Chip equipment maker Applied Materials Inc AMAT on Thursday provided a bullish outlook for the third quarter as clients facing chip shortages rush to add capacity amid higher demand and warned that the just-in-time strategy to fill scarcity may not be effective going forward.
What Happened: Applied Materials forecast current-quarter adjusted earnings per share to be about $1.76, up about 66% year-over-year and revenue to be about $5.92 billion, plus or minus $200 million.
The company, which counts Samsung Electronics Co, Taiwan Semiconductor Manufacturing Co TSM and Intel Corp INTC as customers, expects revenue at semiconductor systems, its largest unit, to rise 46% to $4.25 billion in the third quarter.
Why It Matters: The Santa Clara, California-based company’s forecasts are a key indicator of industry future demand.
The ongoing global chip shortage has forced global automakers to halt production and prioritize making their most profitable products first.
The chip shortage has impacted the supply of items such as computers, smartphones, and other electronic appliances besides the auto sector.
“Current capacity shortfalls in some areas of the market show the highly efficient, just-in-time supply chains that have served the semiconductor industry well for the past two decades may not be the most effective strategy going forward,” Applied Materials CEO Gary Dickerson told analysts in a post-earnings call.
See Also: Intel CEO Expects Global Chip Shortage To Last Another Two Years
The “just in time” auto supply chain model first adopted by Toyota Motor Corp TM decades ago and which became an industry standard, is undergoing a massive transformation as the pandemic forces automakers to stockpile parts instead.
Applied Materials reported earnings of $1.63 per share, a jump of 83%, for the second quarter ended May 2; net sales rose 41% to $5.58 billion.
The company expects the total chip equipment market to be at a high of $70 billion in 2021 and expects spending in 2021 plus 2022 will be greater than $160 billion.
Price Action: Applied Material shares closed 4.42% higher at $130.31 on Thursday.
See Also: Apple Supplier TSMC Expects To Catch Up With Customers' Chip Demand By June
Photo by marcokalmann on Flickr
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