Analyst Conference Call Summary

semiconductors

conference date: May 16, 2024 @ 1:30 PM Pacific Time
for quarter ending: April 28, 2024 (second quarter, Q2 fiscal 2024)

Forward-looking statements

Overview: About the same y/y.

Basic data (GAAP):

Revenues were $6.65 billion, down 1% sequentially from $6.71 billion and up slightly from $6.63 billion in the year-earlier quarter.

Net income was $1.72 billion, down 15% sequentially from $2.02 billion and up 9% from $1.58 billion year-earlier.

EPS (diluted earnings per share) were $2.06, down 15% sequentially from $2.41 and up 11% from $1.86 year-earlier.

Guidance:

Fiscal Q3 revenue $6.25 to $7.05 billion. Non-GAAP EPS $1.83 to $2.19.

Conference Highlights:

Gary Dickerson, CEO, said "Applied Materials continues to deliver strong performance in 2024, with fiscal second quarter revenue and earnings towards the high end of our guided range. Applied Materials has the most enabling portfolio of materials engineering technologies for chips that underpin tectonic shifts in technology including AI, IoT, electric vehicles and clean energy, which puts us in a great position to grow along with these long-term, secular trends." Applied is helping to enable multi-trillion-dollar technology inflections, including AI. Applied continues to grow faster than the wafer fabrication equipment market. Integrated solutions are growing as a percent of revenue. Service business is growing quickly as helping clients earlier in the industry roadmap. Expects datacenter chips to be the strongest driver going forward.

Growing the dividend and continuing share buy backs are a priority.

Non-GAAP numbers: net income $1.74 billion, down 2% sequentially from $1.78 billion, and up 3% from $1.69 billion year-earlier. EPS $2.09, down 2% sequentially from $2.13, and up 5% from $2.00 year-earlier.

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

Semiconductor Systems sales were $4.90 billion, down sequentially from $4.91 billion, and down from $4.98 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 65%, DRAM 32%, Flash 3%. Segment operating income was $1.70 billion. In fsical Q2 2024 had record ion equipment sales.

Applied Global Services (AGS) revenue was a record $1.53 billion, up sequentially from $1.48 billion and up 7% from $1.43 billion year earlier. Non-GAAP operating income was $436 million.

Display segment revenue was $179 million, down sequentially from $244 million and up from $168 million year-earlier. Non-GAAP operating income was $5 million.

Cash and equivalents (including long-term investments) balance ended at $10.5 billion, up sequentially from $10.4 billion. Cash flow from operating activities was $1.39 billion. Capital expenditures were $257 million. Free cash flow $1.13 billion. $266 million was used for cash dividends. Used $820 million to repurchase shares. Long-term debt was $5.5 billion.

Cost of goods sold was $6.65 billion, leaving gross profit of $3.15 billion. Operating expenses of $1.24 billion consisted of: research and development $785 million; selling and marketing, $209 million; general and administrative $247 million. Leaving income from operations of $1.91 billion. Interest and other income net $82 million. Income tax $272 million.

Q&A selective summary:

Backlog? DRAM shipments to China are falling off. ICAP and leading logic are backfilling that gap. Gate all around is beginning to ship in higher volumes. Those ramps should continue into 2025.

We are investing in the key inflections for the fastest growing markets. It is hard to predict the future for any particular quarter. HBM utilization in DRAM is improving.

Yes, $2.5 billion in gate all around this year, $5 billion or so next year.

These technologies are incredibly difficult. We are leading with materials science. The number of steps required are growing. All that drives incremental spend.

Advanced packaging inovation is critical to the industry. Tying together the components as Moore's law slows down. All our customers are investing heavily in these types of technologies. Our broad portfolio gives us an advantage over competitors.

China is expected to normalize to about 30% of our revenue as we go forward.

In NAND we are seeing upgrades rather than a need for more NAND volume. We expect NAND to grow at about the overal industry rate. We are seeing higher HBM demand.

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