Applied Materials' Revenue Forecast Dims as Export Curbs Tighten; Shares Tumble

Applied Materials, a key player in the semiconductor industry, has issued a dour quarterly revenue forecast, citing the impact of tightening export curbs on China. The company's shares fell sharply following the announcement, reflecting investor concerns about the potential long-term implications of the restrictions. In this article, we will delve into the details of the forecast, the reasons behind the decline, and the broader impact on the semiconductor industry.



Applied Materials' revised guidance for the fourth quarter of 2022 and the first quarter of 2023 reflects a significant reduction in expected revenue, primarily due to the impact of export curbs on China. The company now expects revenue of $6.15 billion to $6.65 billion for both quarters, down from its previous guidance of $6.25 billion to $7.05 billion. This reduction represents a decline of approximately 6% in quarterly sales, which is a significant setback for the company.



The export curbs, which target nearly 150 companies internationally, have had a significant impact on Applied Materials' financial performance. The company reported that its net revenue from exports to China increased by 86% in the nine months ending July 28 to $7.9 billion, or 40% of its total revenue. The new controls, including on software that increases the productivity of advanced machines or allows less-advanced machines to produce advanced chips, could affect companies like Germany's Siemens and high-bandwidth memory used in artificial intelligence chips made by South Korea's Samsung and SK Hynix, as well as U.S.-based Micron Technology.

The export controls are detrimental to the interests of all countries, according to China's Foreign Ministry spokesperson Lin Jian. He stated that the U.S. is overstretching the concept of national security, abusing export controls, and maliciously blocking and suppressing China. The new entrants on the Entity List include semiconductor fabrication plants, semiconductor tool companies, and investment companies allegedly "acting at the behest of Beijing to further China's advanced chip goals which pose a risk to US and allied national security," according to the U.S. Commerce Department.

Companies looking for licenses to sell to firms on the Entity List usually are denied, which could further impact revenue for semiconductor companies. The new rule also will expand U.S. powers to curb exports of chipmaking equipment by American, Japanese, and Dutch manufacturers made in other parts of the world to certain chip plants in China. An expanded "foreign direct product rule" will apply to 16 companies on the Entity List that are seen as vital to China's most advanced chipmaking goals.

In conclusion, the export curbs have had a significant impact on Applied Materials' revenue forecast, leading to a decline in the company's share price. The broader semiconductor industry is also affected by these restrictions, with key players like Samsung and Micron Technology potentially facing challenges in the coming quarters. Investors should closely monitor the situation and consider the potential long-term implications of the export curbs on their portfolios.