Aug 15 – Applied Materials (NASDAQ:AMAT) plunged roughly 15% in premarket trading Friday after the company warned Q4 revenue could drop to about $6.7 billion. Investors reacted fast: the stock moved before markets opened as management flagged near-term headwinds and tighter demand in China.
If we look overall, Applied posted a strong quarter, roughly $7.3 billion in revenue and a record non-GAAP EPS of $2.48, above the estimates, yet it expects a sequential pullback driven mainly by uncertainty in China and slower ramps for leading-edge logic. CEO Gary Dickerson and CFO Brice Hill point to solid fundamentals underneath the caution.
The firm generated about $2.6 billion of operating cash flow, roughly $2.0 billion of free cash flow, and sent $1.4 billion back to shareholders through dividends and buybacks. Applied will invest more than $200 million in an Arizona manufacturing site tied to Apple’s (NASDAQ:AAPL) American Manufacturing Program, and management highlights a structural tailwind: the industry shift from FinFET to gate-all-around transistors should expand revenue per fab by about 30%, boosting long-term opportunity.
In simple terms, the sell-off is noise about near-term, China exposure and timing, but the company has a clear runway from tech transitions, strong margins and good cash flow.
This article first appeared on GuruFocus.