Applied Materials decline after $710M revenue hit from US export restrictions
News Summary
Applied Materials has warned of a $710 million revenue hit over the next two years due to US export restrictions on chip equipment sales to China, with $110 million impacting Q4 and $600 million in 2026. China accounts for roughly 30% of Applied Materials' sales this year, making these restrictions a significant headwind. Following this disclosure, Applied Materials' shares fell 2.32%, while peers KLA and Lam Research also saw slight declines. Despite this short-term pressure, all three companies have posted strong gains in 2024, reflecting broader industry momentum. Analysts highlight Applied Materials' particular vulnerability to Chinese competition, especially in its Physical Vapor Deposition (PVD) equipment business, which accounts for nearly one-third of its operating profits. Rothschild & Co Redburn analyst Timm Schulze-Melander noted that while most semiconductor equipment suppliers face challenges from China-based rivals, Applied Materials' earnings base is the most threatened, assigning a Neutral rating and a $190 target price.
Background
Since President Donald J. Trump's re-election in November 2024, the US government has continued to tighten export restrictions on advanced semiconductor technology and equipment to China. This policy aims to curb China's technological advancements, particularly in chip manufacturing capabilities related to military applications, and reduce reliance on China's high-tech industry. The global semiconductor industry operates on a highly complex and interconnected supply chain, with US companies like Applied Materials, Lam Research, and KLA being major suppliers of semiconductor manufacturing equipment. These firms play a crucial role in global chip production. China has long pursued self-sufficiency in semiconductors to reduce its reliance on foreign technology. The Trump administration's export control measures have, paradoxically, accelerated the development and market share expansion of China's domestic semiconductor equipment manufacturers.
In-Depth AI Insights
Beyond the immediate revenue hit, what are the deeper strategic implications for US semiconductor equipment manufacturers in the long run, considering the Trump administration's policy goals? The US policy aims to cripple China's advanced chip manufacturing, but this paradoxically accelerates China's domestic equipment development. US firms face a dilemma: lose short-term revenue or risk empowering long-term competitors. This forces a re-evaluation of global supply chain diversification strategies and potential technology decoupling. How might the Trump administration's tightening export curbs reshape the competitive landscape within the global semiconductor equipment industry, particularly concerning non-US players and China's domestic champions? These restrictions create an opening for non-US equipment suppliers (e.g., from Japan, Europe) to fill the void in China, potentially gaining market share. Crucially, it provides a protected environment for Chinese domestic players to rapidly innovate and scale, threatening US firms' long-term dominance, especially in segments like PVD where Applied Materials is vulnerable. What potential unintended consequences or second-order effects could these escalated restrictions have on global semiconductor innovation and the broader technology ecosystem? The bifurcation of the semiconductor supply chain could lead to inefficiencies, duplicated R&D efforts, and potentially slower overall innovation. It might also foster a two-tiered technology world, with different standards and ecosystems, impacting economies of scale and global interoperability. Ultimately, this could drive up costs for all and fragment the market.