Applied Materials Q3 Earnings Preview: China remains cause of concern for investors

Semiconductor company Applied Materials (NASDAQ:AMAT) is set to announce its third quarter earnings result on Thursday, August 14th, after the closing bell. Investors’ primary focus will be on the company’s efforts to grapple with losses in China.

Analysts on consensus expect the chipmaker to report a more than 11% increase in earnings per share to $2.36, on a revenue of $7.21B, a 6% growth from last year.

While Applied Materials has to find workarounds to weather the headwinds from the ongoing geopolitical tensions, such as shifting its supply chain outside China, analysts believe the company is well-poised to benefit from the rising demand for advanced chips.

According to Seeking Alpha analyst Sivanand Birusumanti the company’s expertise in providing logic foundry solutions are among several growth factors, considering the rise in demand driven by the AI boom.

Other tailwinds for the company include its Field Emission eBeam technology which has been gaining traction, and its strong presence in the wafer fabrication equipment space.

In the past two years, Applied Materials has beaten EPS estimates 100% of the time and has beaten revenue estimates 88% of the time.

According to analysts, China can prove to be a potential headwind for the company, with the country being the fulcrum of Applied Materials’ supply chain.

China also makes up for a large component of the company’s revenues, making it vulnerable to the ongoing geopolitical tensions and Trump’s tariffs.

In fact, as of last quarter, China made up about 25% of Applied Materials’ overall revenues. Earlier this year, CEO Gary Dickerson already projected that the company would incur about $400M in sales reductions this fiscal year as a result of the trade restrictions.

Over the last 3 months, EPS estimates for the company have seen 18 upward revisions and 6 downward. Revenue estimates have seen 11 upward revisions and 11 downward.