Applied Materials’ Forecast Shows Bright Spots in Chip World

(Bloomberg) — Applied Materials Inc., the biggest maker of semiconductor-manufacturing equipment, gave a strong sales forecast for the current quarter, benefiting from demand for gear that makes auto and industrial chips.

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Second-quarter sales will be about $6.4 billion, the company said in a statement Thursday. That beat the average analyst estimate of $6.3 billion and helped send Applied Materials shares up as much as 3.5% in late trading.

Many of Applied Materials largest customers have slashed their budgets for new plants and equipment this year in response to a widespread glut. But its latest outlook suggests there are still bright spots in the chip industry, including automotive semiconductors.

While such products are typically built on older machinery, customers are adding more capacity to keep up with demand, Chief Executive Officer Gary Dickerson said in an interview.

“People have underestimated the strength of this business,” he said. “We’re positioned to outperform the market in 2023. We’re more resilient.”

Chipmakers such as Analog Devices Inc. and GlobalFoundries Inc. have also indicated there are still shortages of some types of semiconductors, particularly those used in vehicles, factory equipment and smart internet-connected appliances. And Taiwan Semiconductor Manufacturing Co. has said it will have to build out its capacity for production of such parts.

Applied Materials also is benefiting from better access to some components, helping it fill an order backlog that had grown during the pandemic.

Still, supply challenges persist, the Santa Clara, California-based company said. It also expects a “cybersecurity event” suffered by one of its suppliers to shave $250 million from its revenue this quarter. Applied Materials didn’t name the company involved, but the timing suggests it was referring to an attack disclosed by MKS Instruments Inc. earlier this month. That company, an Applied Materials supplier, said that a ransomware incident would force it to delay the release of quarterly results.

MKS previously said that the ransomware event had a material impact on its “ability to process orders, ship products and provide service to customers” in its vacuum and photonics divisions.

MKS also supplies Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., the world’s two largest chipmakers, according to Bloomberg supply-chain analysis. Intel Corp. and ASML Holding NV are customers as well. A representative for MKS Instruments wasn’t immediately available for comment, and the company’s website was down as of Thursday afternoon.

Overall, the chip industry remains mired in a slump. Applied Materials’ Dickerson said he isn’t optimistic about the broader market this year, but has a brighter view over the longer term.

Applied Materials has said that it expects to lose as much as $2.5 billion in fiscal 2023 revenue due trade restrictions. That hit could be less — $1.5 billion to $2 billion — if the US government provides more licenses to ship to the Asian country.

On the plus side, China is the biggest contributor to a pickup in sales of machinery needed for auto chip and other less-complicated components. The company doesn’t expect that to be curtailed by further trade restrictions from the US government.

Applied Materials shares had earlier closed at $115.39, leaving them up 18% in 2023.

First-quarter profit was $2.03 a share, excluding some items. Sales rose about 7.5% to $6.74 billion in the period. Those numbers compare with average of analysts estimates of $1.94 a share on revenue of $6.69 billion.

(Updates with section on MKS Instruments ransomware attack in eighth paragraph.)

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