Applied Materials (AMAT) -) shares slumped lower Friday following a report that the chip equipment maker has been targeted by the U.S. Department of Justice for allegedly evading export restrictions on high-tech components to customers in China.
Reuters reported late Thursday that the DoJ was probing the group over sales it made to China-based chipmaker SMIC through a subsidiary in South Korea.
The export restrictions, which were expanded last month, are designed to limit China's access to "advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to (Chinese) military applications," according to U.S. Trade Secretary Gina Raimondo.
Applied Materials would say only that it's received a subpoena from the U.S. Attorney's Office requesting information related to certain shipments to China.
Solid Q4 earnings forecast
The news clouded the group's better-than-expected fourth quarter earnings, which saw the bottom line rise 29% from a year earlier to $2.12 per share, above Wall Street forecasts.
Revenue was essentially flat at $6.72 billion, while the group forecast solid current-quarter sales of around $6.5 billion, with earnings in the region of $1.90 per share.
"The October 2023 export control rule changes in the U.S. were primarily focused on alignment with other countries," Chief Executive Gary Dickerson told investors on a conference call late Thursday.
"The rules are complex, and while we are working with the government to clarify certain details, we see no incremental material impact to Applied at this time," he added. "As I look ahead, I strongly believe that Applied Materials has the right capabilities, strategy, and partnerships."
Applied Materials shares marked 5.3% lower in early Friday trading to change hands at $146.66 each, a move that would trim the stock's six-month gain to around 16%.
"We think Applied Materials' results and guide were generally unsurprising," said KeyBanc Capital Markets analyst Steve Barger, who carries a 'sector weight' rating on the stock. "Like that of its peers, Applied Materials' mix was significantly skewed toward China, which generated 44% of revenue, and the company indicated [the fiscal first quarter] would have similar mix," he added.
"For [fiscal 2024] Applied Materials expects growth in leading-edge foundry/logic and memory, offset by lower ICaps demand following significant growth in FY22 and FY23." ICaps refers to chips for internet-of-things, communications, automotive, power and sensors applications.
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