Applied Materials' shares drop as stringent US export curbs weigh on China business
News Summary
Applied Materials' (AMAT) shares fell 5% before the bell on Friday after the chip equipment maker forecast reduced spending in China next year due to stringent U.S. export curbs weighing on its business. The U.S. government has been cracking down on foreign companies, particularly those in China, that use subsidiaries and affiliates to circumvent export restrictions on chipmaking tools and related products, impacting sales for Applied Materials and its rivals. Despite this, analysts anticipate a tempered hit to Applied Materials' overall sales, as its share of China sales has declined from nearly 40% of revenue in recent years to the mid-20% range. Following talks between U.S. President Donald Trump and Chinese President Xi Jinping, the "affiliate rule" was suspended, which Applied Materials executives confirmed would re-enable approximately $600 million in sales for the full fiscal year. However, CEO Gary Dickerson highlighted that foreign competitors continue to sell to Chinese companies that his firm is unable to serve, suggesting ongoing market share challenges.
Background
China has been the world's largest buyer of chipmaking tools since 2020. The U.S. has long sought to restrict China's access to advanced semiconductor technology through export controls, aiming to curb its military and technological advancements. Following his re-election in 2024, the Trump administration has continued to pursue stringent tech containment policies against China, including export restrictions on chip manufacturing equipment designed to impede China's indigenous high-end chip industry. These restrictions not only directly impact U.S. suppliers but also, through mechanisms like the Foreign Direct Product Rule, extend to chip equipment produced overseas using U.S. technology or software, creating ripple effects for major global chip equipment makers, including ASML and KLA Corp. Previously, Applied Materials had forecast a $600 million hit to its fiscal 2026 revenue due to U.S. export restrictions and had cut approximately 4% of its workforce in response.
In-Depth AI Insights
Is the Trump administration's suspension of the "affiliate rule" a short-term boon for U.S. chip equipment makers or a signal of a long-term strategic shift? - This is more likely a tactical, short-term relief measure rather than a fundamental policy pivot. The Trump administration's long-term strategic goal in tech competition with China remains to restrict China's access to advanced technology. This suspension could be aimed at gaining leverage in broader trade or geopolitical negotiations, or temporarily easing commercial pressure on U.S. companies due to restrictions, especially considering potential impacts on the 2026 U.S. elections. - However, such a pause might also be intended to test China's response to U.S. policy and provide U.S. companies with breathing room to adjust supply chains and market strategies in specific areas. It does not imply that the U.S. will abandon its containment strategy in semiconductors but rather seeks more flexible operational space in a complex game. What potential loopholes or limitations of the U.S. export control strategy does Applied Materials' dilemma of "foreign rivals still selling" reveal? - This highlights the inherent limitations of unilateral U.S. export controls at the implementation level. If key allies or countries with alternative technologies do not fully cooperate, China's chip industry can circumvent some restrictions by turning to non-U.S. technologies or collaborating with non-U.S. suppliers. - This situation could lead to U.S. companies losing market share without fully preventing China's technological progress, potentially accelerating the development of indigenous Chinese alternatives. In the long run, this forces the U.S. in future policymaking to either seek broader international cooperation or accept its companies' competitive disadvantages in certain markets, testing its alliance relationships. Considering U.S. export controls and the suspension of the "affiliate rule," how should China's long-term investment strategy in the chip industry adjust? - China's chip industry should continue to firmly advance localization and independent R&D to reduce reliance on single-country technologies. While the temporary suspension of the "affiliate rule" may offer a respite, the long-term U.S. tech containment strategy will not change. - Prioritize the development of mature process chip manufacturing capabilities and actively support domestic suppliers of upstream materials, equipment, and EDA tools to build a more resilient local supply chain. Simultaneously, strengthen cooperation with countries outside the U.S. technology system to diversify technological supply chain risks. - Encourage domestic enterprises to increase R&D investment, especially in future key technological areas such as quantum computing and advanced packaging, with the aim of taking a leading position in a "non-U.S." technology ecosystem.