How Investors Reacted to AMAT's Strong Guidance for Fiscal 2Q16
Macroeconomic impact
In the previous part of this series, we saw that Applied Materials’ (AMAT) revenue fell as growth in the Service segment was offset by a decline in the Silicon Systems segment. However, strong orders in NAND and Display would boost the company’s sales in fiscal 2016. Apart from the business segment, another factor driving sales is the macroeconomic conditions in key geographies China (MCHI) and Taiwan.
Applied Materials earned 50% of its fiscal 1Q16 revenue from the Taiwan and China, which house the most semiconductor fabrication (or fab), testing, and packaging facilities in the world.
China
In fiscal 1Q16, AMAT’s revenue from China rose 21% YoY (year-over-year) while new orders rose 56% YoY despite a weaker economic environment. This is because of the Chinese government’s efforts to boost domestic semiconductor manufacturing. The company secured orders from both Chinese manufacturers and multinational companies building plants in the nation.
Intel (INTC) and Samsung (SSNLF) are building flash memory plants in China in 2016. TSMC (TSM) is building a 12-inch wafer fab and a design center in China. SEMI (Semiconductor Equipment and Materials International) expects SME (semiconductor manufacturing equipment) sales in China to rise by 9.1% YoY in 2016.
Southeast Asia
In fiscal 1Q16, the company’s revenue from Southeast Asia fell 2.2% YoY while new orders rose by 173% YoY. Micron Technology is building a NAND (negative AND) flash fab in Singapore, which is encouraging semiconductor companies to build plants in the nation.
Europe
Meanwhile, a marked change was noted in Europe, which has been posting declining sales due to the economic crisis. In fiscal 1Q16, AMAT’s revenue from Europe fell by 9.8% YoY while new orders rose by 5.4% YoY. SEMI assumes that that SME sales in Europe will grow by 63.1% YoY in 2016, driven by investments from Global Foundries, Infineon, Intel (INTC), and STMicroelectronics (STM).
Other countries
Applied Materials’ (AMAT) revenue from Taiwan rose by 14.6% YoY while new orders rose by 5.3% YoY in fiscal 1Q16. On a YoY basis, new orders from the US, Korea, and Japan fell by 10%, 32%, and 55%, respectively, in fiscal 1Q16. While sales from the US and Korea fell by 21% and 50%, respectively, Japan’s sales rose by 37.4% in fiscal 1Q16.
In the next part of this series, we will look at the Applied Materials’ financial ability to withstand headwinds and its guidance for fiscal 2Q16.