Release Date: May 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Applied Materials Inc (AMAT, Financial) reported Q2 revenue and earnings toward the high end of their guided range, indicating strong performance.
- The company is well-positioned to benefit from secular growth trends in technology, including AI, IoT, and clean energy, which are driving demand for advanced semiconductors.
- Applied Materials Inc (AMAT) has a broad and connected portfolio of materials engineering solutions that are critical for major semiconductor inflections, supporting consistent outperformance.
- The company expects significant revenue growth from gate-all-around nodes, projecting over $2.5 billion in 2024 and potentially doubling in 2025.
- Applied Materials Inc (AMAT) is experiencing double-digit growth in its service business, with a new record revenue of $1.5 billion this quarter, supported by long-term service agreements.
Negative Points
- The complexity of new semiconductor technologies increases the implementation challenges, requiring earlier and deeper collaboration with customers, which could pose integration risks.
- Applied Materials Inc (AMAT) faces headwinds from trade rules, which restricted access to more than 10% of the China market in 2023.
- The company's performance is highly dependent on the continuous adoption and ramp-up of advanced technologies like gate-all-around and high-bandwidth memory, which may face market or technical hurdles.
- While DRAM and NAND segments show promise, the actual growth is contingent on market acceptance and the successful ramp-up of new technologies in these areas.
- Applied Materials Inc (AMAT) must navigate the increasing competition in the semiconductor equipment market, especially from companies expanding their own advanced material engineering capabilities.
Q & A Highlights
Q: Can you discuss your visibility today and how your ongoing conversations are going with your large customers as it pertains both to your outlook for the second half versus the first half on a calendar basis as well as building that potential backlog into calendar '25?
A: (Brice A. Hill - SVP, CFO & leads Global Information Services) We see a shift from high DRAM shipments in China in the first half to increased ICAPS strength and leading logic strength in the second half, particularly with the advent of gate-all-around technology. For 2025, we anticipate significant growth driven by gate-all-around technology as it ramps towards high-volume manufacturing.
Q: Regarding the qualitative 2025 outlook, you mentioned $2.5 billion from gate-all-around this year, potentially doubling next year. Could you clarify if this suggests $5 billion in gate-all-around in 2025?
A: (Brice A. Hill - SVP, CFO & leads Global Information Services) Yes, the $2.5 billion figure for this year encompasses all our revenue associated with gate-all-around technology, not just the increment. We expect this to potentially double next year as the technology continues to ramp up.
Q: As you invest more in materials engineering, climbing up the value chain, should this move towards adding more value reflect in higher profitability?
A: (Gary E. Dickerson - President, CEO & Executive Director) Absolutely, as we engage deeply with customers on major device architecture inflections and deliver more value, we aim to capture more value. This should reflect in higher profitability as our contributions become more critical to our customers' success.
Q: With the forecast increase in gate-all-around by $1 billion and HBM by $100 million, does this mean the second half of the year is conceptually over $1 billion higher than previously thought?
A: (Brice A. Hill - SVP, CFO & leads Global Information Services) The $2.5 billion figure represents all revenue associated with gate-all-around, not just an increase. The increase in demand is reflected in our Q3 guidance, filling in for the drop in China DRAM shipments with stronger ICAPS and leading logic shipments.
Q: Can you provide insights into the expected growth and drivers for your advanced packaging business, particularly how soon you expect it to double?
A: (Gary E. Dickerson - President, CEO & Executive Director) Advanced packaging is a significant growth area driven by the need for better connectivity and performance in AI servers and other applications. We expect this segment to double over the next few years, driven by our broad technology portfolio and deep customer engagements.
Q: What trends are you observing in the ICAPS market, particularly the difference in growth between China and non-China?
A: (Brice A. Hill - SVP, CFO & leads Global Information Services) The ICAPS market remains strong, with China being our largest market. Despite mixed end markets, customers are investing in forward-looking demand, leading to strong quarters and an expectation of continued strength.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
