AMAT- In line QTR – poor guide as China Chops hit home- China mkt share loss?

• QTR was just “in-line” but guide was below expectations
• We think its not just China export rules but share loss as well
• Leading edge is strong but obviously not enough to offset China
• Memory remains weak-Foundry (TSMC) is the primary driver

Headwinds slow growth to flat

Applied reported $7.166B in revenues and Non GAAP EPS of $2.38 versus street of $7.16B and EPS of $2.30.

Applied is projecting $7.1B +-$400M and EPS DOWN at $2.30 +-$0.18 versus street expectation of $7.2B and $2.29 in EPS.

Applied is suggesting that the flatness lasts only a quarter or two but we think it likely lasts throughout the year

AMAT blames China export restrictions for 100% of weakness

We think share loss in China adds to the weakness

We continue to hear that domestic Chinese semiconductor equipment makers are taking a larger and larger percentage of WFE sales in China. Data from industry sources appears to clearly support that trend.

Chinese chip makers are doing all they can to avoid buying American tools and are buying more and more domestic tools. This trend is not going to change or reverse any time soon.

We would also add that China has been buying any and all US equipment that wasn’t nailed down in anticipation of restrictions that have finally showed up. Warehouses are likely bursting at the seams with equipment that still needs to be put to use.

So the reality is that China is a “triple play” of restrictions, inventory gluts and domestic tool maker share competition.

Only the inventory glut will improve over time, share loss and restrictions are not likely to get better.

The industry is quickly becoming a monopoly of one… TSMC

Samsung and Intel get further behind….

Although AI is great, it is virtually 100% TSMC as Intel and Samsung have fallen further behind. We don’t see with Samsung or Intel as big capex spenders in the near term.

So its really up to TSMC to carry the flag of AI chips.

This means that AMAT has fewer customers who are spending big……

HBM is great but the rest of memory still sucks…..

As we have stated a number of times, don’t expect memory to ramp overall capex. Applied commented on memory weakness with the obvious exception of HBM.

You have to remember that eventually HBM supply will catch up to demand and that means pricing and investment will both decline.

Eventually, all unique memory types become commodities…..that’s the problem with the memory market, its a constant race to the bottom

2025 looking at a middling 0% to 5% WFE growth Y/Y

We are increasingly thinking that 2025 could be a flat year over 2024. With added headwinds from China and only TSMC at the bleeding edge and memory weak its hard to see where growth is coming from.

We have been warning forever, that the recovery is slower than prior cyclical recoveries, we are clearly seeing that right now.

The stocks

AMAT was down about 5% in the after market which we think is an appropriate reaction.

The headwinds are getting too large for even bullish analysts to ignore so we will likely see a series of cuts in numbers for not just AMAT but across the industry as we get closer to a flat WFE outlook.

There is likely some collateral damage in other equipment names as the weaker outlook from the industry leader settles in

About Semiconductor Advisors LLC
Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies.
We have been covering the space longer and been involved with more transactions than any other financial professional in the space.
We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors.
We offer expert, intelligent, balanced research and advice. Our opinions are very direct and honest and offer an unbiased view as compared to other sources.

Also Read:

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