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Applied Materials Shares Drop Despite Beating Expectations in the Third Quarter

Semi-conductor company Applied Materials saw losses after reporting third quarter results, despite beating on both earnings and revenue.

For the third quarter, the firm reported EPS of $1.2 on revenue of $4.47 billion. This was ahead of the EPS of $1.17 and revenue of $4.43 billion that analysts had expected. In the year ago quarter EPS was $0.86 and revenue was $3.74 billion.

While shares saw a modestly small gain in after-hours trading on the report, they crumbled the next day.

It may have been the dismal guidance that set in with traders. Shares fell as much as 10% on the outlook.

Applied Materials forecast adjusted earnings per share of 96 cents on sales of $4 billion for the current quarter. Wall Street expected adjusted earnings per share of $1.17 on sales of $4.46 billion for the fiscal fourth quarter.

Shares are down over 8% for the year.

RBC Capital Markets analyst Mitch Steves reiterated a sector perform rating on the stock but cut his price target from $55 to $50.

“While the company is calling for Q4 to be a trough EPS quarter, we think investors will continue to sit on the sidelines (near term) until the memory (chip) environment improves,” Steves wrote. “On the positive side, we emphasize that we are not long-term bears and believe the memory headwinds will abate, which would create an attractive entry point (can re-enter when memory stabilizes).”

D.A. Davidson analyst Thomas Diffely was optimistic and said, “2019 should see a nice recovery.”

Applied Materials CEO Gary Dickerson was also optimistic during the earnings call and said, “I’m pleased to report that our revenue for the quarter was up 19% compared to the same period last year and the second highest in the Company’s history. Fiscal 2018 remains on track to be another record setting year for Applied Materials, and we expect each of our major businesses to deliver strong double-digit growth.”

“Demand for wafer fab equipment is on track to be an all-time record in 2018, and our view of 2019 remains positive, our thesis that spending in 2018 plus 2019 combined will exceed $100 billion remains firmly intact. The details within our 2018 forecast are consistent with the view we shared during our last call with the exception of a recent downward revision to our foundry outlook,” said Dickerson.

He also noted, “Stepping back and looking at the broader context, 2018 shows how the industry has fundamentally changed over the past five years. More diverse demand drivers spanning consumer and enterprise markets combined with very disciplined investment has reduced cyclicality. We’re not seeing the large fluctuations in wafer fab equipment spending that we did in the past. Over the same time period, we’ve also driven significant changes within Applied that have resulted in a larger, less volatile and more resilient business. In semiconductor, we’ve gained 7 points of market share in memory since 2013, while maintaining our traditionally strong position in logic foundry. As a result, we are now very well balanced across market segments.”

“We’ve built the strong portfolio of products that addressed major technology inflections. For example, by developing tools for next generation multi patterning, we have grown our patterning business in DRAM, logic and foundry from about $100 million in 2013 to more than $1 billion this year. We expect our patterning opportunity to grow by another billion dollars as EUV and new materials enabled patterning steps are adopted over the next five years.”

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