Applied Materials Stock Tumbles After Earnings. Tariff Risks Are Weighing.

Applied Materials reported earnings after the close of trading on Thursday. (David Paul Morris/Bloomberg)

Applied Materials gave a disappointing outlook late Thursday, driving its shares lower. It was casting a shadow over the chip-manufacturing tools sector as a whole.

The chip equipment maker reported adjusted earnings of $2.48 a share for the July quarter, compared with the consensus estimate of $2.36 a share among Wall Street analysts tracked by FactSet. Revenue came in at $7.3 billion, higher than analysts’ expectations for $7.22 billion.

But Applied Materials also forecast a range of revenue for the current quarter, which ends in October, with a midpoint of $6.7 billion, below the consensus view of $7.33 billion.

“We are currently operating in a dynamic macroeconomic and policy environment, which is creating increased uncertainty and lower visibility in the near term, including for our China business,” Applied Materials CEO Gary Dickerson said in a press release.

Applied Materials stock dropped 12% to $165.55 in early trading Friday. It dragged down chipmaking equipment peers KLA and Lam Research , which were both falling more than 5%. However, the knock-on effects might not be entirely justified, according to BofA Research analyst Vivek Arya.

“We suspect Lam Research’s portfolio bias towards high-growth etch/deposition products is skewing foundry/logic share in its favor while AMAT is exposed to other potentially sluggish product categories that are weighing on growth,” Arya wrote in a research note.

Arya downgraded his rating on Applied Materials to Neutral from Overweight, and lowered his target price to $180 from $190.

In an interview with Barron’s after the results, Dickerson said some customers in China were digesting prior purchases and that getting export licenses for products have been “backed up.”

Dickerson said that the company saw “lumpiness” in its pipelines as customers face uncertainty surrounding future trade and tariff policies. Dickerson noted that any near term issues don’t affect Applied Materials’ confidence in the company’s long term growth opportunities, including around artificial intelligence and robotics.

The company’s key customers include Intel and Taiwan Semiconductor Manufacturing , or TSMC.

“Applied had previously anticipated linear quarterly improvement in leading-edge foundry/logic revenue. Our view has been that TSMC spending was more first half-oriented,” wrote Stifel analyst Brian Chin in a research note.

Chin lowered his target price on Applied Materials to $180 from $195 but kept a Buy rating on the stock.

Write to Tae Kim at tae.kim@barrons.com and Adam Clark at adam.clark@barrons.com