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The Supply Chain Breaks Under Strain Causes Miss, Weak Guide, Repairs Needed 2021

December 6, 2021 @ 8:00 AM - 5:00 PM

Applied Materials missed on both earnings and revenues versus the street coming in at EPS of $1.94 and revenues of $6.123B versus street expectations of $1.96 and $6.375B with whispers of over $2 and about $6.5B.

Guidance is for $1.85 +- $0.07 and revenues of $6.16B +- $250M …which sounds like flattish in a world of huge demand. Street expectations were $2.01 and $6.5B.

As compared to the rest of the semiconductor equipment industry which ranged from virtually zero supply chain impact to significant impact, Applied was most negatively impacted of any company. This clearly implies that the problems reported were likely Applied specific. According to the company the supply chain related impact was around $300M.

Shoemakers Children go barefoot

Applied laid the blame primarily on semiconductor shortages although we think it likely goes well beyond that to subsystems using semiconductors. It also sounded like most of the issues were on process tools.

We find it a bit odd that after navigating issues for much of the year that supply chain problems finally caught up with them. We would imagine that much of the inventory and stock in the supply chain has likely been used up to the point where there is little to no buffer left in the system.

Its not question of if upside will be limited but how much it will be limited?

We had predicted in our quarterly preview note of October 4th that we would likely see more impact from supply chain issues that we had not previously seen in previous quarters and that upside would likely start to limit performance which would in turn limit stock upside. Applied’s report is the best example of that projected issue

We have at the very least two quarters of negative impact on revenue and earnings and likely beyond into 2022. Although the reported quarter is only about a 5% hit to revenues it could worsen

Does inability to supply lead to share loss to competitors?

From Applied management it was clear that the areas most impacted were coincidentally those areas with the most competition such as deposition and etch. Could we see Lam, Tokyo Electron, Hitachi and ASMI pick up some share as customers get more desperate for tools that Applied can’t supply.

This is obviously more damaging as it causes a longer term problem because its harder to get back lost share

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December 6, 2021
8:00 AM - 5:00 PM