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Why Is Applied Materials (AMAT) Down 33% Since Last Earnings Report?

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It has been about a month since the last earnings report for Applied Materials (AMAT - Free Report) . Shares have lost about 33% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Applied Materials due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Applied Materials Q1 Earnings & Sales Top Estimates

Applied Materials Inc. reported fiscal first-quarter 2020 non-GAAP earnings of 98 cents per share, which beat the Zacks Consensus Estimate by 6 cents. Moreover, the figure improved 22.5% sequentially and 21% year over year.

Net sales of $4.16 billion surpassed the Zacks Consensus Estimate of $4.12 billion. In addition, the figure improved 10.9% from the prior quarter and 10.9% from the year-ago period.

The company witnessed solid momentum in key geographies, namely Taiwan and China. Additionally, strong global roll out of 5G mobile technology led to higher demand for semiconductor equipment, which drove fiscal first-quarter results.

Let’s delve deeper into the numbers.

Segments in Detail

The Semiconductor Systems Group generated $2.8 billion sales in the reported quarter (contributing 68% to its net sales), reflecting an increase of 24.1% year over year.

Applied Global Services reported sales of $997 million (24% of net sales), which increased 3.6% from the prior-year quarter.

Sales from the Display and Adjacent Markets came in at $332 million (8% of net sales), down 34.5% from the year-ago level.

Revenues by Geography

United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $441 million, $153 million, $351 million, $508 million, $1.36 billion, $72 million and $1.27 billion, contributing 10%, 4%, 8%, 12%, 33%, 2% and 31% to net sales, respectively.

On a year-over-year basis, we note that sales in all the countries declined except Taiwan and China, which witnessed growth of 108.1% and 31.4%, respectively.

Operating Results

Non-GAAP gross margin was 44.9%, expanding30 basis points (bps) from the year-ago quarter.

Operating expenses were $816 million, 7.8% higher than the year-ago quarter. As a percentage of sales, research, development and engineering, and marketing and selling expenses decreased, while general and administrative costs increased.

Non-GAAP operating margin of 25.7% in the reported quarter expanded 110 bps from the prior-year period.

Balance Sheet & Cash Flow

At the end of the fiscal first quarter, cash and cash equivalent balance was $3.42 billion compared with $3.13 billion at the end of fiscal fourth quarter.

Inventories were $3.47 billion, flat with the prior quarter. Accounts receivables increased to $2.68 billion from $2.53 billion in the fiscal fourth quarter.

The company returned $200 million and $192 million through stock repurchases and cash dividends, respectively.

Notably, Applied Materials generated cash flow of $987 million, up from $826 million in the fiscal fourth quarter.


For second-quarter fiscal 2020, Applied Materials expects net sales to be $4.34 (+/-$200 million). The Zacks Consensus Estimate for the same is pegged at $4.19 billion.

Non-GAAP EPS is expected in the range of 98 cents to $1.10. The corresponding Zacks Consensus Estimate is pegged at 96 cents per share.

Bottom Line

Management believes that demand for foundry logic is expected to remain strong in the near term, thanks to rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets.

Also, ongoing inventory correction in DRAM is a tailwind for the near term. The company expects more clients to upgrade their equipment ahead of the 5G rollout in key markets, which will help it expand top-line growth.

The company’s expanding etch footprint bodes well for the semiconductor portfolio. Moreover, its strengthening momentum in conductor etch is aiding it to gain traction in DRAM and NAND. Additionally, the company remains confident about its relentless focus on research and development activities to develop new products.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 8.3% due to these changes.

VGM Scores

At this time, Applied Materials has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Applied Materials has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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