Analyst Conference Call Summary

semiconductors

conference date: Novermber 12, 2020 @ 1:30 PM Pacific Time
for quarter ending: October 25, 2020 (fourth quarter, Q4 fiscal 2020)

Forward-looking statements

Overview: Great quater. Non-GAAP EPS a record.

Basic data (GAAP):

Revenues were $4.69 billion, up 7% sequentially from $4.40 billion and up 25% from $3.75 billion in the year-earlier quarter.

Net income was $1.13 billion, up 34% sequentially from $841 million and up 62% from $698 million year-earlier.

EPS (diluted earnings per share) were $1.23, up 35% sequentially from $0.91 and up 64% from $0.75 year-earlier.

Guidance:

For Q1 fiscal 2021 revenue $4.95 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS range $1.20 to $1.32.

Conference Highlights:

Gary Dickerson, CEO, said "Customers are building out fabs and aggressively investing. . . We are outperforming the market ... Etch business set a record." Our opportunities have never been better. The one inflection that stands out is AI, which has the potential to change everything, including the semiconductor equiment sector.

Packaging business is scaling, up 20% from fiscal 2019. AGS (services) also delivered record revenue with much revenue now from long-term agreements.

We are seeing some encouraging leading indicators of future growth for 2021, including in the display market.

Backlog is at record levels. One Chinese customer is now required to obtain licenses from the US, so that impacted Q1 guidance.

Non-GAAP numbers: net income $1.15 billion, up 18% sequentially from $976 million, and up 54% from $744 million year-earlier. EPS $1.25, up 18% sequentially from $1.06, and up 56% from $0.80 year-earlier. % gross margin, up from % year-earlier. % operating margin, up from % year-earlier.

Semiconductor Systems sales were $3.07 billion, up 5% sequentially from $2.92 billion, and up 33% from $2.30 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 21%, DRAM 21%, Flash 58%. Segment operating income was $1.06 billion or $1.07 billion non-GAAP, margin was 34.5% or 35.0% non-GAAP.

Applied Global Services (AGS) revenue was $1.11 billion, up % sequentially from $1.03 billion and up % from $0.98 billion year earlier. Non-GAAP Operating income was $320 million.

Display segment revenue was $485 million, up 14% sequentially from $425 million and up 6% from $457 million year-earlier. Non-GAAP operating income was $98 million, with a 20.2% operating margin.

Cash and equivalents (including long-term investments) balance ended at $7.2 billion, up sequentially from $6.29 billion. Cash flow from operating activities was $1.32 billion. Capital expenditures were $162 million. $200 million was used for cash dividends. Long-term debt was $5.4 billion. $50 million was used to repurchase stock in the quarter in anticipation of the Kokasi transaction needs.

Cost of goods sold was $2.56 billion, leaving gross profit of $2.13 billion. Operating expenses of $847 million consisted of: research and development $560 million; selling and marketing, $131 million; general and administrative $156 million. Leaving income from operations of $1.28 billion. Interest and other expense net $40 million. Income tax $112 million.

For the full fiscal year 2020, revenue was $17.2 billion, up 18% y/y. GAAP net income was $3.62 billion and EPS was $3.92. Non-GAAP net income was $3.85 billion and EPS was $4.17.

Q&A summary:

Mid 30% DRAM Q1 growth implied by guidance? We have been showing signs of strength. Industry WFE is growign at 15%. DRAM is a couple of points higher than the overall industry. So we are outperforming, particularly in etch and high-K metal gates. We are driving our customers' roadmaps. We expect this strength to continue into next year. We believe we can continue to outgrow the market in DRAM.

China, SMIC? The overall China market has seen increasing spend both by domestic and multinational customers. Seeing 200 and 300 mm geometries, in all device types.

Magnitude of SMIC impact? Licensing requirement was put in place in Q4 and impacted it. We have already applied for licenses. We have a broad base of relationships in China, we hope for continued growth there.

Nationalization of semi capacity? The future roadmap for technology will look different from the past. It will be highly strategic for many countries. Companies are moving to new regions. Those who get to the new playbook first are going to win.

Inspection systems? That is a bright spot for the company. Our new optical and Ebeam products are seeing strong adoption. We have great leading technologies.

42% growth of metal deposition business, for instance. We can combine new technologies to drive roadmaps that competitors cannot match. Conductance is an example of where we have a fundamental advantage. Pretty much a repeat of the main presentation.

Close of acquisition timing? We have 5 of 6 regulatory agencies have approved the transactions, we hope to close by the end of the year. We will give investors a combined company model when we are able. We will give all excess cash back to shareholders.

In 2020 overall market up 15%; systems business was up 25%. NAND is growing 2x the overall market, and we outperformed the market. In general we expect WFE and foundry logic to be strong. But NAND we expect to be flatish y/y, with NAND set up to grow.

Leading v. lagging edge technologies outlook? Trailing node geometries are a bit weak, in line with automotive. Generally will follow the natural tendencies. So expect some growth in trailing node markets due to drivers like auto, industrial markets. We are well-positioned across the spectrum of node.

Packaging is a key driver. We are #1 in advanced wafer-level packaging.

AMAT NAND revenue flat y/y, did you lose share? You may be drawing the wrong conclusion. Some figures are calendar year, our own sales are fiscal year, so we are roughly in line with the overall NAND market.

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