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Applied Materials Stock Lower After Q3 Earnings, Chip Market Caution

"Although we're confident in our ability to perform well in a range of market scenarios, we're mindful of the current macroeconomic trends," said CEO Gary Dickerson.

Updated at 9:46 am EST

Applied Materials  (AMAT)  shares edged modestly higher Friday after the semiconductor equipment maker posted better-than-expected third quarter earnings and a solid, but cautious, near-term outlook.

Adjusted earnings for the three months ending in July, the group's fiscal third quarter, rose 2% from last year to $1.94 per share, firmly topping the Street consensus forecast of $1.79 per share as revenues nudged 5.1% higher to $6.52 billion.

Applied Materials said it sees current quarter revenues in the region of $6.65 billion, with a $400 million error margin on either side, even as CEO Gary Dickerson cautioned that the group would remain "supply-constrained" for the "several quarters". 

The group also lowered its 2022 wafer fab equipment industry view to around $90 billion, but said its own WFE revenues would rise 15% in the coming fiscal year. It also expects to slow hiring in order to ensuring the full funding of R&D programs. 

"Memory spending is expected to be lower than in 2022 as macro uncertainty and weakness in consumer electronics and PCs causes these customers to defer some capacity additions," CEO Gary Dickerson told investors on a conference call late Thursday. 

"Leading-edge foundry-logic looks strong with customers battling for leadership and racing to be first to implement major technology inflections (and) ICAPS customers who serve IoT, communications, auto, power and sensor markets, are reporting areas of strength and weakness," he added. "These customers serve broad and diverse applications. They're seeing softness in consumer-centric markets, which are being impacted by macroeconomic factors."

Applied Materials shares were marked 3% lower in early Friday trading to change hands at $105.07 each, a move that would extend the stock's year-to-date decline to around 34.1%.

"Demand continues to outpace the supply, but weaker memory and consumer centric applications are creating uncertainty for 2023," said D.A. Davison analyst Thomas Diffely, who cut his price target on the group by $15 to $155 per share, while holding his 'buy' rating in place, following last night's earnings.

"Although market demand continues to outpace supply, the current market environment remains challenging (constrained global supply, slowing memory investments, and softness in consumer markets), " he added. "That said, the company should benefit from large backlog levels (3 quarters worth), longer term visibility from its customers and massive investments in capacity."