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Applied Materials Gives Weak Forecast as Shortages Drag On

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(Bloomberg) -- Applied Materials Inc., the biggest maker of machinery used to manufacture semiconductors, slipped in late trading after persistent chip shortages weighed on its forecast for the current quarter.

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Sales will be about $6.25 billion in the fiscal third quarter, which runs through July, the company said in a statement Thursday. Analysts estimated $6.69 billion on average, according to data compiled by Bloomberg. Profit will be $1.59 to $1.95 a share in the period, excluding some items, compared with an average prediction of $2.05.

The chip industry is ordering machinery from Applied Materials and its peers at a frantic rate, trying to build enough production capacity to end industrywide shortages that are hurting growth across the economy. But those same shortages are leaving Applied without the components it needs to make its equipment.

Like Cisco Systems Inc., which gave a disappointing forecast Wednesday, Applied said lockdowns in parts of China where critical suppliers are located has cut it off from components needed to finish building machines. While the company has worked on understanding its supply chain better, Shanghai and other parts of coastal China that have seen a resurgence of the Covid pandemic are choke points because they’re home to manufacturing of some parts as well as chip processing, Chief Executive Officer Gary Dickerson said in an interview.

“Demand is very strong for us, but the biggest issue is supply,” he said. “Even today we have some suppliers that operating at less than 50%.”

Those constraints cost Applied about $150 million of sales in the quarter, he said.

The stock declined about 2% in extended trading after closing at $110.74 in New York, and have dropped 30% this year.

The Santa Clara, California-based company posted earnings of $1.85 a share, minus certain items, in the second quarter, compared with a prediction of $1.91. Sales rose 12% to $6.25 billion, missing the $6.36 billion projection.

Soaring sales of semiconductors have helped Applied Materials maintain revenue growth as chipmakers order more manufacturing equipment from the company. But that hasn’t allayed investor concern that the industry will overshoot and put too much capacity in place, causing a glut -- a regular occurrence in past cycles.

Dickerson has argued that growing use of semiconductors in new types of devices is lessening the industry’s dependence on personal computers and smartphones. That means demand for chips and chipmaking equipment will be more sustained and predictable.

Applied Materials’ customers include Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co. and Intel Corp., making its projections a window into the spending plans and confidence levels of some of the biggest companies in technology.

(Updates with CEO comments in seventh paragraph.)

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