Applied Materials Inc. posted higher-than-anticipated earnings and revenue thanks to increased demand for artificial intelligence chips and electronic devices, but its stock fell as company officials issued a mixed outlook for the current quarter.

The maker of semiconductor manufacturing equipment reported fourth quarter earnings before certain costs such as stock compensation of $2.32 per share, far ahead of the analysts’ consensus estimate of $2.19. Meanwhile, revenue rose 5% from a year earlier, to $7.05 billion, above Wall Street’s target of $6.96 billion.

All told, the company delivered a net profit of $1.73 billion in its fiscal fourth quarter, down from the $2 billion profit it recorded in the year-ago period.

However, it was the guidance for the current quarter that set the cat among the pigeons. Analysts were disappointed that the company is only guiding for first-quarter revenue of $7.15 billion at the midpoint of its forecast, below the analysts’ target of $7.24 billion. On the other hand, the company does at least expect a better profit, forecasting earnings of $2.29 per share, slightly higher than the consensus estimate of $2.27.

Applied Materials Chief Executive Gary Dickerson (pictured) said on a conference call that the company is still in a good position to benefit from the industry’s bullish view on AI and energy-efficient computing. “As these key drivers of semiconductor innovation continue to grow in importance, the industry’s roadmap is becoming increasingly dependent on materials engineering, where Applied is the clear leader,” Dickerson said.

Applied Materials is a supplier of sophisticated chipmaking equipment that’s used at the facilities of major chipmakers such as Intel Corp., Samsung Electronics Co. Ltd. and Taiwan Semiconductor Manufacturing Co. Because of this, the company is seen as a key barometer of future demand in the chipmaking industry. Those customers generally order machinery from it well in advance of the opening of new chipmaking factories and upgrades to existing lines, which can take more than a year to outfit for production.

During the quarter, Applied Material’s semiconductor systems business unit – by far its biggest – delivered revenue of $5.18 billion, up 6% from a year ago. Sales in the global services segment rose 11%, to $1.64 billion, while revenue from the much smaller display and adjacent markets unit fell 29% to $211 million.

Despite beating expectations, the market likely has concerns that Applied Materials’ revenue growth has essentially stalled when adjusting for inflation, said analyst Holger Mueller of Constellation Research Inc.

“It hasn’t been able to catch onto the generative AI wave, with its main foundry business retrenching for the full year, while the DRAM and applied global services units barely made up for the shortfall,” the analyst said. “The company also posted a lower profit, and that is not something investors want to see. It occurred due to the growth of ‘other income’ at the expense of its main business line, but that is less profitable.”

Mueller said investors are likely worried about the company’s prospects going forward. “Gary Dickerson and team have their work cut out in the next full year,” he added.

The real concern over Applied Materials stems from its declining revenue in China. There, it reported revenue fell 28% from a year ago, to $2.14 billion. Last month, analysts had warned that Applied Materials might be hurt by slowing demand for dynamic random access memory in China, and it has also been hurt by the U.S. government’s ongoing demands that chipmaking equipment manufacturers refrain from selling advanced technology to customers in that country.

Applied Materials’ Chinese sales are therefore dwindling, despite the fact that China’s domestic chipmaking industry is seeing rapid growth of late. It isn’t helped by the fact the U.S. Department’s of Justice and Commerce are both investigating the company’s dealings in that country. Though it has not yet been accused of any wrongdoing, those investigations reportedly concern violations of the U.S. sanctions on Chinese chipmakers.

Shares of Applied Materials fell almost 6% in extended trading, but the stock still remains up just over 13% in the year to date.

Photo: Applied Materials/YouTube