Shares of Applied Materials, Inc. (NASDAQ:AMAT) tumbled 10.7% last month, according to data provided by S&P Global Market Intelligence, after reports surfaced that China may speed up its plans to increase local production of semiconductors.
China is worried about a possible trade war with the U.S. And Applied Materials investors were concerned that if China accelerates its own chip production, it could hurt the company's manufacturing equipment, services, and software sales to semiconductor companies around the world.
China has been planning to bring semiconductor manufacturing back home for years, but the country hasn't yet been able to fully take the plunge. Chip production is part of its "Made in China 2025" initiative, which (among other things) aims to have 40% of China's semiconductor needs produced locally by 2020.
Applied Materials is getting swept into all of this because in mid-April, news agencies reported that China might want to speed up its semiconductor plans in light of possible trade war between the U.S. and China.
The company brought in 19% of its 2017 net sales from China, down slightly from 21% in 2016, and any major shift in that market could hurt those sales. For example, China imports about $227 billion worth of integrated circuits; any significant drop in those chip imports would mean that Applied could end up selling less semiconductor equipment and fewer services.
Applied Materials shares have rebounded about 6% since the beginning of May, but investors can likely expect more volatility from the company's share price. The U.S. and China are still in the midst of hammering out their trade deals, and China is likely to be more committed than ever to producing its chips at home.