Applied Materials (AMAT) Claims US Incentives for Expanding Domestic Chipmaking Capacity Are Only “Marginally Significant”

Applied Materials (AMAT) Claims US Incentives for Expanding Domestic Chipmaking Capacity Are Only “Marginally Significant”

This content does not constitute investment advice. The author does not hold any shares in the stocks referenced.

The Dilemma of U. S.Chipmaking Incentives

Despite expectations that U. S.government initiatives aimed at re-shoring semiconductor manufacturing would yield positive outcomes, Applied Materials (AMAT)—a key player in the semiconductor supply chain—has expressed reservations. The company’s position challenges the widely held belief that these incentives will effectively enhance domestic chip production.

Understanding Applied Materials

For those unfamiliar, Applied Materials is a leading supplier of specialized equipment pivotal for depositing thin layers of materials onto silicon wafer substrates. This technology is essential for the production of many electronic devices, as an estimated 80% of the components found in products like the iPhone are processed using Applied Materials’ tools.

Skepticism on Incentives

A broad concern arises from comments made by Applied Materials’ CFO, Brice Hell, during a recent earnings call. He controversially suggested that the incentives designed to foster U. S.semiconductor production would have minimal impact, describing their influence as “marginal.”Hell emphasized that demand remains primarily steered by sectors such as PCs, data centers, and smartphones, indicating that the incentives merely shift production locations rather than increase overall demand.

“And we would say no. At the highest level, demand is driven by PCs, data centers, smartphones, and all that those incentives do is have a customer instead of building in Taiwan, they’re going to build in the U. S.So the view was it mattered a little bit at the margin, but it didn’t matter in total.”

Continued Investment Amid Caution

Despite expressing skepticism about the effectiveness of incentives, Applied Materials is proceeding with plans to invest approximately $200 million in Arizona. This investment adds to a substantial total of over $400 million dedicated to enhancing U. S.manufacturing capabilities.

Government Actions and Policy Pressure

In a move that underscores the administration’s stance on domestic manufacturing, the Trump administration has signaled intentions to impose significant tariffs on semiconductor companies failing to establish substantial production in the U. S.The administration’s recent acquisition of an $8.9 billion stake in Intel, through a conversion of federal grants into equity stakes, reflects a more direct intervention approach.

To complicate matters for Intel regarding potential divestments from its foundry division, the U. S.government has negotiated a five-year warrant allowing it to purchase an additional 5% of Intel’s common shares at $20 each, should the company sell more than 49% of its foundry assets. Reports indicate that similar arrangements might be explored for other semiconductor entities as well.

Challenges in the Global Market

In addition to challenges posed by U. S.policy, Applied Materials has faced setbacks in China, where the company is experiencing a $400 million order backlog affecting customers listed on the U. S.Department of Commerce’s Entities List—those identified as threats to national security.

Strong Financial Performance

Despite these obstacles, Applied Materials delivered robust results for its fiscal Q3, showcasing an 8% increase in year-over-year net revenue, totaling $7.3 billion.

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