Applied Materials, a leading chipmaking equipment manufacturer, reported second-quarter revenue that missed Wall Street estimates on Thursday. The company's shares fell more than 5% in extended trading as investors reacted to the news. The shortfall was primarily attributed to lower-than-expected sales in the company's largest segment, semiconductor systems, amid uncertainties surrounding export restrictions.

Revenue from the semiconductor systems segment, which is the largest contributor to Applied Materials' total revenue, came in at $5.26 billion. This figure fell short of analysts' estimates of $5.32 billion, according to data compiled by LSEG. The company noted a slowdown in investment in the ICAPS market, which encompasses the Internet of Things, communication, automotive, power, and sensors. However, this decline was partially offset by significant investments in advanced chips.

The impact of US government export restrictions on certain semiconductor equipment to China is evident in Applied Materials' results. In December, the US government announced new controls on the export of semiconductor manufacturing equipment needed to produce advanced-node chips to China, which is Applied Materials' largest overseas market. "Clearly, the US government's export restriction of certain semiconductor equipment to China is impacting the company's results and outlook," said Kinngai Chan, senior research analyst at Summit Insights Group.

Despite these challenges, Chan believes that Applied Materials can overcome this headwind over time. "We, however, think the company can overcome this headwind over time as spend on advanced process nodes picks up in 2H25 and into 2026," he said. The company's revenue from China, which is currently engaged in a trade war with the US, accounted for about 25% of total sales during the second quarter, down from 43% a year earlier.

For the quarter ended March 31, Applied Materials reported total revenue of $7.10 billion, slightly below analysts' average estimate of $7.13 billion. Despite the challenging economic and trade environment, the company's finance chief, Brice Hill, noted that there have been no significant changes to customer demand. "Despite the dynamic economic and trade environment, we have not seen significant changes to customer demand," Hill said.

The company's second-quarter adjusted profit per share was $2.39, which exceeded analysts' estimates of $2.31. Looking ahead, Applied Materials forecast third-quarter revenue of $7.20 billion, plus or minus $500 million, compared with the estimate of $7.19 billion.

The semiconductor industry is facing significant headwinds due to geopolitical tensions and trade restrictions. Applied Materials, like other companies in the sector, is navigating these challenges while maintaining a focus on long-term growth. The company's ability to adapt to changing market conditions and regulatory environments will be crucial in determining its future success.

Applied Materials' second-quarter results highlight the ongoing challenges faced by the semiconductor industry. While the company's revenue missed estimates, its adjusted profit per share exceeded expectations. The impact of export restrictions on China is evident, but Applied Materials remains optimistic about future growth, particularly in advanced process nodes. As the company looks to the third quarter and beyond, its ability to navigate the complex interplay of trade policies and market demands will be key to its continued success.