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Applied Materials has issued a warning regarding potential errors in future sales and revenue forecasts.
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China is scaling back its orders for semiconductor manufacturing equipment. This is particularly concerning as KLA relies heavily on sales to China.
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The unfavorable news for Applied Materials likely spells trouble for KLA as well.
KLA (NASDAQ: KLAC) is a major player in manufacturing equipment, particularly in the semiconductor sector. Recently, its stock dropped by 8% by 2:40 PM on Friday.
The decline is attributed to a significant alert from one of KLA’s competitors, Applied Materials (NASDAQ: AMAT), indicating serious issues in the semiconductor market.
When Applied Materials reported its third-quarter revenue, it noted an 8% year-over-year increase in sales. The earnings per share also increased by 8%. However, what really mattered was the future earnings outlook.
Specifically, Applied Materials warned it expects to earn only $2.11 per share in the fourth quarter. This figure, adjusted for special items, reflects a significant 15% decline, while analysts had anticipated increases. Sales are projected to decrease by approximately 8%.
So, what’s the connection to KLA? Applied cited a “dynamic macroeconomic and policy environment” as part of the issue. The slump in sales from China was particularly highlighted. Much of the semiconductor manufacturing equipment already bought is still being “digested.”
In 2024, more than 37% of Applied’s sales came from China, according to S&P Global Market Intelligence. KLA’s dependence isn’t far behind, with around 33% of its sales from China. Thus, bad news for Applied typically has repercussions for KLA as well. Moreover, KLA’s stock is trading high at 31 times revenue, leaving little room for error amidst negative news.
Given this situation, it might be worth considering whether to sell KLA stocks.
