Applied Materials' Q4 Results not Immune to Shortages, Demand Remains Strong, Raising FVE to $142

Wide-moat Applied Materials reported fiscal fourth-quarter revenue below the midpoint of management’s guidance, with supply chain constraints negatively affecting sales by at least $300 million. Ironically, Applied is having challenges procuring certain chips for its equipment from suppliers that are also the firm's customers, particularly in logic, power, and analog chips. Positively, management sees a healthy demand environment, with wafer fab equipment, or WFE, spending expected to be up again in 2022. We estimate 2021 WFE to be in the mid-$80 billion range (up from $65 billion in 2020). The firm boasts a backlog of $11.8 billion, which is up 77% relative to the same period last year. Consequently, we are raising our fair value estimate to $142 per share from $131, as we roll our model forward and incorporate a stronger outlook for 2022.