Analyst Conference Call Summary

semiconductors

conference date: November 16, 2023 @ 1:30 PM Pacific Time
for quarter ending: October 31, 2023 (fourth quarter, Q4 fiscal 2023)

Forward-looking statements

Overview: Revenue flat y/y, but better than expected.

Basic data (GAAP):

Revenues were $6.72 billion, up 5% sequentially from $6.43 billion and flat (or down slightly) from $6.75 billion in the year-earlier quarter.

Net income was $2.00 billion, up 28% sequentially from $1.56 billion and up 26% from $1.59 billion year-earlier.

EPS (diluted earnings per share) were $2.38, up 29% sequentially from $1.85 and up 29% from $1.85 year-earlier.

Guidance:

For fiscal Q1 2024 sees sales near $6.07 to $6.87 billion and non-GAAP EPS of $1.72 to $2.08. For 2024 generally sees F/L strong, ICAPS lower, DRAM strong, NAND weak.

Conference Highlights:

Gary Dickerson, CEO, said "Applied Materials delivered record revenue, earnings and cash flow in fiscal 2023 and is outgrowing the wafer fabrication equipment market for the fifth year in a row. Applied's broad product portfolio, strong customer relationships and leadership at major technology inflections put us in a great position to profitably grow the company as powerful trends fuel the semiconductor industry’s expansion in the years ahead." Semiconductor and wafer fab equipment production were down in 2023. AMAT did particularly well in etch, ICAPS, and services. Believes semiconductor sales will grow faster than global GDP, wafer equipment faster still, and Applied equipment faster than that. Does not expect a significant impact from new China regulations, as most shipments are not of bleeding-edge machines.

Non-GAAP numbers: net income $1.79 billion, up 12% sequentially from $1.60 billion, and up 3% from $1.74 billion year-earlier. EPS $2.12, up 12% sequentially from $1.90, and up 4% from $2.03 year-earlier.

[note: ICAPS = IoT, Communications, Automotive, Power and Sensors]

Semiconductor Systems sales were $4.88 billion, up sequentially from $4.68 billion, and down 3% from $5.04 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 69%, DRAM 27%, Flash 4%. Segment operating income was $1.8 billion.

Applied Global Services (AGS) revenue was a record $1.47 billion, up sequentially from $1.46 billion and up 4% from $1.42 billion year earlier. Non-GAAP operating income was $431 million.

Display segment revenue was $298 million, up sequentially from $235 million and up 19% from $251 million year-earlier. Non-GAAP operating income was $67 million.

Cash and equivalents (including long-term investments) balance ended at $9.15 billion, up sequentially from $8.7 billion. Cash flow from operating activities was $1.56 billion. Capital expenditures were $309 million. Free cash flow $1.25 billion. $268 million was used for cash dividends. Used $700 million to repurchase shares. Long-term debt was $ billion.

Cost of goods sold was $3.55 billion, leaving gross profit of $3.17 billion. Operating expenses of $1.20 billion consisted of: research and development $789 million; selling and marketing, $192 million; general and administrative $217 million. Leaving income from operations of $1.97 billion. Interest and other expense net $307 million. Income tax $168 million.

Full Fiscal Year 2023 results: $26.5 billion revenue, up 3% y/y. GAAP EPS $8.11, up 9% y/y. Non-GAAP EPS $8.05, up 5% y/y. Free cash flow $7.59 billion up 65% y/y.

Q&A selective summary:

Investigations into SMIC shipments? We did disclose last year we received a request re China shipments. We are fully cooperating. We are committed to complying with all the trade rules.

China demand trend? For Q4 we saw elevated sales, expect that again in Q1, particularly DRAM. Most China business is ICAPS, believe will still be strong, but not necessarily as strong as FY 23.

ICAPS, non-China? We expect China to go back to normal, about 30%, is because we believe DRAM business will slow down. ICAPS had significant growth in 2022 and 2023. For 2024 we are seeing lower utilization and some order pushouts. But it should still be higher than 2022.

2024 WFE color? Optimistic for leading foundry logic like gate all around, which will start to ramp on 2024. Also backside power. These are billion $ opportunities. Also well-positioned for next DRAM inflection.

ICAPS outside China? Expect the mix to remain the same going forward, small changes. One-third ICAPS total. Several geographies are growing ICAPS faster than China.

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