Dive Brief:
- Applied Materials, a supplier of equipment used in semiconductor manufacturing, expects demand for parts will outstrip supply for the next several quarters despite declining sales of smartphones and other consumer devices, according to a Q3 earnings call.
- The parts maker continues to work through a growing backlog of orders from consumers in the automotive and industrial sectors, among others. “Demand for Applied’s products is still higher than our ability to fulfill it and our backlog continues to grow,” said President and CEO Gary Dickerson on this month’s earnings call.
- Applied Materials is starting to see incremental improvements in supply after making efforts to up manufacturing, CFO Brice Hill said on the call. He said that the company has “added significant investments in talent to our supply chain teams to resolve bottlenecks and to improve our inventory and overall output.”
Dive Insight:
Applied Materials is seeing sustained demand for semiconductors with more customers inking longer-term agreements in an effort to shore up supply, according to Dickerson. The enhanced commitments are a result of multiple factors, including higher demand for electric vehicles and an overall push to localize the semiconductor supply chain.
The passage of the CHIPS and Science Act, which includes billions of dollars in subsidies to boost chip manufacturing, has spurred businesses to expand U.S. production. Qualcomm, for example, recently announced it would extend its agreement with semiconductor manufacturer GlobalFoundries to expand wafer capacity.
The bill will enable many companies to accelerate investments in manufacturing, Dickerson said. Already, customers are providing Applied Materials with “longer-term visibility and commitments” as their clients attempt to “lock-in strategic capacity,” he added.
The move to nearshore supply chains is “something new for the industry,” Dickerson said, adding that government incentives provide “a higher degree of certainty for these investments.” Automakers are also securing long-term capacity agreements to support their EV production goals as global demand skyrockets.
Applied Materials has worked with customers to improve visibility as part of its efforts to secure its supply chain and boost its manufacturing capability, Dickerson said on a previous earnings call.
“We are confident that our business will be more resilient, thanks to strong pull for a uniquely enabling technology, our large backlog, longer term visibility from our customers and industry-wide investment in strategic regional capacity,” Dickerson said on the Q3 call.
