Analyst Conference Call Summary

semiconductors

conference date: August 15, 2024 @ 1:30 PM Pacific Time
for quarter ending: July 28, 2024 (third quarter, Q3 fiscal 2024)

Forward-looking statements

Overview: Record quarter, strong guidance.

Basic data (GAAP):

Revenues were $6.78 billion, up 2% sequentially from $6.65 billion and up 5% from $6.43 billion in the year-earlier quarter.

Net income was $1.71 billion, down slightly sequentially from $1.72 billion and up 9% from $1.56 billion year-earlier.

EPS (diluted earnings per share) were $2.05, down 0.5% sequentially from $2.06 and up 11% from $1.85 year-earlier.

Guidance:

For the fiscal fourth quarter 2024, revenue $6.53 to $7.33 billion. Non-GAAP diluted EPS $2.00 to $2.36.

Conference Highlights:

Gary Dickerson, CEO, said "Applied Materials is delivering strong results in 2024 with record revenues in our fiscal third quarter and earnings towards the high end of our guided range. The race for AI leadership is fueling demand for our unique and connected portfolio of products and services, positioning Applied to outperform our markets over the longer term." Positioned to outperform the industry. Energy efficiency is critical to AI. High-bandwidth memory is a growth driver.

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

Non-GAAP numbers: net income $1.77 billion, up 2% sequentially from $1.74 billion, and up 10% from $1.60 billion year-earlier. EPS $2.12, up 2% sequentially from $2.09, and up 12% from $1.90 year-earlier.

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

Semiconductor Systems sales were $4.92 billion, up sequentially from $4.90 billion, and up from $4.68 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 72%, DRAM 24%, Flash 4%. Segment operating income was $1.72 billion.

Applied Global Services (AGS) revenue was a record $1.58 billion, up sequentially from $1.53 billion and up from $1.64 billion year earlier. Non-GAAP operating income was $467 million.

Display segment revenue was $251 million, up sequentially from $179 million and up from $235 million year-earlier. Non-GAAP operating income was $16 million.

Cash and equivalents (including long-term investments) balance ended at $12.1 billion, up sequentially from $10.5 billion. Cash flow from operating activities was $2.39 billion. Capital expenditures were $297 million. Free cash flow $2.09 billion. $331 million was used for cash dividends. Used $861 million to repurchase shares. Long-term debt was $6.2 billion.

Cost of goods sold was $3.57 billion, leaving gross profit of $3.21 billion. Operating expenses of $1.26 billion consisted of: research and development $836 million; selling and marketing, $205 million; general and administrative $222 million. Leaving income from operations of $1.94 billion. Interest and other income net $18 million. Income tax $255 million.

Q&A selective summary:

Outlook for WFE evolution? 2H see very strong inflection around AI, gate-all-around, DRAM, HBM. ICAPS remains strong. Nothing specific, but optimistic about 2025.

China revenue drop all DRAM? Outlook? Included almost no DRAM to China. But 32% of mix, had gone up to mid 40% last few quarters. 32% is in normal range for China shipments, represents ICAPS market. We are adding customers, utilizations are improving. So around 30% for Q4.

DRAM China visibility? Believes HBM will improve demand.

Cap ex cuts in for customers? We are not changing our outlook. We see the leading edge continuing to grow, based on updates from our customers.

We look forward to raising our dividend over time.

Advanced Packaging? Growing rapidly to $1.7 billion this year, driven by HBM, AI workloads.

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