Amidst a growing economic slowdown and worries of a looming recession, the U.S. recently announced new export curbs on advanced chips and chip manufacturing equipment to China. That's thrown yet another wrench in the gears of the semiconductor industry. As measured by the iShares Semiconductor ETF, chip stocks are down 45% so far in 2022, and they're down nearly 10% since the China chip sales restrictions were formally announced.

Chip manufacturing equipment companies could get hit especially hard, since some of them have been recording up to a third of their revenue from China. One of the top players here, Applied Materials (AMAT -5.97%), just provided a preliminary financial estimate that includes a notable impact from complying with the new rules. Here's what investors need to know.

A preview of coming attractions

Applied Materials (AMAT) is wrapping up its fiscal 2022 at the end of October. With just a couple weeks to go, the company cut right to the chase and said the new U.S. chip and equipment bans will reduce its fourth-quarter revenue by $400 million, plus or minus $150 million. 

The company also says its fiscal 2023 first quarter revenue (the three month period that will end in Jan. 2023) will see a similar reduction. Management will provide further details during its earnings call on Nov. 17. 

More context needed

Before you get too upset, there is a silver lining to this announcement. At the midpoint of prior guidance, Applied Materials had called for revenue of $6.65 billion. Thus, a $400 million negative impact is a manageable 6% decline in quarterly sales. Since AMAT has been reporting up to one-third of its revenue coming from China, this implies the vast majority of those sales can still take place despite new export curbs on advanced fab equipment.

In fact, management said in its guidance update that it's working to obtain "additional export licenses and authorizations where needed" to keep its trade with Chinese business partners operating properly and in compliance with the law.

But there's more good news: Prior to the ban, Applied Materials said supply chains -- which have been impacting sales and contributing to the chip shortage the last couple years -- were getting better. The company was going to report financials near the high end of its previous guidance, meaning the negative $400 million impact from the ban should only reduce total revenue from the previous $6.65 billion guidance to $6.40 billion, a decline of just 4%. 

What's the bad news?

There is a caveat to all of this, though. Disruption to sales flow can have an outsized impact on profitability, and it appears this situation is no exception. "Inventory and remanufacturing charges" related to the export restrictions will bring down expected non-GAAP earnings an additional $0.23 per share in the fiscal fourth quarter. As a result, adjusted earnings per share will be in a range of $1.54 to $1.78, compared to previous guidance for $1.82 to $2.18. At the midpoint, that's a 17% reduction in quarterly earnings per share. 

Based on this new outlook, Applied Materials stock currently trades for about 10 times fiscal 2022 adjusted earnings per share.

On one hand, this top chip industry stock looks super cheap, especially considering chip manufacturing is going to be a top priority for the U.S. and other nations in the decade ahead. That means lots of new equipment sales for a company like Applied Materials. Plus, the stock currently offers a 1.4% dividend yield, and the company is a prolific share repurchaser, which only sweetens the deal. I say the stock is still a buy, but things are going to be bumpy for the foreseeable future as the new restrictions to China are worked through.