^{Photo: Forbes}

Q3 Performance Beats Estimates

Applied Materials reported strong third-quarter results, yet investor optimism quickly faded after the company issued a cautious outlook for Q4. The semiconductor equipment leader posted adjusted earnings of $2.48 per share, surpassing analyst estimates of $2.36. Revenue came in at $7.3 billion, slightly above expectations of $7.22 billion.

The company’s semiconductor systems division, its most significant unit, generated $5.43 billion in sales—a 10% increase from the prior year—highlighting ongoing demand for chip manufacturing equipment despite broader market pressures. Net income reached $1.78 billion, or $2.22 per diluted share, up from $1.71 billion or $2.05 in the year-ago period.

Soft Guidance Triggers Sell-Off

Applied Materials warned that Q4 would see a slowdown, projecting $2.11 in adjusted earnings per share and $6.7 billion in revenue—well below analysts’ forecasts of $2.39 per share and $7.34 billion in revenue. Shares dropped more than 10% in after-hours trading as investors reacted to the weaker guidance.

CFO commentary highlighted that revenue declines are expected due to “digestion of capacity in China and non-linear demand from leading-edge customers” caused by market concentration and fab timing. The company anticipates that lower China-related business will persist for several quarters.

China Operations Under Pressure

CEO Gary Dickerson emphasized that macroeconomic uncertainty and policy changes are clouding visibility, with China particularly affected. Applied Materials noted it holds a substantial backlog of export license applications with the U.S. government but assumes none will be approved in the near term.

Trump-era tariffs could further complicate operations, potentially doubling the cost of imported chips unless companies commit to domestic manufacturing. As much of Applied Materials’ equipment is used in Asian chip production, these policy measures contribute to ongoing uncertainty.

Strategic Partnerships and U.S. Manufacturing Push

Amid challenges, Applied Materials has strengthened domestic production ties. Apple recently selected the company to supply additional chip manufacturing equipment in Austin, Texas, a move praised by President Donald Trump. This partnership aligns with broader U.S. efforts to boost domestic semiconductor manufacturing and reduce reliance on foreign production.

While the short-term outlook remains cautious, Applied Materials’ long-term position in semiconductor infrastructure, combined with strategic partnerships and robust backlog, provides potential upside for patient investors.

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