Applied Materials’ Middle-of-Road Sales Forecast Underwhelms

(Bloomberg) — Applied Materials Inc., the largest US maker of chip-manufacturing equipment, delivered an in-line sales forecast that disappointed investors who’d been looking for a bigger payoff from artificial intelligence spending.

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Fiscal fourth-quarter sales will be about $6.93 billion, the company said in a statement Thursday. That matched the average analyst estimate, according to data compiled by Bloomberg. Profit, minus certain items, will be roughly $2.18 a share. Analysts were projecting $2.15 for the period, which runs through October.

The shares fell about 2.8% in after hours trading — following a 5.1% increase in regular trading — a sign some investors were hoping for more of a blowout quarter. As a key supplier to the world’s largest chipmakers, including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and Intel Corp., Applied Materials has benefited from a rush to build AI chips.

Demand for gear used in the production of high-end processors — needed to develop and run AI software — remains strong, Chief Executive Officer Gary Dickerson said in an interview. Customers are scrambling to make gains in the market, causing them to spend heavily on new technology, he said.

“I’m a big believer that the AI data center is going to drive tremendous chip demand,” he said. “For all of these companies, it’s a race. Whoever gets there first wins big, and everyone else gets left behind.”

Shares of Santa Clara, California-based Applied Materials had earlier closed at $211.83, leaving them up 31% for the year.

Profit in the third quarter was $2.12 a share, excluding some items, on revenue of $6.78 billion. Analysts estimated $2.03 a share in earnings $6.68 billion in sales.

Some parts of the company’s business have been more sluggish. That includes a category that Applied Materials calls ICAPS — chip equipment for components going into internet-connected appliances, communications, autos, power control and sensors.

Companies such as NXP Semiconductors NV have reported weaker orders from their automaker customers.

Still, demand for the ICAP category of chips will remain strong in the long term, Dickerson said.

(Updates share price move in third paragraph.)