06:39 AM EST, 02/14/2025 (MT Newswires) -- Applied Materials ( AMAT ) shares fell early Friday as the company issued a downbeat fiscal second-quarter revenue outlook at the midpoint amid the impact of US restrictions on exports to China, while the semiconductor equipment manufacturer recorded better-than-expected results in the preceding three-month period.

The company anticipates revenue to come in at $7.1 billion, plus or minus $400 million, for the ongoing quarter, it said late Thursday. The current consensus on FactSet is for sales of $7.16 billion. Adjusted earnings are pegged at $2.30 a share for the second quarter, plus or minus $0.18, while the Street is looking for $2.30.

"The ability of US companies to serve the China market is constrained and has been further limited by updated trade rules announced in December and January," Chief Executive Gary Dickerson said during an earnings call, according to a FactSet transcript. The company expects to face a revenue headwind of about $400 million in fiscal 2025 as a result of the expanded export controls, with "nearly half" of the impact to be incurred in the second quarter, Chief Financial Officer Brice Hill said on the call.

Earlier in February, US President Donald Trump imposed a 10% levy on imports from China, which announced its own retaliatory tariffs against the country.

China was Applied Materials' ( AMAT ) largest market by revenue share in the first quarter, but saw its contribution drop to 31% of overall revenue from 45%in the prior-year quarter. "For (the second quarter) we expect that China as a percentage of total revenue will be about 5 percentage points lower than in (the first quarter)," Hill said. "This is below the normalized level of approximately 30%."

The stock declined 5% in premarket activity.

The impact of trade restrictions is expected to be "more weighted" to the company's applied global services segment in the second half of the fiscal year, Hill told analysts. The company expects the division to return to growth in the third quarter, the CFO added.

"While our near-term service growth is negatively impacted by trade restrictions, we remain confident that we will still grow (applied global services) at a low-double digit annualized growth rate over the longer term," Dickerson said on the call.

For the three months through Jan. 26, adjusted EPS increased 12% year over year to $2.38, topping the average analyst estimate of $2.28. Revenue improved to $7.17 billion from $6.71 billion last year, ahead of the market's forecast of $7.15 billion.

Sales in the semiconductor systems segment rose to $5.36 billion from $4.91 billion, while applied global services advanced to $1.59 billion from $1.48 billion. Display revenue declined to $183 million from $244 million last year, according to the company.