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Applied Materials Stock Slides On Q2 Earnings Miss, Muted Chip Sector Outlook

"Demand for semiconductors has never been stronger or broader while the industry's ability to fulfill this growing demand remains constrained by ongoing supply chain issues," said CEO Gary Dickerson.

Updated at 9:48 am EST

Applied Materials  (AMAT) - Get Applied Materials Inc. Report shares moved lower in pre-market trading after the semiconductor equipment maker posted softer-than-expected second quarter earnings a muted near-term outlook.

A global shortage in semiconductor parts has gummed-up chipmaking supply chains and hampered Applied Material's ability to meet customer demand, CEO Gary Dickerson told investors late Thursday. 

The group earned an adjusted profit of $1.85 per share, a 22% increase from the same period last year but 5 cents shy of the Street consensus forecast. Group revenues were also light, rising 12% to $6.25 billion but again missing analysts' estimates of a $6.375 billion tally.

Looking into the current quarter, Applied said profits would only come in between 1.59 to $1.95 per share, well shy of Refinitiv estimates, on essentially flat revenues of $6.25 billion.

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"Demand for semiconductors has never been stronger or broader while the industry's ability to fulfill this growing demand remains constrained by ongoing supply chain issues," Dickerson told investors on a conference call.

"We anticipate our ability to fulfill this demand will remain constrained by ongoing supply chain challenges in the near-term with incremental improvements beginning in our fourth quarter," he added. "We are making progress in key areas, although it is not yet visible in our results. Longer term, we see incredibly exciting opportunities as secular trends create opportunities for Applied to outgrow the semiconductor market."

Applied Materials shares were marked 2.4% lower in early Friday trading to change hands at $108.17 each, a move that would extend the stock's year-to-date slump to around 32.4%.

"While we are reducing near-term estimates, the clear message of the call was that demand is strong and sustainable, Applied Materials is committed to gross margin improvement, and it is working with the supply chain to resolve bottlenecks," said KeyBanc Capital Markets analyst Steve Barger, who carries a 'sector weight' rating on the stock.

"While Applied Materials’ ability to ship is currently constrained, orders remained strong, its backlog has grown, and likely only supply constraints will keep the industry from hitting $100 billion (Wafer fab equipment) this year," he added. "Should shipments fall short, Applied Materials indicated that demand would likely add to what should be a growth year in 2023."