Applied Materials reported strong fiscal third-quarter earnings, highlighting the ongoing strong demands for artificial intelligence (AI) chip equipment. The company is increasingly posing a threat to its global rival, ASML.
ADVERTISEMENTThe US chip equipment maker, Applied Materials, reported fiscal third-quarter earnings that exceeded analysts’ expectations, driven by strong sales growth in China.
Despite this, Applied Materials' shares fell by more than 2% in extended trading hours after a 5% jump on Thursday.
The company is a major global rival to Europe’s largest tech company, ASML. Year-to-date, Applied Materials' shares are up 37%, while ASML’s shares have risen by 25%.
Applied Materials reports a record quarterly sales revenue
The US-based company reported adjusted earnings per share of $2.12 (€1.93) on revenue of $6.78bn (€6.18bn), surpassing the expected $2.03 and $6.68bn, respectively.
Its revenue reached a record high, increasing by 5% year-on-year, driven by surging demand for AI chipmaking.
CEO Gary Dickerson stated: "The race for AI leadership is fuelling demand for our unique and connected portfolio of products and services, positioning Applied to outperform our markets over the longer term."
According to its earnings report, the revenue growth was largely driven by demand for its data storage, particularly Dynamic Random Access Memory (DRAM). Sales of DRAM accounted for 24% of its overall revenue, compared to 17% in the same quarter last year.
Notably, sales in China accounted for 32% of its net revenue, up from 27% last year but down from 43% in the previous quarter. This suggests that semiconductor equipment makers may face further headwinds due to US regulatory restrictions.
The company had previously warned that DRAM revenue in China might fall significantly in the fiscal third quarter (ending in July) and could approach zero in the fiscal fourth quarter of 2024.
Additionally, sales in the United States remained at 16% of Applied Materials’ net revenue, while sales in Europe saw a sharp decline to just 5%, down from 10% in the same quarter of 2023.
The company provided slightly higher-than-expected guidance for the current quarter, forecasting earnings per share of $2.18 (€1.99) on revenue of $6.93bn (€6.31bn), representing growth of 2.8% and 3% from a year ago.
The outlook suggests a slowdown in growth compared to the reported quarter, which may have contributed to the pressure on its share price.
ASML faces growing competition
Applied Materials’ earnings highlighted the intensifying competition with Dutch group ASML. As of market close on 15 August, ASML remains the world’s largest chip equipment manufacturer, with a market capitalisation of $346bn (€315bn).
Applied Materials ranks second, with a capitalisation of $175bn (€159bn). In the fiscal year 2023, ASML generated revenue of $29.83bn (€27.18bn), while Applied Materials recorded revenue of $26.52bn (€24.17bn).
However, ASML has a much higher Price-to-Earnings Ratio (P/E ratio) of 49 compared to its rival's 24, which may make ASML less appealing to investors when comparing the two stocks.
ADVERTISEMENTIn the June quarter, ASML also reported earnings that surpassed market expectations.
However, it provided weaker-than-expected guidance due to the potential impact of the US ban on chip exports to China.
Despite exceeding expectations, Europe’s largest semiconductor company's quarterly sales fell by 9.5% year-on-year. It generated revenue of $6.24bn (€5.69bn), which was also lower than that of Applied Materials in the July quarter.
Both companies supply similar AI chip equipment to major tech firms, though their products differ slightly. ASML provides more advanced technology, known as High-NA EUV, a lithography system that supports the creation of smaller, more powerful chips with high energy efficiency.
ADVERTISEMENTApplied Materials specialises in the production of integrated circuits, used in a wide range of electronic devices. Recently, the company introduced new technology called the Centura Sculpting system, which competes with ASML’s High-NA EUV.
Consequently, some analysts believe that Applied Materials may have stronger growth prospects than ASML.
