Applied Materials' weak forecast fans concerns over the end of the chip boom

  • Applied Materials forecast current-quarter profit and revenue below Wall Street estimates.
  • The warning added to fears that a two-year chip boom may be losing steam.
  • Investors have worried that slowing smartphone growth and newer technologies would prompt chipmakers to rein in capital spending and lower demand for chip-making equipment.
A technician inspects a 300mm silicon wafer at the Applied Materials Maydan Technology Center in Santa Clara, California.
David Paul Morris | Bloomberg | Getty Images
A technician inspects a 300mm silicon wafer at the Applied Materials Maydan Technology Center in Santa Clara, California.

Applied Materials, the world's largest supplier of equipment used to make chips, forecast current-quarter profit and revenue below Wall Street estimates, adding to fears that a two-year chip boom may be losing steam.

Shares of the company, whose results are seen as the bellwether for the chip industry, were down 4 percent at $45.55 in extended trading on Thursday. Rival Lam Research also dropped about 2 percent.

Investors have worried that slowing smartphone growth and newer technologies would prompt chipmakers to rein in capital spending and lower demand for chip-making equipment.

"As foundry customers optimize existing capacity, they have trimmed their capital spending plans for the year," Chief Executive Officer Gary Dickerson told analysts on a post-earnings call.

Adding to the worries, NAND flash memory chip prices have nearly halved from a peak in 2017.

Morningstar analyst Abhinav Davuluri said he expects relatively weaker spending in 2019 for memory, resulting in modest declines in overall equipment spending.

Dickerson said the fourth-quarter forecast assumes a decline of about 4 percent in the company's semiconductor systems revenue.

Applied Materials expects fourth-quarter adjusted profit of between 92 cents and $1 per share and net sales of between $3.85 billion and $4.15 billion. The midpoint of the revenue range forecast would be about flat from a year earlier, the company said.

Analysts on average were expecting a profit of $1.17 per share and revenue of $4.46 billion, according to Thomson Reuters I/B/E/S.

The company's customers include Samsung Electronics, Micron Technologies, Taiwan Semiconductor, and Intel.

Samsung accounted for about 23 percent of Applied Materials' revenue in fiscal year 2017.

The weak forecast clouded yet another quarterly beat on revenue and profit by Santa Clara, California-based Applied Materials.

The company's net income jumped about 27 percent to $1.17 billion in the third quarter ended July 29, while total net sales rose 19 percent to $4.47 billion.

Excluding items, the company earned $1.20 per share.

Analysts on average had expected a profit of $1.17 per share and revenue of $4.43 billion.

Applied Materials' also topped analysts' estimates for revenue growth in its semiconductor and display businesses.

Sales in the semiconductor division rose 8.5 percent to $2.75 billion, slightly ahead of FactSet estimates of $2.74 billion.

Revenue in its display business surged 80.7 percent to $741 million, also above FactSet estimates of $722.1 million. The division makes flat panel displays for televisions, PCs and smartphones.