Applied Materials Forecast Shows Bright Spots in Chip World

(Bloomberg) — Applied Materials Inc., the world’s largest semiconductor manufacturing equipment maker, released a strong sales forecast for the current quarter, driven by demand for automotive and industrial chip manufacturing equipment.

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Sales in the second quarter will be about $6.4 billion, the company said in a statement on Thursday. That beat the analysts’ median estimate of $6.3 billion and propelled Applied Materials stock up 3.5% at the end of trading.

Many of Applied Materials’ largest customers have slashed their budgets for new plant and equipment this year in response to the widespread glut. But his latest forecast suggests there are still bright spots in the chip industry, including automotive semiconductors.

While such products tend to be built on older hardware, customers are adding more capacity to keep up with demand, chief executive Gary Dickerson said in an interview.

“People underestimated the power of this business,” he said. “We are ready to beat the market in 2023. We are more resilient.”

Chip manufacturers such as Analog Devices Inc. and GlobalFoundries Inc., also pointed out that there is still a shortage of some types of semiconductors, especially those used in cars, factory equipment and smart devices connected to the Internet. A Taiwan Semiconductor Manufacturing Co. stated that it would have to increase its capacity to produce such parts.

Applied Materials is also benefiting from better access to some components, helping it fill a backlog that has grown during the pandemic.

However, supply issues persist, the Santa Clara, California-based company said. He also expects a “cybersecurity event” that affected one of his suppliers to cut his revenue by $250 million this quarter. Applied Materials did not name the company involved in the attack, but time suggests it was an attack uncovered by MKS Instruments Inc. earlier this month. The company, a provider of Applied Materials, said the ransomware incident would force it to delay the release of its quarterly results.

MKS previously said that the ransomware incident had a significant impact on its “ability to process orders, deliver products and provide services to customers” in its vacuum and photonics divisions.

MKS also supplies Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., the world’s two largest chip makers, according to a Bloomberg supply chain analysis. Intel Corp. and ASML Holding NV are also clients. A representative for MKS Instruments was not available for comment, and the company’s website was down as of Thursday afternoon.

Overall, the chip industry is still in a downturn. Applied Materials’ Dickerson said he’s not optimistic about market expansion this year, but he’s more optimistic about the long term.

Applied Materials said it expects to lose up to $2.5 billion in revenue in fiscal 2023 due to trade restrictions. That hit could be smaller — between $1.5 billion and $2 billion — if the US government grants more shipping licenses to the Asian country.

On the positive side, China is the largest contributor to the growth in sales of equipment needed to manufacture car chips and other less complex components. The Company does not expect this to be limited by further trade restrictions by the US government.

Shares of Applied Materials previously closed at $115.39, sending it up 18% in 2023.

First quarter earnings were $2.03 per share, excluding certain items. Sales rose about 7.5% to $6.74 billion over the period. Those numbers compare to average analyst estimates of $1.94 per share on $6.69 billion in revenue.

(Updates with the MKS Instruments ransomware attack section in the eighth paragraph.)

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