After U.S. markets closed on Thursday, semiconductor equipment maker Applied Materials Inc. (NASDAQ: AMAT) reported fiscal 2023 fourth-quarter results that beat estimates on both the top and bottom lines. Then the U.S. Department of Justice put its finger on the scale.

Criminal investigation underway

According to an exclusive Reuters report, the U.S. Justice Department has begun investigating Applied Materials for a potential violation of export rules related to selling certain high-tech equipment to China. Sources told Reuters that the company had sent chipmaking equipment to SMIC, China’s largest chipmaker, without an export license. The equipment was reportedly sent by way of South Korea.

In an emailed statement to Bloomberg, Applied Materials noted that it had received a subpoena from the Justice Department in October of last year and that “the company is cooperating with the government and remains committed to compliance with global laws, including export controls and trade regulations.” The Justice Department declined to comment on the Reuters report. (These companies received the most public subsidies in each state.)

The Biden administration announced new restrictions on sending advanced technology products to China in October 2022, at the same time that Applied Materials received its subpoena.

Reuters noted that it “could not determine whether Applied Materials violated the law, and it isn’t clear whether the investigation will result in charges.”

Earnings were good, though

When it reported fourth-quarter results, Applied Materials beat the consensus revenue estimate by about 3.4% to post sales of $6.72 billion, even above the high-end analysts’ range. Year-over-year, however, revenue was essentially flat.

Adjusted EPS came in at $2.12, 6.4% above the consensus estimate of $1.99. That represents a 4% year-over-year increase.

Adjusted EPS for the 2023 fiscal year was up 5% year over year to $8.05. Full-year revenue rose 3% year over year to $26.52 billion.

In its outlook statement, Applied Materials said it expects first-quarter 2024 sales of $6.07  to $6.87 billion. At the midpoint of $6.47 billion, that’s about 1.4% above the consensus estimate.

Adjusted EPS is forecast to fall in a range of $1.72 to $2.08. At the midpoint of $1.90, the forecast is 3.8% higher than the consensus estimate.

A solid earnings beat loses to a federal investigation every time, however, and this time is no different. Applied Materials stock traded down more than 7% in premarket trading on Friday, at $143.75 in a 52-week range of $93.68 to $157.76. The high was posted on Thursday.

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