Applied Materials (NASDAQ: AMAT) is no different than Micron Technology (NASDAQ: MU) on the stock market. The stock sank in after-hours trade when the company reported strong quarterly earnings and a respectable outlook. Instead, investors focused its worries on Applied’s guidance, especially in OLED.
OLED, which is light, flexible, and energy efficient for use in smartphones, is facing weaker demand. In the last quarter, AMAT’s revenue grew a solid 28.7 percent Y/Y to $4.57 billion. Earnings of $1.22 a share are ahead of consensus. But just as Lam Research (NASDAQ: LRCX) fell after a strong report, Applied’s stock fell, too. The key headwinds may be found from the earnings call:
On OLED, the company said: “Adoption of OLED screens in mobile and the ramp of manufacturing capacity are slower than previously expected, primarily due to weakness in high-end smartphone sales.” (Source: SA Transcript)
Even in 2019, OLED revenue will fall Y/Y. After 25 percent annual growth since 2012, the slowdown is hardly a surprise.
Overall, Applied Materials expects equipment spending will top $100 billion in 2018 and 2019 combined. Double-digit growth will outpace its competitors. So at its 15 times P/E and 11.6 times forward earnings, AMAT stock will attract value investors. Only MU stock, at below seven times earnings, is cheaper. O/f course, the continued risks of DDR memory falling exaggerates the discount in Micron at this time.
