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    AMAT
    Earnings call· Jan 2025(Q1 FY25)

    APPLIED MATERIALS INC /DE AMAT

    Feb 13, 2025 Source

    Executive summary

    Applied Materials Q1 FY25 — Record Revenue and Strong AI-Driven Growth

    Applied Materials delivered record Q1 FY25 results, propelled by robust demand in leading-edge foundry-logic and advanced packaging, largely fueled by AI. The company is strategically positioned at critical device architecture inflections, leveraging its broad portfolio and co-innovation model. While navigating headwinds from expanded trade restrictions, particularly affecting China revenue and services, management remains confident in long-term growth opportunities and continued market outperformance.

    Highlights

    5

    • Achieved record revenue of $7.2 billion, marking a 7% year-over-year increase.

    • Reported record non-GAAP EPS of $2.38, representing a 12% year-over-year increase.

    • Non-GAAP gross margin reached 48.9%, up 100 basis points year-over-year and the highest since fiscal year 2000.

    • Semiconductor Systems sales grew 9% year-over-year, primarily driven by 20% growth in foundry/logic.

    • Advanced packaging business captured over 50% market share in 2024 and is on track to double revenues over the next several years.

    Concerns

    4

    • Expanded trade rules are expected to create an incremental revenue headwind of approximately $400 million in fiscal 2025.

    • ICAPS nodes are experiencing a more measured level of investment following strong spending in 2023 and 2024.

    • DRAM sales saw an expected year-over-year decline due to the non-repeat of prior year sales to customers in China.

    • Near-term service growth is negatively impacted by trade restrictions.

    Guidance & targets

    12
    CategoryTargetConfidence
    Total Revenue
    $7.1 billion, plus or minus $400 million
    high materiality
    High
    Non-GAAP EPS
    $2.30, plus or minus $0.18
    high materiality
    High
    Semiconductor Systems Revenue
    approximately $5.3 billion
    medium materiality
    Medium
    AGS Revenue
    approximately $1.55 billion
    medium materiality
    Medium
    Display Revenue
    approximately $250 million
    low materiality
    Medium
    Non-GAAP Gross Margin
    approximately 48.4%
    medium materiality
    Medium
    Non-GAAP Operating Expenses
    approximately $1.3 billion
    medium materiality
    Medium
    Tax Rate
    approximately 13%
    low materiality
    Medium
    Revenue Headwind from Trade Rules
    approximately $400 million
    high materiality
    High
    AGS Annualized Growth Rate
    low double-digit annualized growth rate
    medium materiality
    High
    China Revenue Share
    approximately 30%
    medium materiality
    Medium
    Gate-all-around related equipment revenue
    double from $2.5 billion
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Semiconductor Systems
    Sales driven by 20% growth in foundry/logic, partially offset by an expected decline in DRAM sales as prior year sales to customers in China did not repeat. Non-GAAP operating margin was up 160 basis points year-over-year.
    		$5.36 billion9%—37.3%
    Applied Global Services (AGS)
    Delivered healthy growth in services, partially offset by a decline in sales of 200-millimeter equipment. Non-GAAP operating margin was down 30 basis points year-over-year.
    		$1.59 billion8%—28%
    Display
    		$183 million———

    Operational metrics

    22
    Non-GAAP EPS
    $2.38up 12% year-over-year
    Q1 FY25

    Record EPS.

    Non-GAAP Gross Margin
    48.9%up 100 basis points year-over-year
    Q1 FY25

    Highest quarterly gross margin since fiscal year 2000. Result of favorable mix, leading-edge tech adoption, and pricing initiatives.

    Non-GAAP Operating Expenses
    $1.31 billion
    Q1 FY25

    Increased R&D investments to support technology growth areas.

    Cash and investments balance
    $6.3 billion
    Q1 FY25

    Cash and cash equivalents.

    Net Debt
    $6.3 billion
    Q1 FY25
    Capital expenditures
    $381 million
    Q1 FY25
    Share repurchases
    $1.3 billion
    Q1 FY25
    Dividends distributed
    $326 million
    Q1 FY25
    Remaining share repurchase authorization
    $7.6 billion
    Q1 FY25
    Total capital distributed to shareholders
    $1.6 billion
    Q1 FY25

    Includes $1.3 billion in share repurchases and $326 million in dividends.

    Foundry/logic growth
    20%YoY
    Q1 FY25
    ICAPS sales
    down slightlyyear-over-year
    Q1 FY25

    Flat quarter-over-quarter.

    200-millimeter equipment sales
    decline
    Q1 FY25
    China revenue as % of total
    about 5 percentage points lower than in Q1
    Q2 FY25 guidance

    Expected to be below the normalized level of approximately 30%.

    Advanced packaging business revenue
    $1.7 billionup 3x in 4 years
    FY24
    Advanced packaging market share
    more than half
    FY24

    Of the served market.

    Gate-all-around and backside power TAM increase
    more than 15%
    per 100k wafer starts/month

    Total available market grows to around $14 billion for every 100,000 wafer starts per month of capacity.

    Related Applied revenues growth (gate-all-around and backside power)
    30%
    per 100k wafer starts/month

    For equivalent wafer fab capacity.

    DRAM share gain
    10 points
    past few years
    Selective Epi steps
    85%
    current

    85% of Epi steps in gate-all-around are selective epi.

    HBM revenue
    $700 million
    FY24
    Tax asset revaluation
    $674 million
    Q1 FY25

    Revaluation of Singapore tax asset due to renewed incentive rates, making the asset less valuable as the tax rate goes down.

    Industry KPIs

    11
    MetricValueDetails
    EPS$2.38USD
    Gross margin48.9%%
    Free cash flow$544 millionUSD
    Operating margin37.3%%
    Operating expenses$1.31 billionUSD
    Operating cash flow$925 millionUSD
    Revenue growth rate$7.2 billionUSD
    Cash investments balance$6.3 billionUSD
    Rpo backlog bookings orders$8.3 billion (SSG backlog) / $6.8 billion (AGS backlog)USD
    Share buyback capital return$1.6 billionUSD
    Segment end market revenue mixFoundry/logic up 20% YoY%

    Orderbook & backlog

    3
    Backlog reduction (related to trade rules)$549 millionfiscal year

    reduction

    This figure was previously disclosed in a filing. The 12-month impact from this reduction was approximately $380 million.

    Semiconductor Systems backlog$8.3 billionlast 10-K

    down 23% year-over-year

    Not a very good indication of the underlying business changes due to supply chain normalization.

    AGS backlog$6.8 billionlast 10-K

    up 32%

    Includes multiyear contracts with an average life of 2.9 years, which tends to make the backlog look larger.

    Product announcements

    4
    ProductTypeDetails
    EPIC advanced packaging strategylaunch
    Integrated hybrid bonding interconnect solutionmilestone
    EPIC Center in Silicon Valleymilestone
    Thin-film battery businessdiscontinuation

    Deals & partnerships

    2
    TPGTransition of Applied's thin-film battery business into an independent company.

    Applied partnered with TPG to transition its thin-film battery business into an independent company.

    Undisclosed partnersReceived two CHIPS Act grants to develop advanced packaging substrates for 3D integration. Applied is leading the team for silicon substrates and has a long-term partnership and investment in the company that won the grant for glass core packaging.

    Applied was part of 2 teams that received CHIPS Act grants to develop advanced packaging substrates for 3D integration. Applied is leading the team for silicon substrates, and has a long-term partnership and investment in the company that won the grant for glass core packaging.

    Risks & headwinds

    3
    Expanded export controls (trade rules)Fiscal 2025

    Approximately $400 million revenue headwind in fiscal 2025. Nearly half of this impact will be in Q2.

    Mitigation: Focus on growth in other segments and geographies; AGS expected to return to growth in Q3.

    Lower visibility and volatility in ICAPS forecast (especially China)Near-term

    ICAPS sales were down slightly YoY and flat QoQ in Q1. China revenue as a percentage of total revenue expected to be 5 percentage points lower in Q2 than Q1.

    Mitigation: Continued focus on adding customers, tracking large number of projects, and new product pipeline for ICAPS.

    DRAM sales declineQ1 FY25

    Expected decline in DRAM sales YoY in Q1.

    Mitigation: Strong pull for HBM solutions and DRAM in advanced compute performance systems expected to drive continued momentum.

    What to watch in Q2 FY25

    4

    AGS sequential growth

    Q3 FY25
    Currentdown in Q2
    Targetreturn to growth

    Why it matters

    Indicates the effectiveness of mitigation strategies against trade restrictions and the underlying health of the services business.

    The impacts in the second half of the fiscal year will be more weighted to AGS as we are no longer able to service certain customers. And following the step down in revenue in Q2, we would anticipate a return to growth in Q3 for AGS.

    Q&A highlights

    5

    How does AMAT view the 2025 WFE market by application and geography, and what are the key drivers and magnitude of AMAT's outperformance?

    Brice highlighted that leading-edge growth (AI, DRAM, HBM) is offsetting slower ICAPS investment, leading to consistent year-over-year growth. Gary emphasized AMAT's strong position in major inflections like gate-all-around, backside power, 4F-squared/3D DRAM, and advanced packaging, expecting continued market share gains.

    “leading edge is growing. We've been thinking it will be accelerating through the course of the year, and we do see that growing strongly in Q2.”

    asked by Toshiya Hari · answered by Brice Hill

    2 min read6 chapters

    Detailed Narrative

    01

    AI as a Major Catalyst for Semiconductor Growth

    AI is identified as the most transformative technology change, driving approximately 20% year-on-year growth in global semiconductor sales in 2024, with the market projected to exceed $1 trillion by 2030. Applied Materials emphasizes that innovation across the technology stack, particularly in foundational semiconductor technologies, will dramatically improve energy efficiency and cost reduction in AI data centers, opening new market opportunities.

    02

    Leadership in Device Architecture Inflections

    Applied Materials is strategically focused on five critical areas: leading-edge logic (gate-all-around transistors, backside power delivery), high-performance DRAM (HBM, 4F-squared, 3D DRAM), advanced packaging, and power electronics (compound semiconductors, silicon photonics). These inflections are expected to significantly grow the wafer fab equipment market, increase the relative mix of materials engineering technologies, and position Applied Materials for market share gains.

    03

    Market Outperformance and Share Gains

    The company believes it outperformed the market in 2024 across leading-edge foundry logic, DRAM, advanced packaging, and ICAPS markets outside of China. Applied Materials expects to capture over 50% share of its served market in gate-all-around and backside power, has gained 10 points of DRAM share, and anticipates doubling its advanced packaging business from $1.7 billion in 2024 over the next several years.

    04

    High-Velocity Co-Innovation and Integrated Solutions

    Applied Materials implements a strategy of providing unique and connected solutions, such as its integrated hybrid bonding interconnect solution which combines six technologies. This approach, coupled with high-velocity co-innovation with customers, aims to accelerate technology roadmaps, drive higher mutual success rates, and optimize R&D efficiencies, enabling faster and lower-cost market entry for next-generation technologies.

    05

    Impact of Trade Restrictions and China Market Dynamics

    Expanded export controls announced in December and January are projected to result in a $400 million revenue headwind for fiscal 2025, with nearly half impacting Q2. The impact will be more weighted to Applied Global Services (AGS) in the second half, as the company can no longer service certain customers. China's revenue as a percentage of total is expected to be about 5 percentage points lower in Q2 than Q1, falling below the normalized 30% level, though AGS is anticipated to return to growth in Q3.

    06

    Strong Gross Margin Performance and Pricing Initiatives

    Applied Materials achieved a non-GAAP gross margin of 48.9% in Q1, its highest since fiscal year 2000. This strong performance was attributed to a favorable mix, increasing adoption of leading-edge technologies, and advanced integrated systems. The company also noted progress on its value-based pricing initiatives and cost reductions, reiterating an underlying gross margin rate of 48% for normalized periods.

    AI-generated summary of the company’s earnings call. Not investment advice.