Analyst Note| Abhinav Davuluri, CFA |
Applied Materials reported fiscal fourth-quarter results above the midpoint of management’s guidance, while guiding fiscal first-quarter revenue to be above our prior estimate. We note Applied and its peers have all claimed that customer demand has remained strong despite the uncertain economic climate stemming from the coronavirus, which we attribute primarily to equipment investments related to critical technology transitions and multiyear trends such as AI, 5G, and cloud computing. Additionally, demand from domestic Chinese chipmakers has also grown significantly in 2020, as China looks to reduce its reliance on foreign semiconductors. Applied supplies equipment to the Chinese foundry SMIC and was forced to halt shipments two months into its fourth quarter as a result of the latest U.S. government restriction. This requirement reduced sales for the fourth quarter and Applied’s first-quarter guidance. Despite this headwind, management expects first quarter sales to be up 19% at the midpoint.