By Siddarth S and Kanchana Chakravarty

(Reuters) -Applied Materials ( AMAT ) shares slid 5% before the bell on Friday as the chip equipment maker forecast reduced spending in China next year due to stringent U.S. export curbs.

The U.S. government has cracked down on foreign companies, especially from China, that use subsidiaries and affiliates to circumvent export curbs on chipmaking tools and related products, hurting sales of Applied Materials ( AMAT ) and its rivals.

China is the world's largest buyer of chipmaking tools since 2020. Applied's results, seen as an indicator for future semiconductor demand, followed similar warnings about China from rivals ASML and KLA Corp.

However, analysts expect the hit to Applied's overall sales to be tempered as its share of China sales has fallen to the mid-20% range from nearly 40% of revenue in recent years. The company expects overall revenue to be stronger in the second half of 2026.

The affiliate rule was suspended after talks between U.S. President Donald Trump and Chinese President Xi Jinping. Applied's executives confirmed the suspension of the rule will re-enable about $600 million in sales for the full fiscal year.

The company's CEO Gary Dickerson said foreign rivals were still selling to Chinese companies that his firm cannot serve.

"The big debate remains if the departure from peers is a sign of share loss in China, but AMAT remains adamant that it is not," Jefferies analysts noted.

Last month, Applied Materials ( AMAT ) forecast a $600 million hit to fiscal 2026 revenue and a couple of weeks later, the firm cut about 4% of its workforce to streamline operations as U.S. export restrictions weighed on its business.

The stock has risen 37.3% so far this year and at least three brokerages raised their price targets following results.