Applied Materials is facing significant challenges due to the ongoing U.S.-China chip export restrictions, with the company forced to suspend equipment maintenance services for some of its customers in mainland China. This move is expected to result in a $400 million revenue loss for the company in FY2025.

In its latest earnings report, Applied Materials posted a quarterly revenue of $7.17 billion, marking a 7% year-over-year increase. However, the company's profit per share dropped by 40% to $1.45 compared to the previous year. Chief Financial Officer Brice Hill acknowledged the impact of the stricter export controls, noting that the company is preparing for the potential challenges they pose to its business operations. China has traditionally accounted for about one-third of Applied Materials' sales, and with U.S. trade restrictions making it more difficult to conduct business in the region, the company anticipates a significant dip in its earnings, with about half of the $400 million revenue loss projected to be felt in the second quarter of FY2025.

The company further revealed that approximately 50% of the revenue impact is expected to come from its service division, which offers equipment maintenance and optimization services. CEO Gary Dickerson explained in a conference call with analysts that the service business will be severely impacted, with the company having to halt on-site equipment maintenance for several Chinese customers. This suspension is a direct result of the export controls limiting the company's ability to fulfill some customer demands in China.

Despite these immediate challenges, Dickerson expressed confidence in the long-term recovery of the service business. The company continues to see significant demand in sectors such as advanced semiconductor manufacturing and AI components, though overall growth from memory makers in China has slowed compared to the previous year. In Q1 FY2025, China represented 31% of Applied Materials' total sales, a sharp decrease from 45% in the same quarter the year before.

Looking ahead, Applied Materials remains optimistic about the broader semiconductor industry's growth prospects. Dickerson pointed to the rapid adoption of semiconductors in new products and the ongoing AI boom as key factors that will sustain demand. The increasing complexity of chips is also putting pressure on customers to upgrade their equipment, which could further support Applied Materials' future growth.

In contrast to Applied Materials, other major semiconductor equipment companies like ASML are also feeling the strain of reduced demand in China. ASML reported that China accounted for just 27% of its sales, down from 39% the previous year.

As Applied Materials navigates these hurdles, the company is preparing for potential further impacts from U.S. export controls, while holding on to the belief that the service sector will eventually recover and the semiconductor industry will continue to thrive in the long run.