to SMIC without export licenses.

AMAT traded slightly higher in the early hours of Monday, recovering from the downturn that followed the earnings announcement. It has gained 14% in the past 30 days.