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The general economic slowdown and inflation are affecting all businesses, and the semiconductor equipment industry is no different. While the challenges will continue this year, chip equipment maker Applied Materials, Inc. (NASDAQ: AMAT), optimistic about staying on the growth path.
After a two-year decline, the company’s stock rebounded in the past few months and posted steady gains. Currently, it is trading above the 52-week moving average. The recovery is likely to gather steam in the coming months as economic uncertainty eases and operating conditions improve. The relatively low value provides a good investment opportunity and potential investors can use it as an entry point, as the stock is unlikely to be lower in the future.
Endurance
The Santa Clara-based company, the largest provider of semiconductor fabrication equipment, has an impressive track record of growing market share and diversifying its business. Past performance shows the company can effectively solve problems and is stronger.
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In addition, it is part of the industry that has long-term secular tailwinds. While predicting strong performance for the current quarter, management expects profits to be impacted by a recent cybersecurity event at one of its suppliers.
Speaking on an earnings conference call this week, company CEO Gary Dickerson said: “While we understand the short-term volatility in our market and are ready to respond to both or decline, our long-term outlook remains positive. Semiconductors are the foundation of the digital economy making it more strategically and economically important than ever. All over the world, governments are incentivizing the industry to build regional manufacturing capacity and accelerate investment in strategic next-generation technologies.
Good and bad
At Display The segment, Applied Materials’ smallest operating unit in terms of revenue, contracted last quarter, limiting the revenue stream it can rely on to the core. Semiconductor Systems division and Applied Global Services part. Another concern is the continued slowdown in the company’s China business.
In the January quarter, profits doubled in all operating segments – except in China where sales fell – and brought total profits to $6.7 billion. At $2.03 per share, adjusted earnings were up 7%. Both revenue and net profit beat estimates for the third time in a row.
Finance
Operating cash flow remained healthy during the quarter, despite short-term challenges such as slower production and softness in growth. Going forward, the fast-growing service business will be the main growth driver, along with steady demand for automotive and artificial intelligence products. At the same time, new improvements in the supply chain should allow the company to clear its backlog of orders.
Applied Materials Inc. Q1 2023 Earnings Call Transcript
After the market’s mixed response to the earnings report, shares of Applied Materials traded higher on Friday afternoon. They gained around 20% after starting the year on a positive note.
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