Applied Materials Brings Havoc to Semiconductor Capital Equipment Space

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Applied Materials Inc. (NASDAQ: AMAT) typically has beaten its earnings and sales expectations. Apparently, the top U.S. player for semiconductor capital equipment is finding out that 29% in quarterly revenue growth (to $4.57 billion) and a 54% jump in operating income (to $1.22 per share) from a year ago aren’t enough in the face of expectations ahead.

The results were bad enough that Goldman Sachs even downgraded Applied Materials to Neutral from Buy with a new price target of $58.

The company generated $611 million in cash from operations and returned $2.6 billion to shareholders through $2.5 billion in share repurchases and dividends of $105 million. Again, it’s the outlook from Applied Materials that is spooking investors.

For its third quarter of fiscal 2018, the company expects net sales to be in the range of $4.33 billion to $4.53 billion, and the midpoint would imply an increase of approximately 18% year over year. Its comparable operating earnings are expected to be in the range of $1.13 to $1.21 per share, with the midpoint of the range being up approximately 36% year over year. Thomson Reuters has expectations at $1.16 EPS and $4.53 billion in revenues for the fiscal third quarter.

In addition to that Goldman Sachs downgrade, other analysts spoke up as well:

  • Craig-Hallum lowered its price target for Applied Materials to $65 from $76.
  • Credit Suisse maintained its Outperform rating but lowered its target from $75 to $73.
  • Deutsche Bank lowered its target price to $65 from $70 but still has a Buy rating.
  • Instinet lowered its price target to $65 from $70.
  • Morgan Stanley still has an Overweight rating but lowered its target by a dollar to $60.

While Friday morning’s 9.4% drop in Applied Materials to $48.90 looks extreme, the fallout around the semiconductor capital equipment space was rather wide.

ASML Holding N.V. (NASDAQ: ASML) was down 2.6% to $197.02 on Friday morning. The stock has a 52-week trading range of $126.03 to $216.00 and a consensus analyst target price of $196.81.

Lam Research Corp. (NASDAQ: LRCX) was last seen down 3.9% at $19.41, compared with a 52-week high of $234.88 and a consensus target price of $266.55.

Shares of KLA-Tencor Corp. (NASDAQ: KLAC) were down 3.5% at $109.33, in a 52-week range of $87.93 to $123.96. It also has a consensus price target of $132.31.

Teradyne Inc. (NYSE: TER) was down almost 2% to $37.00. The 52-week high is $50.68.

Kulicke and Soffa Industries, Inc. (NASDAQ: KLIC) was down 2.5% to $22.04, but it only has a $1.57 billion market cap.

Applied Materials has a $51 billion market cap, even after the big slide. Its 52-week range is $40.79 to $62.40, and its consensus analyst target was last seen at $70.24, before factoring in the new target price cuts.