Analyst Conference Call Summary

semiconductors

conference date: February 13, 2025 @ 1:30 PM Pacific Time
for quarter ending: January 28, 2025 (first quarter, Q1 fiscal 2025)

Forward-looking statements

Overview: continued good revenue growth

Basic data (GAAP):

Revenues were $7.17 billion, up 2% sequentially from $7.05 billion and up 7% from $6.71 billion in the year-earlier quarter.

Net income was $1.19 billion, down 31% sequentially from $1.73 billion and down 41% from $2.02 billion year-earlier.

EPS (diluted earnings per share) were $1.45, down 31% sequentially from $2.09 and down 40% from $2.41 year-earlier.

Guidance:

For fiscal Q2 2025 revenue between $6.7 and $7.5 billion. Non-GAAP diluted EPS $2.12 to $2.48.

Conference Highlights:

Gary Dickerson, CEO, said "The industry drive to accelerate the development of advanced compute and more sophisticated AI is gaining momentum. Applied Materials is enabling the major device architecture inflections critical for energy-efficient AI and our focus on high-velocity co-innovation creates unique collaboration opportunities with our customers and partners, positioning Applied for continued growth and outperformance in the years to come." Believes AMAT led the global markets in several areas. Expects China to represent a smaller % of WME in 2025 and a decline for AMAT in Q2. EPIC Center on track to come online in 2026, focus on advanced packaging. Gate-All-Around transistors at new technology nodes is growing strongly. AMAT is increasing its capital and R&D investments.

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

Non-GAAP numbers: net income $1.95 billion, up 2% sequentially from $1.92 billion, and up 10% from $1.78 billion year-earlier. EPS $2.38, up 3% sequentially from $2.32, and up 12% from $2.13 year-earlier.

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

Semiconductor Systems sales were $5.36 billion, up sequentially from $5.18 billion, and up from $4.91 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 68%, DRAM 28%, Flash 4%. Segment operating income was $1.99 billion. DRAM declined as sales in China in 2023 did not repeat.

Applied Global Services (AGS) revenue was a record $1.59 billion, down sequentially from $1.64 billion and up from $1.48 billion year earlier. Non-GAAP operating income was $447 million.

Display segment revenue was $183 million, down sequentially from $211 million and down from $244 million year-earlier. Non-GAAP operating income was 14$ million. End market demand was weak.

Cash and equivalents (including long-term investments) balance ended at $10.9 billion, up sequentially from $10.8 billion. Cash flow from operating activities was $925 billion. Capital expenditures were $381 million. Free cash flow $544 billion. $326 million was used for cash dividends. Used $1.3 billion to repurchase shares. Long-term debt was $5.46 billion.

Cost of goods sold was $3.67 billion, leaving gross profit of $3.50 billion. Operating expenses of $1.32 billion consisted of: research and development $859 million; selling and marketing, $206 million; general and administrative $256 million. Leaving income from operations of $2.18 billion. Interest and other expense net $58 million. Income tax $934 million.

Q&A selective summary:

WFE in 2025? Leading edge, AI, HBM growing. China slower after buildout in 2023-24. Memory flatish. Slower rate of investment in ICAPS. Customer focus is now on energy efficiency.

Silicon systems in July quarter? Need to wait and see, likely advanced will remain strong, ICAPS relatively weak.

Services? Impact in Q2, mainly from China, should resume growth in Q3.

Backside power has achieved 30% area reduction without any change in feature size. 3D spend for materials engineering goes up significantly from (flat) lithography.

Do you think you have gained WFE share? No final measures for 2024, but we think we gained share in all the markets except China. Even there we feel good about how we compete, but the trade rules have given local vendors an advantage.

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