Applied Materials, Inc. (AMAT) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to the Applied Materials Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. I would now like to turn the conference over to Michael Sullivan, Corporate Vice President. Please go ahead, sir. Michael Sullivan: Good afternoon, everyone, and thank you for joining Applied's First Quarter of Fiscal 2021 Earnings Call. Joining me are Gary Dickerson, our President and CEO; and Dan Durn, our Chief Financial Officer. Gary Dickerson: Thanks, Mike. I'm very pleased to report another quarter of record performance for Applied Materials. Since the beginning of our fiscal year, we've seen a continued acceleration of demand in our semiconductor business as major macro and industry trends, fuel increasing consumption of silicon across a wide range of markets and applications. 2020 was an excellent year for Applied as we outperformed our markets, while growing our earnings nearly twice as fast as revenue. We carry this strong momentum into 2021. Our broad portfolio and exposure to technology inflections, combined with the traction of our new products, put us in a great position to substantially outgrow our markets, again this year and into the future. I want to thank our employees and suppliers for everything they are doing to deliver for our customers and shareholders. Our operations and field teams are doing an incredible job, as we run the company at record levels and successfully overcome significant logistics and other challenges created by the pandemic. In R&D, our teams are working in new ways to accelerate the time to market of critical innovations for our customers and we're doing all of this, while maintaining a relentless focus on keeping our colleagues and families safe. As Mike outlined, we plan to hold an investor meeting in early April. At that event, we will provide our in-depth analysis of the major growth drivers and inflections that will shape our markets over the next 5 to 10 years and describe our strategy to deliver innovative new technologies to enable our customers' power performance and cost road maps, accelerate their time to market and drive Applied's long-term profitable growth. Dan Durn: Thanks, Gary. Today I'll begin by summarizing Applied's performance in Q1 and then I'll share some of the key drivers of our growth relative to the markets in calendar 2020 and I'll finish with our guidance for Q2. Beginning with our Q1 performance. Applied delivered record revenue and non-GAAP earnings per share. We grew revenue by 24% year-over-year and exceeded the high end of our guidance. I'm pleased that we increased gross margin by around 100 basis points year-over-year, particularly since we are still experiencing COVID-related manufacturing protocols and logistics costs. Michael Sullivan: Thanks, Dan. Now to help us reach as many people as we can, please ask just one question on today’s call. If you have a second question, please just requeue and we will do our best to come back you later in the session. Operator, let’s please begin. Operator: Thank you. Our first question comes from the line of C.J. Muse with Evercore. Your line is now open. C.J. Muse: Yes. Good afternoon. Thank you for taking the question. I guess, if you look back to 2020, it looks like you outperformed WFE by about 8 percentage points. And obviously, you talked about favorable mix coming into 2021 led by foundry and DRAM as well as I assume your strong position on the legacy side. So curious if you can kind of speak to what kind of outperformance we should be thinking about relative to WFE in 2021, and if you can point to the particular drivers that we should be focused on? Thank you. Dan Durn: Yes. Thanks, C.J. So in 2020, if we say the markets around $60 billion in 2020, and I would say, it's up a little more than 16% against that backdrop. If you look at our Semi Systems segment, we grew our Semi Systems segment revenue by 26.5%, so significant outperformance as you've called out. As we look at the drivers in 2020 foundry/logic grew below the industry average. It was really a memory-driven growth year; NAND about 2x; DRAM a little more than the industry average. So the company performed really well in that environment. As you go to 2021, we view the spend mix to be a more favorable environment for us as a company. Foundry/logic will continue to be strong in 2021. We see DRAM outgrowing NAND. And so against that more favorable spend mix, we would expect to significantly outperform the market again this year. So we feel really good about how we're positioned against the market opportunity. We've got robust end markets and strong product momentum within those end markets so we feel good. And then as we look beyond 2021, we see from an overall market standpoint and a company-specific momentum standpoint, we see continued strong performance into 2022. So, again, we like how well we're positioned. 2021 is a more favorable mix and I would expect us to significantly outperform again. Gary Dickerson : Yes. C.J., this is Gary. Thanks for the question. I'll give a little bit more color relative to our specific opportunities. If you look at the industry overall, certainly, technology is transforming every aspect of our lives. That's driving the overall business sustainably higher. And at the same time, we've talked about 2D scaling coming to an end. So really -- and you can even see in recent meetings with some of our largest customers where they're publicly talking about the road map going forward around new chip architectures, new structures, new materials, new ways to connect chips together, design technology co-optimization, again around certain structures and materials. And so that's really where we're focused. And when you think about what's going to enable the future, it really is about new structures, new materials. We talked about packaging up 50% new ways to connect chips together. And we're just in a sweet spot relative to the technologies we have. When you think about creating those new structures and new materials, PVD is a big driver for us. Our epi business is going to be very strong this year. The thermal processing CVD all of those areas are very strong. Etch, we're continuing to win. And when you think about shaping those structures, our Selectra product is a leader in the industry, creating and shaping those structures, and then the modification with CMP and implant. And then in PDC, as I talked about in the prepared remarks, that business is growing for us. So I can certainly give more color later on the call on that. But again, we're just in a really great position. When you think about what's going to enable the future inflections and the power and performance for the infrastructure going forward, we've never been in a better position. Dan Durn: And C.J. maybe one more point to add to what Gary is saying. And as I went through the profile of spend one data point I left out was the aggregate size of the market in 2021. I think we'll have more to say in a point-specific way around overall WFE size in 2021 and beyond at the investor meeting coming up here in about six weeks. But if the overall industry consensus today, is call it, high 60s, $70 billion, I'd say our view is a bit higher than that as we sit here today. Michael Sullivan: Thanks, C.J. Operator: Thank you. Our next question comes from the line of John Pitzer with Credit Suisse. Your line is now open. John Pitzer : Yes, good afternoon, guys. Thanks for letting me ask the questions and congratulations on the solid results and guide. Dan, it's probably not all that surprising that half-on-half growth is expected both in services and display. But in the Semi System businesses, that's a little bit different than kind of the tone that some of your peers have talked about with kind of a first-half weighting of WFE. And it might be explained by your last comment to C.J.'s question about having a little bit higher view on overall WFE. But I'm kind of curious given that your fiscal year doesn't match up with the calendar year, do you think on a calendar year basis that we're going to have a stronger second-half than first-half? And just relative to your fiscal year commentary, what gives you the bottoms-up confidence of half-on-half growth specifically in the Semi Systems business? Dan Durn: Yes. Sure John. Thanks for the question. Let me try to unpack it a little bit, so we can talk about sort of what we're seeing in our business versus maybe what others see in theirs. So, I guess, the first thing I'd point to is, we've got very broad end-market exposure. We're very balanced across all three device types; foundry/logic, NAND, DRAM really strong positions in each of those end markets. But within those markets, we've got product breadth and momentum around a number of our businesses. So we've got more balanced end-market exposure than, say, some who are more narrowly focused. Second thing, I'd point to and this ties into the answer I just gave to C.J.'s question, we've got a more favorable mix setup in 2021 with foundry/logic continuing to be strong, DRAM outgrowing NAND. So I think that serves us well for continued and significant outperformance. And then we talked about carrying the momentum, both from a market and product standpoint into 2022. So I feel good about how that transition looks. And then lastly, as you rightfully pointed out, within the fiscal year, we see back-half momentum with each of our respective reporting segments. So again, where we sit today, we think we're really well set up for strong performance throughout the year. Michael Sullivan: Thank you, John. Operator: Thank you. Our next question comes from the line of Vivek Arya with Bank of America. Your line is now open. Vivek Arya: Thanks for taking my question. For either Gary or Dan, there's a lot of talk of chip shortages these days. Do you think this $70 billion WFE for the industry is sufficient to address these shortages? Or can the WFE number be higher? Or do you think that this actually could push out some of the demand into next year as well before the shortages are fully met? Thank you. Dan Durn: Yes. So, a couple of things on that, Vivek. First of all, our number for the aggregate size in 2021, we weren't point-specific, but we're a little higher than where the -- a bit higher than where the industry consensus is. I do think there's good strong positive momentum. I think the capacity our customers put in place is around multi-year demand statements. To make these investments make sense over the long run, drive a return on those investments, there has to be a substantive not a transitorial demand statement that sits behind those investments our customers make. And so we do think there's a bit of catch-up spend. When you think about shortages in the auto industry, we think that's going to be a good end market. But I don't think that market in and of itself is sufficiently large to drive the types of demand that we're talking about in the current environment. So then we look at greater than $70 billion in 2021. The demand statement that sits behind that, it's diverse. It's broad. All the respective end markets NAND, DRAM, foundry/logic are strong. Some grow faster than others. And it's on the back of these trends we've been talking about playing out over time. We think we're in the very early innings. This is going to be a decade-plus investment cycle. Semiconductors are going to be on the key path of enabling some pretty major trends that play out around the world. And so, our customers are going to be disciplined. They'll continue to add capacity where it makes sense, but it will be in support of what is a more substantive long-term demand statement in the market as opposed to any near-term dynamic that will be temporary in nature. Vivek Arya: Thank you. Michael Sullivan: Thank you. Operator: Thank you. Our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is now open. Toshiya Hari: Hi. Good afternoon, and thanks for taking the question. I wanted to ask about gross margins. Dan you showed nice upside in the January quarter. I was curious what drove that. And then for April, you're guiding up margins nicely both sequentially and year-over-year. Where are the puts and takes there? And I guess going into the second-half of the fiscal year, would it be fair to assume sort of a gradual progression higher given potentially faster growth in your leadership products and hopefully COVID inefficiencies going away? Thank you. Dan Durn: Yes. Thanks, Toshiya. When I think about gross margins, company is performing well. We're up 100 basis points year-over-year in the most recent quarter's results. On the guide, we're up about 240 basis points year-over-year, and that's against the backdrop of still some pretty sizable headwinds as it relates to the pandemic safety protocols in our factories logistics costs to move material around the world. And so, I think the company is performing extremely well in the current environment. And when I think about what's driving that, there's a set of company-specific actions that drive discipline and efficiency into the core operations of the business. No matter where our gross margins are, I will never be satisfied. We've had a number of actions inside of the company to drive that efficiency, to drive that discipline into the core of the operations, and we're beginning to see some of those really take hold in the current environment. So we feel good about the work streams, a lot of hard work inside of the company doing some really hard work and fundamental things to drive that efficiency. You'll always have an element of customer mix and what we happen to be selling in any one quarter that will influence things from quarter-to-quarter, but there's a whole host of substantive actions that we think are serving the company really well in the current environment. As I look forward into the back half of the fiscal year, this is not a 1-quarter phenomenon. The top end of our long-term target model for gross margin was 47%. And even in the COVID environment we're operating at that level. I would expect us in the back half of the year to be -- continue to be in the 46.5% to 47% top end of our long-term model. At our Analyst Day, we'll talk about what we see beyond the current horizon over the next several years and opportunities we see to work the gross margins up even higher off of these levels but definitely not a 1-quarter phenomenon. Company is performing well. Toshiya Hari: Thank you, congrats. Operator: Thank you. Our next question comes from the line of Atif Malik with Citi. Your line is now open. Atif Malik: Hi, thank you for taking my question. Question is for Gary. Gary we've heard European Union looking into building or redeveloping fabs in Europe. There is a great deal of buzz among investors that semiconductors have become strategic. Are you engaged with any kind of discussions with Washington D.C. on this topic? Gary Dickerson: Yes. Let me -- so I do think that everyone can see that relative to economic growth and employment growth going forward, it's going to look different. And the digital transformation of every industry is being accelerated in the current environment that we're in. So this is very strategic from -- again from an economic and employment growth perspective. From Applied's perspective, we have been engaged with customers and also government initiatives around investments in different locations. And what I would say from Applied's perspective there are a couple of things to think about. One is, as these companies are moving into new locations, you have to look at the scale of the factories that they're building and -- at least what's been announced is smaller scale somewhat less efficient. Now supply-demand eventually works itself out but that somewhat less efficient factory size is a positive for Applied. And the other thing what we've seen in every case where a company is moving from one geographic location where they have tremendous amount of talent concentration and experience that, that creates an opportunity for our service business as they move into a new location. So I think both of those things the factory efficiency and the service business, our service agreements are much higher also in those cases. That creates an opportunity for us. This can play out over time. But certainly I think from a strategic perspective we can all see that the pull there is very strong. Atif Malik: Great. Thanks. Operator: Thank you. Our next question comes from the line of Krish Sankar with Cowen & Company. Your line is now open. Krish Sankar: Hi, thanks for taking my question and congrats on the strong results especially the op margins in Jan quarter, given I think it was a 14-week quarter. The question I had for Gary was, you spoke about process control growing over 40% last year and possibly over 20% this year which is very impressive, given you're outgrowing peers. Just kind of curious is it all primarily coming from the new optical inspection tool? Or is e-beam patterning adding some extra fuel to it? Or can you give some puts and takes around the PDC growth this year? Gary Dickerson: Yes. Thank you, Krish. So really I would say there's three major drivers. One is the new optical wafer inspection system where we've seen tremendous pull. And especially in foundry -- leading foundry we've seen a tremendous ramp of that new optical wafer inspection system. And it really gives the customers tremendous performance at a much better cost of ownership so they can insert inspection points in more places in the line and that has a big impact on the speed of the yield ramp. So that's really in the early phase of adoption, the new optical wafer inspection system. Our e-beam products are tremendously strong. If you look at a 2021, our e-beam growth would exceed every prior year for PDC total systems business other than 2020. So that business is very strong. We have leadership in electron optics. We've introduced a new source technology that gives us much higher resolution, much faster imaging in one segment of the EB market. We will take that core technology in electron optics across all of our different platforms, and it creates just a tremendous opportunity for us to continue to extend our leadership in the e-beam part of the market. So that's growing very fast. And the third thing I would say that's really important, when you think about power performance area and cost, what's really important to our customers is how fast they can drive all of those different key metrics. So accelerating certainly for us and for them, we talk about PPACt is enormously important. And there are cases with the -- especially our e-beam products where you can generate orders of magnitude more data in a much faster period of time. So when you're thinking about optimizing the new materials, the new structures with unique imaging and algorithms to accelerate both our internal R&D at Applied and also the PPACt road map for our customers that synergy is increasing from an overall company perspective. So again, I think the optical inspection we're in the early phase of the adoption. E-beam leadership in imaging. We'll extend that leadership with new capabilities. And the synergies with our overall business has never been better and never been more important for us and for our customers. Krish Sankar: Thanks, Gary. Operator: Thank you. Our next question comes from the line of Harlan Sur with JPMorgan. Your line is now open. Harlan Sur : Good afternoon, and great job on the quarterly execution. The chip shortages in the industry are across leading-edge and lagging-edge technologies probably more so on lagging edge just to support analog, mixed signal, microcontroller products that feed into the auto and industrial markets. And I think these customers are scrambling to add capacity. What's order activity been like for lagging-edge tools? And it looks like lagging-edge and IoT contributed about 25% of your systems business last year. Do you guys expect that mix to grow this year? And how do operating margins for these tools compare to the overall systems segment? Dan Durn: Yes. Thanks, Harlan. Let me just pull up some statistics on the split. So trailing-node versus leading-edge this year we kind of see -- if it was maybe -- yes, it's probably a follow-through on 70-30 again this year: 70% leading-edge, 30% trailing-node geometries. As we go back in time, we've been talking about this a fair amount here over the last couple of years. So strength on the trailing-node geometries is -- has not been new. In fact, if we go back 2010 to 2020 take that 10-year window, if the foundry business over that time in aggregate grew just about 90% a little bit less, the trailing-node geometries have been above the foundry segment average at about just over 110% growth. Leading-edge has grown at about just over 75%. So this trend has been playing out for quite some time. We're well positioned in this segment. We're delivering key technologies and the company is performing well. This will be very value-accretive to us as this segment of the market continues to grow and outgrow WFE. Gary Dickerson: Yes. Harlan, I can add just maybe a little bit to this. I think this opportunity in what people refer to as specialty semiconductor is significant. About two years ago, we formed an organization we call ICAPs focused on IoT communication auto power sensors, pulling together all of our capabilities across the company. And we now see this as one of the fastest-growing opportunities within Applied Materials. And when you think about what drives those markets, whether it's sensor technologies or power devices, RF any of those types of businesses, it really plays to our leadership products: epi, PVD, CVD, implant, thermal, CMP, etch and PDC. So we really have a good position there. We pulled together an incredibly strong group within Applied and we also have a focused device integration team just on those particular devices. So we talk about Integrated Material Solutions and we have some really dynamite integration engineers beyond the unit processes so that our role -- our strategic role in enabling that market has been increasing as we've refocused the organization. So, as Dan said, we're really optimistic, and we think some of these markets could be some of the fastest-growing markets over the next several years. Harlan Sur: Great insights. Thank you. Michael Sullivan: Thanks, Harlan. Operator: Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is now open. Joe Moore: Great. Thank you. My question's on the services business. You had a lot of upside there relative to the commentary, the guidance on the quarter. Can you talk about what's driving that? Is that telling us that customer utilizations are better? Or just what should we infer by the upside there and how sustainable those trends could be? Dan Durn: Yes. So thanks, Joe. So we talked about in the prepared comments growing this business at twice the rate of our overall installed base. So this has been playing out over multiple years. Company has done a good job outgrowing the installed base. We're outgrowing it 2:1 over, an extended period of time. Embedded in that growth are a couple of things. Service entitlement on the new technologies is greater than what we used to ship, say a decade ago or more. The technology is more complex. The customers' integration windows, process windows are tighter, so it requires continually tighter specs and the performance of our equipment and tighter windows. And so that creates a nice adder as well. And then when you think about the strategy, five years ago we had around 40% of our revenue covered by long-term service agreements. The vast majority of those service agreements had a tenor of about one year in duration. Fast-forward to today, we've penetrated over 60% of the revenue covered by long-term service agreements. A third of those long-term service agreements have now stretched out their tenor beyond one year so we feel really good about the value that we're adding to customers. And it's underpinning nice growth for the business. So we feel good about the strategy. We feel good about the execution of the opportunity and it's a nice stable source of profitability, cash flow and value creation for our shareholders. So business is performing well. Joe Moore: I mean it seems like a really good business. I'm just surprised that there's so much upside relative to 14 weeks ago. Specifically, what was -- I guess you guided to $1.07 billion and came in at $1.155 billion. What is that upside being driven by? Dan Durn: So if it's a specific comment around the most recent quarter, everybody puts assumptions into their models about how you respond in a current environment, where you're seeing some spikes with respect to the pandemic in different geographies and just making sure that we recovered from an execution standpoint on unknowable things, as we extrapolate those data points to different populations around the globe. We went into that quarter a bit more conservative than we typically would, as a result of those pandemic statistics we are seeing in the fall. Joe Moore: Great. Thank you Michael Sullivan: Thanks Joe. Operator: Thank you. Our next question comes from the line of Quinn Bolton with Needham & Company. Your line is now open. Quinn Bolton: Hey, guys. I wanted to ask you a clarification and a question. The clarification is just does your guidance incorporate any shutdown at the Austin manufacturing site due to the deep freeze going on in Texas? And then my follow-on question is a follow-on to Atif's question about the US and European Union to the extent that they provide local support for local supply chains for advanced semiconductor manufacturing, would you see that that WFE spending being additive? Or is that just sort of a reallocation of WFE spending from what otherwise would have taken place in Asia to either the US and Europe? Thank you. Dan Durn: Yes. Thanks, Quinn. So from an Austin manufacturing standpoint, I would say our business was subjected to the power fluctuations that most commercial enterprises -- manufacturing enterprises saw in Austin. What I would say is we don't see a material impact to the business. We think the weather gets better here another day, power stabilizes. We've been in close contact as you can imagine with our team there. We've got risk-mitigation plans in place. We've got labor prepositioned. I think we're ready to respond quickly once the power stabilizes. And the guidance we've put forward contemplates everything that's going on in that region and the way we are going to respond and drive output as quickly as possible, once we get the stable power back and so we feel good about where we sit today in support of the guide that we put out there. As it relates to localization of supply chains disaggregation of manufacturing footprint, here's what I would say from a business impact standpoint and a market perspective. I would say global supply is going to meet global demand. And Gary mentioned that, if you've got two 50,000 wafer start a month factories that's less a capital-efficient manufacturing footprint than one large 100,000 wafer start a month facility. So while I don't think it's a step-function change from an overall wafer fab equipment standpoint, I would say that wafer fab equipment is probably positively biased to the upside as a result of those multiple smaller-scale facilities. The other impact I would say from a business perspective as these supply chains localize is, we've got a great global footprint of our service organization. They do great things for our customers around the globe. When our customers locate capacity in areas outside of their home geography that's been a nice service adder. We've seen a nice service adder and increased entitlement on that capacity historically and I would expect that to continue. So we think that that's going to be a nice tailwind for our service business as that trend materializes going forward. Michael Sullivan: Thanks Quinn. Operator: Thank you. Our next question comes from the line of Blayne Curtis with Barclays. Your line is now open. Blayne Curtis: Hey guys, thanks for taking my question. Dan, I just want to ask you on OpEx and I feel a little guilty asking given the op margin performance. But considering OpEx in the quarter is up a decent amount. So just maybe what's driving that other than I guess higher commissions? And then just any thoughts on the rest of the fiscal year? Dan Durn: Yes. So a couple of things and thanks for the question Blayne. Just a couple of things on the transition from Q1 to Q2. What I would observe about Q1 is as we get a holiday shutdown in that period at the end of a calendar year. You also have partial impact of annual merit increases one-month impact. As we move into Q2, you no longer have a shutdown and you get a full quarter impact of merit increases. So there's an embedded cost escalator in that time frame. The other thing I would say and Gary spent a lot of time talking about this, there is a very fundamental transition happening in our industry. Traditional Moore's Law is shrinking -- I mean traditional Moore's Law 2D shrinks are beginning to hit a wall. The industry is pivoting to a new playbook and we have a meaningful key enablement role to play in each element of that new playbook. We are going to be disciplined, but we are going to invest to grow. We're going to drive innovation. We're going to be a key enabler of our customers' road maps. From a discipline standpoint, I think the company has got a good track record. From an OpEx perspective close to 70% of what we spend is fuel for growth R&D with pretty tight containment from a discretionary spend standpoint. So, we're close to 70% of all OpEx goes to R&D. And then from an OpEx leverage perspective, an observation I would make is -- and this goes to growing the company in a very disciplined manner delivering innovation, but doing it in an efficient manner. Over the last 12 months, we've got 340 basis points of OpEx leverage that we've delivered. And if I take it out to eight quarters, we've got to 460 basis points of OpEx leverage that we've delivered to the P&L. So I think the company has demonstrated a great track record of delivering these innovations, but doing it in an efficient way that drives significant value for shareholders. So we feel good about it Blayne. Michael Sullivan: Thanks Blayne. Operator: Thank you. Our next question comes from the line of Timothy Arcuri with UBS. Your line is now open. Timothy Arcuri: Thanks a lot. Gary, I guess I had a longer-term question for you. So, we're going to see gate-all-around maybe late next year, but definitely in 2023. And then we go to FinFETs maybe in '24 or definitely '25 which seems like a long way away, but it's not really that far out there. And there seems to kind of be a broad view that litho is going to be a big headwind for the films companies like you. But it actually seems like the same thing could happen in logic that happened in NAND, where you start to stack transistors, so that you could capture the incremental dollars versus litho, if you look out say three to five years. So can you just kind of talk about what's happening in logic? Thanks. Gary Dickerson: Thanks for the question Tim. So, what I would say I meet these CEOs and R&D leaders for leading foundry and logic on a very regular basis, actually more often now than I did before the pandemic, because we're doing all of this virtual. I deeply believe -- and you can see even this week there was one of our leading customers talking about how they're driving their technology roadmaps going forward. And it's really around the five elements that we've been talking about; the new structures; new chip architectures; everybody is designing their own application specific chips; new materials; new ways to shrink. I've talked about packaging and the growth there, but I think we're just in a tremendous position. And when you think about what's going to drive power performance and cost going forward, there's no question it's about these new structures and these new materials. And when you look at really all of the different markets, you talked about the new transistor structures going forward whether -- people call gate-all-around or nano sheets, or also the wiring, the resistance in the wiring there's tremendous focus in those areas, because that is really what enables power and performance going forward. So we're just in a really tremendous position. When you think about the materials that are needed to create those nano sheets or the wiring or 3D DRAM, or any of those big inflections that are going forward in the future, we just have by far the best portfolio of materials that creates those structures. Then you think about shaping the structures. We have strength in conductor etch. We're -- we've certainly had a strong position in memory. We're growing in foundry/logic. You'll see our share continue to grow there. Shaping with the Selectra product is also really important for nano sheets and for other new structures, the modification of those different structures and also accelerating the time-to-market. I talked about the synergies with our PDC and especially our e-beam business. When I'm building this new transistor, if I can see the materials, residual materials inside that structure as I'm driving the R&D versus having to cross-section one particular transistor and look inside that their learning rates go up by orders of magnitude. So those unique imaging capabilities combined with the unique capabilities in creating and shaping and modifying those structures, again, I just -- if you look at what's being presented by our leading customers even this week, you'll see exactly aligns to this new playbook and enabling capabilities for Applied. So again I've never been more excited about our opportunities to enable the roadmap. Timothy Arcuri: Totally, Gary. Thank you. Gary Dickerson: Thank you. Operator: Thank you. Our next question comes from the line of Joe Quatrochi with Wells Fargo. Your line is now open. Joe Quatrochi: Yes. Thanks for taking the question. I was curious in your WFE outlook for this year, what's your assumption around domestic China? And does your WFE outlook for this year include the assumption that we don't see any license from customers that are required by the government right now? Dan Durn: Yes. Hi, Joe, thanks for your question. So from a domestic China standpoint, we think we ended the year 2020 around $10 billion. We think we're up a few billion off of that level. So we'll see this year what we've been seeing for several years now, which is slow-steady ecosystem development. You're going to see some investment in technology roadmaps and still some pretty modest capacity additions that sit behind those technology roadmaps. And then from a licensing standpoint just given where we sit in the process, we think it's prudent to forecast and guide revenue and market sizing, assuming the licenses do not come through. And when we receive the licenses then we'll adjust the expectations. I would expect revenue to go up, and I would expect the market sizing to go up. But the current forecast expectations of greater than $70 billion this calendar year for the overall market size does not assume that those licenses come through. That will be upside to the numbers we've talked about. Michael Sullivan: Thanks Joe. And operator we have time for two more questions please. Operator: Our next question comes from the line of Mitch Steves with RBC Capital Markets. Your line is now open. Mitch Steves: Hi, guys, thanks for taking my question. Obviously a very great quarter and great guide. My only little nitpick here, just on the display business, I feel like every quarter we kind of try to call a bottom here. But then, you made comments about all of the segments kind of being up, in the second-half. Can you maybe just help us understand, what the magnitude is at for the display business? And then secondly, if you've got, any sort of like actual visibility into that and confidence around display being up in the second-half of the year. Thank you. Dan Durn: Yes. Thanks, Mitch. So a couple of things on display, I think we've been very consistent in this business overtime. We know that from quarter-to-quarter, this is a business that will bounce around a little bit. But we've been saying now for many quarters, that the sizing in 2021 from an overall market spend perspective, as well as the proportion of spend, in TV, in mobile, is going to look and feel a lot like 2020. And that's exactly what we see playing out. The implication for our business revenue and we've been saying this for many quarters now, the revenue that we see in our display business in fiscal 2021 is going to be very similar, to what we produced in fiscal 2020. And so I think that gives you the math. You know what we've done in fiscal Q1. You know what we just guided to in fiscal Q2. That gives you a sense of the step-up that we see in the back half of the year. And then, as we look forward into 2022, we are monitoring a number of green shoots. We talked about on the last earnings call our confidence interval around them continue to increase. And the confidence interval around 2022 being a robust investment point in the cycle continues to increase. So we feel good about where we stand, growing off of the guide we just gave in fiscal Q2. From an order standpoint, -- we can see it from an order standpoint, growth into the back half of the year. And we can also see it from a customer deposit perspective. And so we feel good about, how we're shaping expectations around this market. And I've got, no anxiety, given what we see and where we sit, around the second-half being stronger than the first-half in that business. Michael Sullivan: Hey, thanks Mitch. Operator: Thank you. Our last question comes from the line of Patrick Ho with Stifel. Your line is now open. Patrick Ho: Thank you very much and congrats on a nice finish, to the calendar year. Gary, maybe just to follow up on some of the questions and given the strength that you had in the advance packaging business that looks like it's another growth opportunity for you. Are you able to leverage the products from your, "leadership and existing portfolio?" Or are you also developing new products, given the changes that are going on in advance packaging, particularly as they become more front-end manufacturing-like? Gary Dickerson: Yes. Thanks for the question, Patrick. So I'd start off by saying, we've talked about this as being one of the five key drivers for the PPAC roadmap going forward. And if you look at, what leading customers are talking about packaging is incredibly important for power and performance and cost. So for me personally, I've engaged much more so with the R&D leaders in this particular industry than I ever was. Relative to your question about, existing products versus new products, I would say it's both. If you look at, wafer-level packaging we're number one, in wafer-level packaging, advanced wafer-level packaging with PVD, CVD, CMP plating. We have a new Sym3 via etcher, also where we won one of the largest -- one of our largest customers in that business. So we have all of those combinations of products in packaging. And we also announced recently a new integrated hybrid bonding system, working with another company that is really important. And we have very strong pull from every one of the -- our leading customers with that new technology. So again, it's a combination of both, where we're innovating with our existing products, also looking at accelerating the big inflections in packaging. And hybrid bonding is one example of that. So I think it's just a tremendous opportunity for the company. I think this is going to become more important as we go forward and we're in a unique position with the combinations of capabilities that we have. Patrick Ho: Thank you. Michael Sullivan: Thank you, Patrick for your question. And Dan, would you like to help us wrap the call? Dan Durn: Yes. Sure Mike. Thanks. So as I look at this quarter, a few things stand out for me. First, the growing strength of our end markets, second, really strong outperformance in calendar 2020 and I guess third, an even better setup for Applied, as we look forward into 2021. I see strength throughout the year. And that includes fiscal second-half growing across all three reporting segments: Semi Systems, AGS and display. I really like the gross margin improvement. It's been a lot of hard work, especially during COVID-19 and I really want to thank all of our teams one more time, for this great progress. We all hope that the regulatory decision on Kokusai goes in our favor. And Gary and I along with the rest of the management team look forward to seeing you in about six weeks, during the investor meeting. Mike, let's close the call now. Michael Sullivan: Okay. Thanks Dan. And we'd like to thank everybody for joining us today. A replay of the call will be available on our website by 5:00 Pacific Time. And we'd like to thank you for your continued interest, in Applied Materials. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Applied Materials Shares Rise Following Q2 Beat
Applied Materials (NASDAQ:AMAT) shares rose around 2% intra-day today after the company reported fiscal second-quarter results and guidance, surpassing estimates as the artificial intelligence wave continues to drive chip demand.
For Q2, the company posted adjusted diluted earnings per share (EPS) of $2.09, up from $2.00 the previous year, while revenue increased to $6.65 billion from $6.63 billion. Analysts had expected EPS of $1.99 on revenue of $6.52 billion. The gross margin improved to 47.5% from 46.8% a year earlier.
Looking ahead to Q3, Applied Materials projected adjusted EPS in the range of $1.83 to $2.19 per share on sales of approximately $6.65 billion, plus or minus $400 million. Wall Street estimates had forecasted adjusted earnings of $1.98 per share on $6.59 billion in revenue.
Applied Materials, Inc. Showcases Strong Q2 Financial Performance
- Applied Materials, Inc. reported EPS of $2.09, surpassing the estimated $1.99, and revenue of $6.65 billion, beating the forecasted $6.54 billion.
- The company has outperformed consensus EPS estimates for the fourth consecutive quarter, highlighting its operational efficiency.
- Financial ratios such as the P/E ratio of approximately 24.85 and P/S ratio of about 6.71 reflect investor confidence in AMAT's profitability and sales performance.
Applied Materials, Inc. (NASDAQ:AMAT), a leading company in the semiconductor equipment and wafer fabrication industry, recently reported its second-quarter earnings, showcasing a strong financial performance that exceeded analysts' expectations. On Thursday, May 16, 2024, AMAT announced earnings per share (EPS) of $2.09, surpassing the estimated $1.99, and reported revenue of $6.65 billion, beating the forecasted $6.54 billion. This performance not only highlights the company's ability to outperform market expectations but also underscores its significant role in the semiconductor sector.
The company's EPS of $2.09 exceeded the Zacks Consensus Estimate of $1.97, marking a 6.09% earnings surprise and representing an improvement from the $2 per share earned a year ago. This quarter's results continue AMAT's trend of surpassing consensus EPS estimates for the fourth consecutive quarter, previously outperforming expectations with earnings of $2.13 per share against an anticipated $1.90, reflecting a surprise of 12.11%. Such consistent performance in earnings surprises underscores the company's operational efficiency and its ability to navigate the complexities of the semiconductor industry effectively.
In terms of revenue, Applied Materials posted $6.65 billion for the quarter ending April 2024, not only surpassing the Zacks Consensus Estimate by 2.04% but also showing a slight increase from the previous year's revenues of $6.63 billion. This marks the fourth consecutive time the company has exceeded consensus revenue estimates, indicating a steady growth trajectory and reinforcing its market leadership in the semiconductor equipment sector. The company's ability to consistently generate higher revenues speaks volumes about its competitive edge and the increasing demand for its products and services.
Financial metrics such as the price-to-earnings (P/E) ratio of approximately 24.85 and the price-to-sales (P/S) ratio of about 6.71 reflect investor confidence in AMAT's profitability and sales performance. Additionally, the enterprise value-to-sales (EV/Sales) ratio of roughly 6.68 and the enterprise value-to-operating cash flow (EV/OCF) ratio of around 20.21 further highlight the company's valuation in comparison to its sales and operating cash flow, respectively. These ratios, combined with an earnings yield of approximately 4.02% and a balanced debt-to-equity (D/E) ratio of about 0.33, present a comprehensive picture of Applied Materials' financial health and its attractiveness to investors.
Applied Materials' recent financial results not only demonstrate its strong position within the semiconductor equipment industry but also signal positive implications for the broader chip industry, especially in the context of the ongoing artificial intelligence race. The company's ability to consistently exceed earnings and revenue expectations reflects its strategic operational excellence and positions it as a key player in the technological advancements shaping the future of the semiconductor sector.
Applied Materials, Inc. Quarterly Earnings Preview
- Wall Street anticipates an EPS of $1.96 with revenue estimates of approximately $6.54 billion for the upcoming quarter.
- The company forecasts revenue in the range of $6.50 billion, aligning closely with the Zacks consensus estimate of $6.51 billion, indicating a slight year-over-year decline.
- Applied Materials has a history of surpassing earnings estimates, with an average earnings surprise of 9.43% over the past four quarters.
Applied Materials, Inc. (NASDAQ:AMAT), a leading company in the semiconductor equipment industry, is gearing up to release its quarterly earnings report on Thursday, May 16, 2024, after the market closes. The company, known for its contributions to the semiconductor manufacturing process, faces stiff competition from other industry giants but continues to hold a significant market share due to its innovative solutions and comprehensive service offerings. Wall Street has set its sights on an earnings per share (EPS) of $1.96, with revenue estimates hovering around $6.54 billion for the quarter.
The upcoming earnings report is particularly noteworthy as it encompasses the performance of Applied Materials' Applied Global Services segment and the ICAPS portfolio, despite the backdrop of macroeconomic challenges. The company has provided a revenue forecast in the range of $6.50 billion, with a possible variation of plus or minus $400 million, closely aligning with the Zacks Consensus Estimate of $6.51 billion. This estimate suggests a slight year-over-year decline of 1.8%, reflecting the broader economic pressures faced by the sector.
For non-GAAP earnings, Applied Materials has set expectations between $1.79 and $2.15 per share. The consensus among analysts, as reported by Zacks Investment Research, pegs the EPS at $1.96, indicating a modest 2% decrease from the earnings reported in the same quarter of the previous year. This stability in earnings estimates over the last 30 days, despite a slight downward adjustment of 0.3%, underscores the analysts' confidence in the company's performance amidst uncertain market conditions.
Historically, Applied Materials has demonstrated a strong track record of surpassing the Zacks Consensus Estimate for earnings, with an average earnings surprise of 9.43% over the past four quarters. This consistent performance suggests that the company might once again exceed Wall Street's expectations. The focus on the Applied Global Services segment and the ICAPS portfolio, which includes integrated circuit, advanced packaging, and services, highlights the company's strategic emphasis on high-demand semiconductor solutions, potentially driving its success in the current fiscal quarter.
The financial health and market valuation of Applied Materials are further underscored by its price-to-earnings (P/E) ratio of approximately 24.36, indicating investor willingness to pay for its earnings. The company's price-to-sales (P/S) ratio of about 6.58 and an enterprise value-to-sales (EV/Sales) ratio close to 6.55 reflect the market's valuation of its sales. With an enterprise value-to-operating cash flow (EV/OCF) ratio of around 19.81 and a debt-to-equity (D/E) ratio of about 0.33, Applied Materials showcases a balanced capital structure and strong liquidity position, as evidenced by its current ratio of roughly 2.71. These financial metrics provide a comprehensive view of the company's financial stability and market position ahead of its anticipated earnings report.
Applied Materials’ Price Target Raised at TD Cowen
TD Cowen analysts increased their price target on Applied Materials (NASDAQ:AMAT) to $185.00 from $165.00 while reiterating their Outperform rating. Applied Materials was also added as a top pick for 2024.
The analysts noted that the company stands out because of its extensive range of products and its success in key technological advancements such as GAA, backside power, and advanced packaging. The company's valuation is also seen as particularly attractive when compared to its industry counterparts.
Additionally, the anticipated recovery in the memory sector and the sustained performance of China's less advanced technology segments are expected to positively influence the company's financial forecasts for the upcoming year.
Applied Materials Posts Q4 Beat, But Stock Plunges 5% on DOJ Investigation Reports
Applied Materials (NASDAQ:AMAT), the largest semiconductor equipment manufacturer in the U.S., reported fiscal fourth-quarter earnings that surpassed expectations. However, the company's shares faced pressure intra-day today, dropping more than 5%, due to reports of a criminal investigation by the U.S. Justice Department.
According to a Reuters article, citing unnamed sources, the investigation focuses on whether Applied Materials illegally shipped equipment to Chinese chipmaker SMIC via South Korea without the necessary export licenses. The report suggests that equipment worth hundreds of millions of dollars might be involved in the case.
Despite this challenging backdrop, Applied Materials announced positive financial results. The company's adjusted diluted earnings per share (EPS) for the fourth quarter was $2.12, an increase from $2.03 in the previous year. However, their revenue saw a slight decline, dropping to $6.72 billion from $6.75 billion. These figures surpassed analyst predictions, which estimated an EPS of $1.99 on revenue of $6.52 billion. The company also experienced a rise in adjusted gross margin, which increased to 47.3% from 46% a year ago.
Looking forward, Applied Materials set its fiscal first-quarter sales projection at around $6.47 billion, with a possible variation of plus or minus $400 million. The forecast for adjusted diluted EPS ranges between $1.72 and $2.08.
Applied Materials Gains on Q3 Beat & Strong Guidance
Following fiscal third-quarter results that exceeded analyst predictions, Applied Materials (NASDAQ:AMAT) reported impressive earnings guidance, benefiting from the ongoing corporate competition to embrace the digital and AI era. This trend has stimulated chip demand and contributed to the company's growth. Shares gained more than 2% intra-day today.
The company posted adjusted earnings per share (EPS) of $1.90 and revenue of $6.43 billion. This outperformed the Street forecasts that anticipated an EPS of $1.74 on revenue amounting to $6.15 billion. The company's largest business segment, Semiconductor systems, experienced a slight decrease of 1.2%, generating $4.68 billion in revenue.
Applied Materials provided guidance for the fourth quarter, indicating an adjusted EPS within the range of $1.82 to $2.18. The company also projected net sales of approximately $6.51 billion, with a margin of error of around $400 million. Street estimates stood at $1.59 for EPS and $5.87 billion for net sales.
Applied Materials Reports Q1 Beat, Provides Strong Guidance
Applied Materials (NASDAQ:AMAT) reported its Q1 results on Thursday, with EPS coming in at $2.03, better than the Street estimate of $1.93. Revenue was $6.74 billion, beating the Street estimate of $6.69 billion. The company’s backlog grew again and should help support its revenue, at least through the end of fiscal 2023.
From a segment perspective, the company was particularly bullish on the strength of ICAPS (lagging edge foundry/logic), which more than offset incremental weakness in memory and leading-edge foundry/logic. But even for memory, management suggested that DRAM spending could start to recover by the end of the year.
For Q2/23, the company expects EPS to be in the range of $1.66-$2.02, compared to the Street estimate of $1.75. Revenue is expected in the range of $6-6.8 billion, compared to the Street estimate of $5.86 billion.
