Applied Materials (AMAT) Q3 FY26 earnings call: guidance and Q&A

What is the updated growth outlook for semi-systems for calendar year 2026, given the positive commentary, and what is the framework for thinking about growth into calendar year 2027?

Demand has strengthened further, exceeding the previously highlighted 'greater than 30%' growth for CY26. The company expects to gain market share. For CY27, strong demand led by AI is expected to continue, making it another strong year.

“the mid -- the greater than 30% that we highlighted last quarter, we're saying now that it's greater than that at this point. ... when we look into 2027, we expect this whole demand function led by AI to continue. So we're saying '27 at this point, we expect another strong year.”

asked by Christopher Muse · answered by Brice Hill

How does value-based pricing, including for like-for-like products, contribute to gross margin expansion, and what are the implications for gross margins into fiscal 2027 and beyond?

Value-based pricing, implemented three years ago, has contributed to a 300 basis point increase in gross margins by repricing every tool based on its value and changing input costs. The company expects to continue improving gross margins, with semi systems already over 55%. The ability to create value for customers through enabling technologies in fast-growing AI segments and yield optimization drives this.

“So over the last three years, approximately 300 basis points increase in our company level gross margins. One driver for that was our value-based pricing that we do for every single tool.”

asked by Christopher Muse · answered by Brice Hill

Given memory customers have 3-5 year long-term agreements, how does Applied Materials' 8-quarter visibility translate into longer-term visibility beyond that, and how does it impact planning?

Applied Materials has road map visibility for its largest customers extending about 5 years, with detailed 8-quarter forecasts for specific nodes and tool types to aid supply chain planning. Longer lead time POs and cancellation/expedite charges also contribute to improved visibility. For technology, discussions with CEOs extend 10 years, focusing on co-creating architectures for new transistors, wiring, DRAM, and packaging.

“we asked them for the detail at a detailed level for the 8 quarters that we've been speaking about, so we can aggregate that and get it to our supply chain. ... those discussions go out maybe 10 years in the future because Applied is the most enabling for those key architecture inflections.”

asked by Vivek Aria · answered by Brice Hill

Why is Q4 FY26 gross margin guided flat sequentially despite strong revenue growth and positive commentary on pricing and portfolio, and how long will ramp costs impact margins?

The flat Q4 gross margin is due to ramp headwinds, including adding many customer service engineers and resources in the semi business. While there's a benefit from strong segment mix and volume, these ramp costs are factored into the forecast. The pace of improvement is expected to be 'slow' over the longer horizon, with employee additions continuing for a few quarters, but the headwind will recede as revenues grow.

“But really, it's just a ramp headwinds as with the growth, we're ramping a lot of customer service engineers. We have a lot of resources that we're adding in the semi business. ... I think slow improvement is the right way to think about it. We do expect to improve it over the longer horizon.”

asked by Stacy Rasgon · answered by Brice Hill

Are global ICAP customers, outside of China, increasing their spending, and does Applied Materials expect its total ICAP business to grow this year and next?

Yes, there's a change in the ICAP dynamic with increasing utilization. China ICAP is expected to grow this year and next. The company believes ICAPs overall will grow this year and next, indicating the digestion period is expiring. Non-China customers are also expected to show positive growth next year, with bright spots in power and photonics.

“Our view of China is that it will grow this year, and it will grow next year. That's a big part of our ICAP portfolio. And we do think that ICAPs overall will grow this year and will grow next year.”

asked by Harlan Sur · answered by Brice Hill

When will panel-level packaging become mainstream, what opportunities does it present, and what opportunities are seen in hybrid bonding?

Advanced packaging is a critical area for AI compute, with over 70% growth expected this year. Applied Materials has the strongest portfolio and expects significant multi-year growth. Panel-level packaging will see significant growth next year and ramp further after that, expanding the available market. Hybrid bonding is a very important inflection for all customers to shorten wiring and improve performance/power, and Applied has strong technology and integrated R&D in this area, making it a meaningful growth driver.

“So over 70% growth this year. We have, by far and away, the strongest portfolio of technologies. ... we will see a pretty significant growth in next year. in our panel revenue. ... Applied has strong technology in hybrid bonding. We have also very big business in the adjacent steps around the hybrid bonding”

asked by Srinivas Pajjuri · answered by Gary Dickerson