Analyst Conference Call Summary

semiconductors

conference date: May 15, 2025 @ 1:30 PM Pacific Time
for quarter ending: April 27, 2025 (second quarter, Q2 fiscal 2025)

Forward-looking statements

Overview: Good y/y revenue growth, record EPS.

Basic data (GAAP):

Revenues were $7.10 billion, down 1% sequentially from $7.17 billion and up 7% from $6.65 billion in the year-earlier quarter.

Net income was $2.14 billion, up 80% sequentially from $1.19 billion and up 24% from $1.72 billion year-earlier.

EPS (diluted earnings per share) were $2.63, up 81% sequentially from $1.45 and up 28% from $2.06 year-earlier.

Guidance:

For fiscal Q3 2025 expects about $7.2 billion in revenue and non-GAAP diluted EPS of $2.15 to $2.45.

Conference Highlights:

Gary Dickerson, CEO, said "Applied Materials' broad capabilities and connected product portfolio are driving strong results in 2025 amidst a highly dynamic macro environment. High-performance, energy-efficient AI computing remains the dominant driver of semiconductor innovation, and Applied is working closely with our customers and partners to accelerate the industry's roadmap. We are very well positioned at major technology inflections in fast-growing areas of the market, which supports our multi-year growth trajectory." Market demand has not changed significantly despite the macro concerns. Sees lower spending in China, but higher spending overall. AMAT will be first to market in many emerging area. Advanced DRAM equipment growth in 2025 expected above 40%.

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

Non-GAAP numbers: net income $1.94 billion, down 0.5% sequentially from $1.95 billion, and up 11% from $1.74 billion year-earlier. EPS $2.39, up slightly sequentially from $2.38, and up 14% from $2.09 year-earlier.

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

Semiconductor Systems sales were $5.26 billion, down sequentially from $5.36 billion, and up from $4.90 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 65%, DRAM 27%, Flash 8%. Segment operating income was $1.9 billion.

Applied Global Services (AGS) revenue was $1.57 billion, down sequentially from $1.59 billion and up from $1.53 billion year earlier. Non-GAAP operating income was $446 million.

Display segment revenue was $259 million, up sequentially from $183 million and up from $179 million year-earlier. Non-GAAP operating income was $68 million.

Cash and equivalents (including long-term investments) balance ended at $10.4 billion, down sequentially from $10.9 billion. Cash flow from operating activities was $1.57 billion. Capital expenditures were $501 million. Free cash flow $1.06 million. $325 million was used for cash dividends. Used $1.67 billion to repurchase shares. Long-term debt was $5.5 billion. In Q2 2025 authorized another $10 billion for stock repurchases.

Cost of goods sold was $3.62 billion, leaving gross profit of $3.49 billion. Operating expenses of $1.32 billion consisted of: research and development $893 million; selling and marketing, $216 million; general and administrative $207 million. Leaving income from operations of $2.17 billion. Interest and other income net $153 million. Income tax $185 million.

Q&A selective summary:

Services in China? For AGS core business had a record in Q2, and expect low double digit growth rest of year. The 200mm equipment had some slowdown, and will in Q3, due to the U.S. restrictions and lower than expected utilization. After Q3 growth will be more obvious. 90% renewal rate for services business.

ICAPS demand? Mature logic ICAPS, we expect mid to high single digit growth up to about 2030. We are restricted from some competition in China, but we see some opportunities like 28 nm. China semi, overall, is about 20% of our total sales. We are well positioned for the big drivers in AI. We have new products in ICAPS that well enable our expansion.

Margins, trade tensions? We had favorable mix in the quarter. We had thought 48.2 but did better by pricing and cost management. Impacts of tariffs were modest in Q2, expect to be modest in Q3 since we have global manufacturing and supply chain. We will make price adjustments if necessary.

Leading edge spending going forward? Accelerating. Was a bit slower in 2023 and 2024, now going up again. Seeing new factories and spending. Integrated equipment is growing at about the 7% rate of our overall business.

Gate All Around and backside power are too big inflections going forward where we are very well positioned. We have high share in HBM (high bandwidth memory). We are confident we will gain market share as these inflections go forward.

Large range for revenue guidance? There is a lot of volatility in the global economy. It is an indication of volatility.

Risk appetite in advanced packaging? It will be one of the most important inflections in the industry. We are the leader and continue to invest. We have an advanced packaging lab in Singapore. We have high visibility to see where the industry is going, working with our customers.

Emergence of competitors in China? We have a great ICAPS innovation pipeline, for new products that will expand our markets. We are cost competitive. But we have to run faster than competitors.

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