Post by : Badri Ariffin

Applied Materials shares dropped 5% in pre-market trading Friday after the chip equipment giant projected slower spending in China next year, citing tighter U.S. export restrictions. The decline underscores the growing tension between global semiconductor demand and regulatory hurdles.

The U.S. government has increasingly targeted foreign firms, particularly Chinese companies, that use affiliates or subsidiaries to bypass export limitations on advanced chipmaking tools. These measures have impacted Applied Materials as well as industry rivals like ASML and KLA Corp., who also signaled caution over China exposure.

China has been the largest global market for chipmaking equipment since 2020, but Applied Materials has seen its reliance on the region shrink. The company estimates China now accounts for just over 20% of its revenue, down from nearly 40% in previous years. Despite this, the slowdown is expected to have a more modest effect on overall sales, with revenue projected to strengthen in the latter half of 2026.

Earlier this year, a suspension of the “affiliate rule” following talks between U.S. President Donald Trump and Chinese President Xi Jinping reopened around $600 million in potential sales for Applied Materials. Still, the company acknowledges competitors continue to sell into China in areas where it is restricted.

The firm has already forecast a $600 million hit to fiscal 2026 revenue and recently trimmed roughly 4% of its workforce to adjust to the challenging regulatory environment. Despite these hurdles, Applied Materials stock has risen 37.3% year-to-date, and several brokerages have increased price targets following the results.

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