Applied Materials Faces Revenue Challenges Due to China Slowdown and Export Restrictions

Post by : Bianca Suleiman

Shares of Applied Materials fell by 5% in pre-market trading on Friday after the company indicated that it anticipates a slowdown in spending in China next year due to tighter U.S. export restrictions. This dip reflects a growing concern regarding the balance between worldwide semiconductor demand and the regulatory barriers imposed.

The U.S. government has been focusing its efforts on foreign companies, especially those from China, that attempt to circumvent export controls on advanced chip manufacturing equipment through affiliates or subsidiaries. These actions have had repercussions not only for Applied Materials but also for other industry players like ASML and KLA Corp., who have also expressed caution about their exposure to the Chinese market.

Since 2020, China has emerged as the largest market for chipmaking equipment globally. However, Applied Materials reports a decrease in its dependency on the region, estimating that its revenue from China has now dipped to just over 20%, down from nearly 40% in previous years. Nonetheless, the company expects the slowdown to have a relatively minor impact on its overall sales, projecting revenue growth in the latter half of 2026.

Earlier this year, following discussions between U.S. President Donald Trump and Chinese President Xi Jinping, the suspension of the 'affiliate rule' opened approximately $600 million in potential sales for the firm. However, the company recognizes that competitors can still sell to China in sectors where it is restricted.

Applied Materials forecasts a $600 million reduction in its fiscal 2026 revenue and has made adjustments to its workforce by trimming about 4% amid these regulatory challenges. Nevertheless, despite these obstacles, the company's stock has increased by 37.3% year-to-date, with several analysts raising price targets in light of the recent earnings results.