Applied Materials IncFollowappliedmaterials.com
Sentiment Score: +23
Sentiment Change: -44
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Applied Materials Inc Earnings - Analysis & Highlights for Q1 2025
Overview
PositivesNegativesOutlook
- Applied Materials is well positioned for 4F-squared and 3D DRAM, high-bandwidth memory, and advanced packaging, with a strong leading position.
- The company is providing customers with a unique and connected portfolio of solutions to accelerate the technology roadmap, positioning it for continued growth and outperformance in the years to come.
- Materials engineering intensity, where Applied has clear leadership, is increasing in next-generation chip architectures.
- The company expects related Applied revenues to grow in the 30% range for the equivalent wafer fab capacity.
- The company has successfully completed important qualification milestones and received volume orders from multiple leading-edge customers in Q1.
- The company expects China's revenue to be about 5 percentage points lower than in Q1 due to trade restrictions and business view.
- The company has been watching the ICAPS market after the significant build-out the last couple of years in China, and that is lower in Q2.
- The company has been normalizing on the equipment side due to supply chain and COVID-related issues.
- The company expects disruptive innovations to significantly improve the energy efficiency and cost of AI, opening up new applications and growing the overall market opportunity.
- The company expects Semiconductor Systems revenue to be approximately $5.3 billion, up 8% YoY; AGS revenue to be approximately $1.55 billion, up 1% YoY; and Display revenue to be approximately $250 million.
- The company expects non-GAAP gross margin of approximately 48.4% and non-GAAP operating expenses to be approximately $1.3 billion.
- The company expects China as a percentage of total revenue to be about 5 percentage points lower than in Q1.
- The company expects a return to growth in Q3 for AGS.
Q&A Highlights from Applied Materials Inc Earnings Call Q1 2025
- Analyst asked about the company's outlook for 2025, specifically regarding application and geographic performance, as well as key drivers for outperformance.
- Brice Hill, CFO of Applied Materials, provided a detailed explanation of the company's outlook for 2025, including its expectations for leading edge growth, memory market trends, and advanced packaging capacity adds. He emphasized that the company's Q2 guide provides a good indication of how the market is evolving and that they expect leading edge to accelerate throughout the year. He also noted that the memory market is roughly flat quarter-over-quarter, with additions on the NAND side offsetting a slight reduction in DRAM. For advanced packaging, the company had significant capacity adds last year in the HBM side, but is now adding equipment at a slower rate. He concluded by stating that the company is waiting to see if advanced logic will ramp strongly enough to offset any slower rate of investment in ICAPS, and that they expect to see a significant amount of capacity put in place in leading-edge architectures.
- Brice Hill, CFO of Applied Materials, provided a detailed explanation of the company's outlook for 2025, including its expectations for leading edge growth, memory market trends, and advanced packaging capacity adds. He emphasized that the company's Q2 guide provides a good indication of how the market is evolving and that they expect leading edge to accelerate throughout the year. He also noted that the memory market is roughly flat quarter-over-quarter, with additions on the NAND side offsetting a slight reduction in DRAM. For advanced packaging, the company had significant capacity adds last year in the HBM side, but is now adding equipment at a slower rate. He concluded by stating that the company is waiting to see if advanced logic will ramp strongly enough to offset any slower rate of investment in ICAPS, and that they expect to see a significant amount of capacity put in place in leading-edge architectures.
- Analyst asked about the return to sequential growth in the July quarter for the Silicon Systems.
- Brice Hill, CFO of Applied Materials, stated that they will have to wait and see on the Silicon Systems, but they expect the leading edge to accelerate, with a significant amount of capacity being put in place in leading-edge architectures. He also noted that the company's forecast for ICAPS and ICAPS China continues to evolve and change every single quarter, and they will have to see how that evolves through the rest of the year. Finally, he mentioned that the services business will have a step back similar to 2022 when there were new trade rules, but they expect to grow at a low-double-digit rate as they continue to add customers and new types of services.
- Brice Hill, CFO of Applied Materials, stated that they will have to wait and see on the Silicon Systems, but they expect the leading edge to accelerate, with a significant amount of capacity being put in place in leading-edge architectures. He also noted that the company's forecast for ICAPS and ICAPS China continues to evolve and change every single quarter, and they will have to see how that evolves through the rest of the year. Finally, he mentioned that the services business will have a step back similar to 2022 when there were new trade rules, but they expect to grow at a low-double-digit rate as they continue to add customers and new types of services.
- Analyst asked about value-based pricing and how it will flow through the company's model throughout 2025.
- Brice A. Hill explained that value-based pricing is becoming more important for the company, and they are developing increasingly valuable solutions for customers. They are also disciplined in their pricing mechanisms, allocating R&D to the areas that they think are most valuable in the market. They are still in the third inning of their pricing process, and they expect to achieve the value of their solutions in the marketplace.
- Brice A. Hill explained that value-based pricing is becoming more important for the company, and they are developing increasingly valuable solutions for customers. They are also disciplined in their pricing mechanisms, allocating R&D to the areas that they think are most valuable in the market. They are still in the third inning of their pricing process, and they expect to achieve the value of their solutions in the marketplace.
- Analyst asked about the relationship between WFE intensity and semiconductor industry sales, and how it affects litho, etch, and dep.
- Gary E. Dickerson explained that the company is focused on major inflections in foundry-logic, DRAM, and 3D DRAM, which require significant materials engineering relative to lithography. He also mentioned that advanced packaging and AI servers will require tremendous innovation in materials innovation. The company sees the percentage of materials engineering relative spending increasing across all of these different architecture inflections.
- Gary E. Dickerson explained that the company is focused on major inflections in foundry-logic, DRAM, and 3D DRAM, which require significant materials engineering relative to lithography. He also mentioned that advanced packaging and AI servers will require tremendous innovation in materials innovation. The company sees the percentage of materials engineering relative spending increasing across all of these different architecture inflections.
- Analyst asked about the impact of the $549 million backlog on the company's financial performance.
- Brice A. Hill explained that the $549 million backlog covers more than just a year, and the company's forecast for the year is still close to the $380 million mark.
- Brice A. Hill explained that the $549 million backlog covers more than just a year, and the company's forecast for the year is still close to the $380 million mark.
- Analyst asked about the company's level of confidence in its customer forecast.
- Brice A. Hill stated that the level of confidence for larger customers is high, especially for DRAM and NAND. He also mentioned that the company has more visibility with the larger customers due to their longer perspectives. However, for the long tail in ICAPS, including a lot of the customers in China, the visibility gets lower due to less experience on both sides, leading to volatility in the forecast. He also mentioned that the company's forecast for foundry-logic is based on information from customers and end market expectations, which gives them comfort in their forecast.
- Brice A. Hill stated that the level of confidence for larger customers is high, especially for DRAM and NAND. He also mentioned that the company has more visibility with the larger customers due to their longer perspectives. However, for the long tail in ICAPS, including a lot of the customers in China, the visibility gets lower due to less experience on both sides, leading to volatility in the forecast. He also mentioned that the company's forecast for foundry-logic is based on information from customers and end market expectations, which gives them comfort in their forecast.
- Analyst asked about the backlog of AGS and the inflection point for SSG to show growth.
- The company's backlog of AGS is distorted by multi-year contracts, and the average contract life is in the 2.9-year region. The company is working to get longer visibility with customers and longer commits on the builds.
- The company's backlog of AGS is distorted by multi-year contracts, and the average contract life is in the 2.9-year region. The company is working to get longer visibility with customers and longer commits on the builds.
- Analyst asked about advanced packaging and the device applications it's used for.
- Advanced packaging revenue is coming from all of the different packaging architectures, and Applied Materials has a broad, unique connected portfolio. The company has strength across all of the different architecture types, including HBM, where it had $700 million in revenue in the last year.
- Advanced packaging revenue is coming from all of the different packaging architectures, and Applied Materials has a broad, unique connected portfolio. The company has strength across all of the different architecture types, including HBM, where it had $700 million in revenue in the last year.
- Analyst asked about the tax asset in Singapore and how it affects the company's tax rate.
- The company has renewed its incentive rates in Singapore, which has led to a lower tax rate. However, the tax asset that was created years ago to protect from higher taxes is now less valuable, as the tax rate has gone down. The $674 million revaluation of the tax asset is a one-time event and will not have any look forward on it.
- The company has renewed its incentive rates in Singapore, which has led to a lower tax rate. However, the tax asset that was created years ago to protect from higher taxes is now less valuable, as the tax rate has gone down. The $674 million revaluation of the tax asset is a one-time event and will not have any look forward on it.
