Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Applied Materials Inc (AMAT, Financial) reported record revenue of $6.78 billion for Q3 2024, up 5% year-over-year.
- The company achieved a non-GAAP gross margin of 47.4%, an increase of 100 basis points year-over-year.
- Strong performance in the DRAM segment, with sales growing nearly 50% year-over-year to $1.16 billion.
- Advanced packaging revenue is expected to grow to approximately $1.7 billion in 2024, driven by high-bandwidth memory demand.
- Applied Global Services delivered record revenue of $1.58 billion in Q3, up 8% year-over-year, with a non-GAAP operating margin of 29.6%.
Negative Points
- Revenue from China declined by 11 percentage points sequentially to 32%, reflecting lower DRAM sales in the region.
- Non-GAAP operating expenses increased by 8% year-over-year, driven largely by R&D investments.
- NAND memory sales grew only 10% year-over-year, indicating slower growth compared to other segments.
- The display segment remains weak, with LCD equipment spending still low and only modest growth in OLED technology adoption.
- The company faces headwinds in gross margin due to mix changes, particularly with a higher proportion of sales to smaller customers in China.
Q & A Highlights
Q: Can you share your outlook for WFE in the second half of the year and for all of 2025?
A: We are seeing strong energy around AI inflections, particularly in leading edge and DRAM. Our forecast for $2.5 billion of gate-all-around related equipment remains unchanged. ICAPS business remains robust, and we have raised our expectations for it. For 2025, we are enthusiastic about gate-all-around technologies and the energy around AI investments.
Q: Can you discuss the China revenue mix and its outlook?
A: Our China revenue mix declined to 32%, primarily driven by ICAPS, with almost no DRAM. This level is considered normal for us. We expect the mix to remain around 30% next quarter, with a small amount of DRAM but nothing like the previous three quarters.
Q: What is your visibility on DRAM investments in China and ICAPS demand outside of China?
A: DRAM in China will be at nominal levels in Q3 and Q4. Globally, DRAM remains strong, driven by high-bandwidth memory. ICAPS demand is robust both in China and other regions, with expectations of mid- to high single-digit growth over time.
Q: How do recent CapEx cuts at Intel impact the overall WFE market?
A: Our outlook remains unchanged, with $2.5 billion in leading edge investments for gate-all-around this fiscal year. We see acceleration in leading edge investments driven by AI data center energy, and we have not changed our view for leading edge looking forward.
Q: Can you provide color on foundry logic growth into 2025?
A: Utilizations have improved across all end markets, including leading edge. We expect continued acceleration in leading edge investments, driven by AI markets. We are not giving specific guidance for 2025 but see a lot of energy around AI and leading edge technologies.
Q: What is the outlook for DRAM and NAND WFE next year?
A: We expect DRAM investments to continue, driven by new capacity and high-bandwidth memory. NAND remains low but is improving, with better utilization and inventory positions. Overall, we see a more positive environment for both memory technologies.
Q: Can you discuss the growth in your services business and any impact from export controls?
A: Services grew 8% year-over-year in Q3, with expectations of 9% growth in Q4. Utilizations are improving, and we expect continued growth. The services business provides stable operating profit, enabling us to raise our dividend.
Q: What is the outlook for advanced packaging, particularly non-memory advanced packaging?
A: Advanced packaging revenue is expected to grow from $1.1 billion last year to $1.7 billion this year, driven by high-bandwidth memory. We see significant energy around advanced packaging technologies and expect this business to double over the next several years.
Q: Can you discuss the impact of EPIC R&D center funding on your gross margin targets?
A: We expect gradual improvements in gross margin, aiming for 48% or higher next year. EPIC is crucial for accelerating co-innovation with customers, and we are continuing with the investment. The EPIC center will elevate our CapEx, but we benefit from investment tax credits.
Q: How is the ICAPS market performing, and what are the growth expectations?
A: ICAPS is very strong, with expectations of mid- to high single-digit growth over time. We have gained share in this market and introduced over 20 major new ICAPS products. We see significant opportunities in power electronics and other segments, driven by innovations and customer co-innovation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
