Stacy Rasgon

Stacy Rasgon questioned the future trajectory of Broadcom's gross margins, given the dilutive effect of AI business, HBM pass-throughs, and system sales, asking if corporate gross margins could fall into the low 70s or even start with a 6, and whether operating leverage would maintain operating margins.

Answer

Hock Tan (President and CEO) acknowledged that AI revenue has lower gross margins but expects the high growth rate to provide operating leverage, leading to continued growth in operating margin dollars despite a potential deterioration in gross margin percentage. Kirsten Spears (CFO) added that passing through more non-Broadcom components in system sales would lower gross margins, but operating margin dollars would still increase due to leverage.

Stacy Rasgon questioned the future trajectory of Broadcom's gross margins, given the dilutive effect of AI business, HBM pass-through, and system sales, asking if corporate gross margins could fall into the low 70s or even start with a six, and whether operating leverage would maintain operating margins.

Answer

Hock Tan (President and CEO, Broadcom) broadly explained that while AI revenue has lower gross margins and system sales will further dilute them due to passing through non-Broadcom components, the high growth rate of AI revenue is expected to provide significant operating leverage, leading to continued growth in operating margin dollars, even if operating margin percentages decline slightly. Kirsten Spears (CFO, Broadcom) added that gross margin dollars will increase, but the percentage will decrease, and operating margin dollars will also increase, though the percentage might come down a bit.

Stacy Rasgon inquired about the composition of the $110 billion record backlog, asking for details on its duration and the split between AI, non-AI, and software segments.

Answer

Hock Tan, President and CEO, stated that Broadcom generally does not break down backlog but confirmed it's largely driven by AI growth, with steady contributions from software and double-digit growth from non-AI. He estimated at least 50% of the backlog is semiconductors, with the semiconductor portion being predominantly AI.

Stacy Rasgon from Bernstein sought to confirm the absolute dollar figures implied by a 60% AI revenue growth rate in fiscal 2026, which would exceed $30 billion. He also asked if the serviceable addressable market (SAM) has increased with the rise of inference.

Answer

CEO Hock Tan confirmed the growth trajectory but sidestepped validating the specific multi-billion dollar figure. He reiterated that the growth rate seen in fiscal 2025 is expected to sustain into 2026 based on current visibility. He pointedly declined to discuss the SAM, stating, "Stop talking about same now."

Stacy Rasgon of Bernstein sought to quantify the 60% AI growth trajectory, asking if it implied AI revenues could surpass $30 billion in fiscal 2026. He also asked if the total addressable market (SAM) for AI has increased with the rise of inference.

Answer

CEO Hock Tan confirmed the company sees the growth *rate* from fiscal 2025 sustaining into 2026 based on current visibility, but he declined to confirm a specific dollar figure for 2026 revenue. He also chose not to update the SAM, stating, 'I'm not playing a SAM game here,' and emphasized the focus was on providing a directional growth trajectory.

Stacy Rasgon asked about the implications of software deals slipping from Q4 into Q1, questioning if this would create a tough comparison for Q2 and how it might affect the trajectory of software revenue and gross margins through fiscal 2025.

Answer

President and CEO Hock Tan described the event as a simple 'slip' that boosts Q1 growth but will not have a material impact on the full fiscal year. He dismissed the idea that this would necessarily lead to a weaker Q2 and declined to provide guidance beyond the first quarter.

Stacy Rasgon asked two questions: first, whether the non-AI semiconductor businesses, which are significantly below prior peaks, are expected to recover to those levels. Second, he asked if the non-VMware software business has bottomed at a run-rate of around $2 billion per quarter.

Answer

President and CEO Hock Tan confirmed that the non-AI semiconductor business has passed the bottom of a typical down cycle, with bookings up 20%. He expects a full recovery to prior levels, potentially even surpassing them due to AI-driven hardware upgrades. On software, he affirmed that the non-VMware revenue has reached a level of clear stability.

Stacy Rasgon questioned why Analog Devices' gross margins were not showing more leverage, remaining below 70% despite revenue levels and increasing utilizations, and asked about the flattish Q1 gross margin guidance.

Answer

CFO Richard Puccio explained that gross margin increased due to higher utilization and favorable mix but didn't reach 70% as planned due to a stronger auto mix keeping industrial mix lower. For Q1, higher industrial mix is expected to offset seasonal factory shutdowns, keeping gross margin flat. He added that significant capacity expansion requires higher revenue to exceed 70%. CEO Vincent Roche confirmed pricing is strong, emphasizing mix and utilization.

Stacy Rasgon contrasted the divergent outlooks for Automotive (down ~15%) and Industrial (up low-to-mid teens), asking for the rationale behind ADI's confidence that the industrial strength is not also a pull-forward.

Answer

EVP & CFO Richard Puccio explained that the anomalous booking behaviors seen in Automotive around tariff news were not present in Industrial. CEO & Chair Vincent Roche added that the industrial strength is fundamentally driven by lean channels, under-shipping of consumption, and broad-based demand recovery in areas like A&D and ATE.

Stacy Rasgon asked about expectations for SAAR in the second half of the year and questioned how management differentiates between a true cyclical recovery in industrial versus a potential tariff-driven pull-forward similar to what was seen in automotive.

Answer

Executive Richard Puccio stated that ADI expects SAAR to be down in the second half of the year. To differentiate demand drivers, he explained that they observed a distinct acceleration in automotive orders coinciding with tariff news, a pattern not seen in industrial, where booking trends were normal. CEO Vincent Roche added that direct customer conversations in the industrial space indicate a 'steady as she goes' environment without supply anxiety.

Stacy Rasgon asked about the gross margin outlook for Q1, whether it would be the trough, and what revenue level is needed to return to the 70%+ range.

Answer

CFO Rich Puccio guided for slightly lower gross margin in Q1 due to holiday shutdowns and lower revenue. He stated that reaching a 70% gross margin would likely require revenue in the $2.7 billion-plus range, driven by improved product mix and factory utilization. He expects gross margin to improve in the second half of fiscal 2025 as revenue recovers.

Stacy Rasgon questioned NVIDIA's ability to maintain gross margins in the mid-70s for the next fiscal year, asking about the biggest cost increases, strategies to hold margins, and expectations for OpEx growth given anticipated revenue increases.

Answer

Colette Kress, EVP and CFO, NVIDIA, confirmed the goal to hold gross margins in the mid-70s for the next fiscal year, acknowledging well-known industry input price increases. She stated that the company will focus on cost improvements, cycle time, and mix. Jensen Huang, President and CEO, NVIDIA, added that long-term planning and negotiations with the supply chain, along with securing significant supply, support these efforts. OpEx growth will prioritize innovation in engineering for new systems and architectures.

Stacy Rasgon from AB Bernstein asked a tactical question regarding the company's Q3 guidance, seeking to understand how the projected $7 billion-plus in sequential revenue growth would be apportioned across the Blackwell, Hopper, and Networking product lines.

Answer

EVP & CFO Colette Kress confirmed that the vast majority of the growth will come from the Data Center segment. She specified that the Blackwell platform will represent the 'lion's share' of this growth, driving revenue in both compute and networking, as it is sold in integrated systems. While Hopper products are still selling, Kress reiterated that Blackwell is the primary driver of the guided sequential increase.

Stacy Rasgon of Bernstein Research asked for a precise definition of 'low 70s' gross margins and questioned if Hopper revenue would decline sequentially in Q4 as Blackwell begins its significant ramp.

Answer

CFO Colette Kress clarified that 'low 70s' gross margin could be in the range of 71% to 72.5%, with the goal of improving back to the mid-70s. She stated that Hopper sales will continue in Q4 and that it is 'possible' for Hopper revenue to grow sequentially, but noted that customers are simultaneously looking to build out Blackwell, creating a mixed dynamic.

Stacy Rasgon asked if the several billion dollars of Q4 Blackwell revenue is additive to strengthening Hopper demand, and also inquired about the expected Q4 gross margin exit rate and its drivers.

Answer

EVP and CFO Colette Kress confirmed that Hopper demand is expected to grow in the second half of the year and that the Q4 Blackwell revenue will be on top of that growth. Regarding gross margins, she reiterated the Q3 guide of 75% and the full-year outlook in the mid-70s. While not providing specific Q4 guidance, she indicated that the questioner's estimate of 71-72% was lower than the company's expectation.

Stacy Rasgon asked if the Snapdragon Android strength in September and December was primarily from China, and if there were any concerns about pull-forward demand.

Answer

CEO Cristiano Amon stated there was no pull-forward demand. He noted that major China OEMs have already launched devices with positive initial reception, and global customers will launch later in the quarter and early next year, reflecting normal purchase patterns.

Stacy Rasgon asked if the Snapdragon Android strength in September and December was primarily China-driven, and if there were concerns about pull-forward or other timing issues.

Answer

CEO Cristiano Amon stated there was no pull-forward, noting that most major China customers had already launched devices with positive initial reception. He added that global customers would launch devices later in the quarter and early next year, reflecting normal purchase patterns and strong consumer reaction.

Stacy Rasgon of AB Bernstein asked about the outlook for the December quarter, questioning whether management expects normal seasonality given the dynamics around lower Apple share and what the key drivers would be.

Answer

CFO & COO Akash Palkhiwala confirmed that Qualcomm expects normal revenue seasonality for all its businesses in the December quarter. He clarified this would be adjusted for the previously discussed lower share in Apple's phone launches but highlighted no other unusual factors.

Stacy Rasgon questioned the reasons for the slight decline in QCT chipset gross margins in Q2 and the similar guidance for Q3, especially given the presumed mix shift towards premium handsets. He also asked for clarity on what indirect effects from tariffs are being factored into the company's guidance.

Answer

Akash Palkhiwala attributed the minor gross margin change to the mix across different product tiers and segments, including some upside from lower-tier products, but emphasized that the overall trend remains positive and consistent with prior expectations. Regarding tariffs, he clarified that while minor direct impacts are included in the guidance, the potential indirect impacts are difficult to predict and are being monitored closely.

Stacy Rasgon of Bernstein Research asked if the flat year-over-year QTL guidance includes a potential settlement with Huawei and whether recent electronics strength could be due to pre-tariff pull-forwards.

Answer

Executive Alex Rogers and CFO Akash Palkhiwala confirmed that the QTL guidance for both Q2 and the full year does not include any potential revenue from a renewed agreement with Huawei, meaning a settlement would represent upside. CEO Cristiano Amon stated that recent demand strength is not from tariff pull-forwards but from strong end-customer demand in China and higher share at Samsung.

Stacy Rasgon asked for clarification on the guided sequential decline in QCT gross margins for Q1 and requested a sizing of the PC business's contribution to IoT revenue in Q4.

Answer

CFO Akash Palkhiwala clarified that the Q1 gross margin guidance is largely in line with Q4's actual performance, which was better than guided, and represents a reasonable forward-looking model. On PCs, CEO Cristiano Amon highlighted strong traction, with design wins growing from 20 to 58 platforms, while Akash Palkhiwala deferred specific financial targets to the upcoming Investor Day.

Stacy Rasgon asked which component of the data center segment, servers or GPUs, grew more year-over-year in Q3 2025 on a dollar-to-percentage basis. He also sought clarification on the Q4 2025 guidance, specifically what 'strong double digits' meant for server growth and if the full-year GPU revenue projection remained around $6.5 billion.

Answer

Lisa Su, Chair and CEO of AMD, initially stated both servers and data center AI grew nicely year-over-year. Jean Hu, EVP, CFO, and Treasurer of AMD, clarified that directionally, servers grew a little bit better. For Q4 guidance, Jean Hu reiterated sequential double-digit growth for the data center segment, with servers growing strongly and MI350 ramping. Lisa Su clarified that the 'strong double-digit percentage' comment likely referred to year-over-year growth, and both server and data center AI are performing well.

Stacy Rasgon asked which component of the data center segment, servers or GPUs, grew more year-over-year in Q3 on a dollar-to-percentage basis. He also sought clarification on the 'strong double-digits' growth commentary for servers in the Q4 guidance and whether Instinct growth was expected to be less, and if the full-year GPU revenue target remained around $6.5 billion.

Answer

Dr. Lisa Su, Chair and CEO, stated both server and data center AI grew nicely year-over-year. Jean Hu, EVP, CFO, and Treasurer, clarified that directionally, server growth was 'a little bit better.' For Q4, Jean Hu reiterated sequential double-digit data center growth with strong server growth and MI350 ramp, but did not confirm the $6.5 billion full-year GPU revenue figure.

Stacy Rasgon questioned whether AMD's Data Center GPU business could achieve year-over-year growth in Q2 and Q3 of 2025, considering the stated headwinds from China. He also sought to confirm if the server CPU business grew sequentially in Q1, which would be above typical seasonality.

Answer

CEO Lisa Su stated that the Data Center GPU business will not grow year-over-year in Q2 due to the $700 million China headwind, but she expects it will return to year-over-year growth in Q3 and Q4 to achieve strong double-digit growth for the full year. CFO Jean Hu clarified the Q1 Data Center segment performance, noting the overall segment declined 5% sequentially, with both server CPU and data center GPU revenues declining sequentially, correcting the premise of the question.

Stacy Rasgon sought to clarify the math on Q4 Data Center performance, asking if strong server growth implied a sequential decline in GPUs, and whether the H1'25 outlook meant GPUs would be down in Q1 and Q2. He also asked if the GPU exit rate for 2025 would be higher than 2024.

Answer

CEO Lisa Su corrected that server growth was 'double digits,' not 'strong double digits,' and that the suggestion of a sequential GPU decline was incorrect. She characterized the H1'25 vs. H2'24 outlook as 'roughly flattish.' Su then confirmed absolutely that the GPU revenue exit rate for 2025 would be higher than in 2024, which is necessary to achieve strong double-digit growth for the year.

Stacy Rasgon sought clarification on the scale of the Data Center GPU business, noting that if it was approaching the size of the CPU business, the full-year guidance of $5 billion could imply a sequential decline in Q4. He also asked if the 'lumpiness' mentioned for 2025 implied specific seasonality in Q1.

Answer

CEO Dr. Lisa Su reiterated that Q3 Data Center GPU revenue was 'greater than $1.5 billion' and the full-year guidance is to 'exceed $5 billion,' implying upside potential. She clarified that her comment on 'lumpiness' was not about seasonality but rather the inherent quarter-to-quarter variability that comes from large deployments by a concentrated number of hyperscale customers.

Stacy Rasgon questioned why NXP's gross margins, despite being guided up sequentially, are flat year-over-year on decent revenue growth, asking if mix or utilizations are the primary factors. He also asked if a hypothetical half-week channel fill in Q4 translates to a $50 million revenue impact and if this fill influences Q1 seasonality or implies further channel loading in Q1.

Answer

CFO Bill Betz attributed the year-over-year gross margin dynamics to an unfavorable product mix, with Communication Infrastructure down and Mobile experiencing record quarters, slightly below the corporate average. He noted utilizations are in the high 70s for Q4, and internal inventory management helps offset the mix. President and CEO Rafael Sotomayor declined to equate a half-week channel fill to a specific revenue figure, citing fluid demand and low visibility. He reiterated that Q4 guidance assumes inventory may fluctuate between 9-10 weeks, with NXP strategically placing products with high sell-through conviction, and that inventory weeks are not static.

Stacy Rasgon questioned why NXP's Q4 gross margin, despite being guided up sequentially, was flat year-over-year on decent revenue growth, seeking clarification on mix issues and utilization impact. He also asked about the estimated dollar impact of channel fill into Q4 and how this might influence Q1 seasonality.

Answer

Bill Betz, CFO, explained that Q4 gross margin was impacted by a decline in Communication Infrastructure and Other revenue year-over-year and record mobile quarters (which are slightly below corporate average margins), affecting the overall mix. He noted that utilizations were in the high 70s, and inventory fill also contributed. Rafael Sotomayor, President and CEO, clarified that it's difficult to equate channel inventory weeks to specific revenue dollars due to fluid demand. He stated that Q4 guidance assumes inventory may fluctuate between 9 and 10 weeks, based on products with high conviction of sell-through, and did not provide a specific dollar impact.

Stacy Rasgon from Bernstein Research pressed for clarification on the revenue contribution from the TTTech Auto acquisition, questioning how it could be 'insignificant,' and asked if NXP could achieve above-seasonal growth in Q4 without refilling the channel.

Answer

CEO Kurt Sievers reiterated that TTTech Auto's revenue is 'completely insignificant' because NXP is changing the business model from a service focus to an integral part of its SDV system solutions, with the value being in the IP and engineering talent, which impacts OpEx. He confirmed that above-seasonal Q4 growth is possible without channel fill, but emphasized that the positive sell-through dynamics seen in Q3 could accelerate, making a selective inventory increase a possibility.

Stacy Rasgon pressed for details on the revenue contribution from the TTTech Auto acquisition, questioning its 'insignificant' label, and asked if NXP could achieve above-seasonal Q4 growth without refilling the channel.

Answer

CEO Kurt Sievers reiterated that TTTech Auto's revenue is insignificant because NXP is changing its business model to integrate its IP and engineering talent into NXP's SDV solutions, rather than continuing its prior service model. Regarding Q4, he clarified that while above-seasonal growth is possible without channel fill, the positive sell-through trends make a refill likely. He stressed that growth is driven by content gains and the end of inventory burn, not just the macro environment.

Stacy Rasgon pressed for details on the revenue assumptions behind the H2 2025 OpEx target, sought any soft commentary on the Q3 outlook, and asked how management differentiates between a true recovery and tariff-related pull-ins.

Answer

CFO Bill Betz reiterated confidence in hitting the OpEx target by controlling spending, noting Q2 OpEx includes a one-time license payment. CEO Kurt Sievers firmly declined to provide H2 guidance due to tariff-related uncertainty, stating it would be irresponsible. He differentiated a recovery from pull-ins by pointing to broad-based stabilization in direct order patterns and growing distribution backlogs, which are distinct from targeted inventory builds that NXP actively discourages.

Stacy Rasgon of Bernstein Research challenged the feasibility of achieving the full-year gross margin target given the low first-half outlook and asked for the current percentage of orders coming from turns business.

Answer

CFO Bill Betz clarified that achieving the 57% to 63% gross margin range for the full year depends heavily on a second-half revenue recovery and declined to guide for the full year given low visibility. He also stated that NXP does not disclose the specific percentage of turns business but confirmed the trend has been increasing over the last three quarters.

Stacy Rasgon questioned why the automotive segment weakened despite prior expectations for strength from specific product ramps and asked if the Q4 gross margin would be the trough.

Answer

CEO Kurt Sievers confirmed that company-specific growth drivers like RADAR and S32 are indeed happening, but their positive impact was 'wiped away' by the severe macro weakness and a recovery that failed to materialize. Regarding gross margins, CFO Bill Betz declined to guide for Q1 but suggested that for modeling purposes, analysts should look at margins from past periods with similar revenue levels, implying a further decline is possible with lower Q1 revenue.

Stacy Rasgon from Bernstein Research challenged Intel's narrative on AI driving demand, noting that customers appear to prefer older products despite supply constraints. He asked how Intel plans to transition customers to newer AI-focused products like Granite, Meteor, and Lunar Lake, especially given the lack of additional older capacity. He also sought clarification on 18A yield and capacity statements.

Answer

CFO David Zinsner clarified that AI PC demand is strong, with double-digit sequential growth and 100 million units expected by year-end, while acknowledging unexpected strength in older nodes. He emphasized ecosystem development for AI applications and the impact of Windows refresh. Regarding 18A, Mr. Zinsner confirmed ramping volume but no incremental capacity additions next year, with current yields meeting goals but needing further improvement for cost structure accretion.

Stacy Rasgon from Bernstein Research questioned the apparent disconnect between AI driving demand and customers still preferring older products, despite supply constraints. He asked how Intel plans to transition customers to newer AI-optimized products when older capacity is not being expanded. He also sought clarification on 18A yield expectations (not great until end of next year) and capacity additions (not significant next year), and how this aligns with the Panther Lake ramp.

Answer

CFO David Zinsner clarified that AI PC adoption is progressing well, with 100 million units expected by year-end, but acknowledged strong, unexpected demand for older nodes driven by Windows refresh. He stated that 18A yields are currently where Intel wants them to be for this stage but will take all of next year to reach a fully accretive cost structure. Zinsner also clarified that while 18A volume will ramp next year, significant incremental capacity additions beyond the current CapEx plan are not expected in the near term.

Stacy Rasgon asked about the product timelines for 18A and 14A, questioning if the foundry strategy could survive without 14A. He also sought a more precise range for next year's capital expenditures.

Answer

CEO Lip-Bu Tan confirmed the 2028-29 timeframe for 14A is standard and that the company is committed to the foundry business with disciplined spending. CFO David Zinsner added that 18A has a strong ROI based on internal volume alone but could attract external customers later. For 2026 CapEx, he guided it would be 'meaningfully higher than $9 billion but certainly...less than $18 billion.'

Stacy Rasgon from AB Bernstein questioned the product timeline, suggesting 14A wouldn't arrive until 2029 at the earliest, and asked if the foundry strategy dies if 14A fails. He also sought a plausible range for next year's CapEx.

Answer

CEO Lip-Bu Tan confirmed the 2028-2029 timeframe for 14A is in line with competitors and reiterated a commitment to the foundry business, but with disciplined CapEx tied to customer commitments. CFO David Zinsner added that 18A will be a long-lived node with a good ROI based on internal volume alone, with opportunities for external customers in later waves. Regarding CapEx, he stated it would be meaningfully higher than $9 billion but less than this year's $18 billion.

Stacy Rasgon from Bernstein Research questioned why demand for older Raptor Lake CPUs is so strong despite the availability of newer products and asked what this implies for the upcoming Panther Lake launch.

Answer

Executive Michelle C. Holthaus explained the strong demand for older products is driven by OEM and consumer focus on lower system price points due to macroeconomic concerns. She remained bullish on the Panther Lake launch, stating its timing aligns with customer cycles and that she expects strong uptake, particularly in the commercial segment where future-proofing for AI is a priority.

Stacy Rasgon of Bernstein Research asked for the rationale behind the uniform revenue decline expected across all three product segments in Q1. He also questioned if the 'increased competitiveness' mentioned would lead to persistent pricing pressure in the client and data center markets throughout the year.

Answer

CFO and Interim Co-CEO David Zinsner attributed the broad-based Q1 segment decline to macro uncertainty and seasonality. Michelle C. Holthaus, Interim Co-CEO, confirmed that Intel will be aggressive to defend and win sockets in both client and data center markets, acknowledging the competitive pressure.

Stacy Rasgon sought clarification on Lam Research's 2026 WFE outlook, specifically the 'second half loaded year' comment, asking if it implies a materially higher second half compared to the first half of 2026, given the first half is projected to be flat to slightly up from H2 2025. He also inquired about the implications of China revenue dropping below 30% in 2026, estimating a $1.5 billion headwind, and requested more color on the non-China offsets driving overall revenue growth.

Answer

EVP and CFO Doug Bettinger confirmed that 'second half weighted' means the second half of 2026 will be higher than the first half. He also affirmed that the estimated China headwind is largely consistent with expectations, and this will be more than offset by stronger spending from global multinationals, driven by investments in NAND, high-bandwidth memory (HBM), and advanced node accelerators. He indicated that more granular details would be provided on the next earnings call.

Stacy Rasgon sought clarification on the 2026 WFE trajectory, specifically reconciling the statement of a 'second half loaded year' with the expectation that the first half would be 'flat to slightly up' from the second half of 2025. He also inquired about the implications of China revenue dropping below 30% (estimated $1.5 billion headwind) and the non-China offsets enabling overall revenue growth.

Answer

Doug Bettinger, Executive Vice President and CFO, confirmed that 'second half loaded' means the second half of 2026 will be higher than the first half. He also confirmed that the global multinationals would more than offset the China headwind, driven by investments in NAND, high-bandwidth memory (HBM), and advanced node accelerators.

Stacy Rasgon questioned the source of China's strength in the September quarter, whether the expected December decline is simply normalization, and how to reconcile record foundry revenue with a sequential drop in revenue from Taiwan.

Answer

EVP and CFO Douglas Bittinger explained that the December moderation reflects a normalization of revenue profile, mix, and incremental tariffs. He clarified that record foundry revenue is a global achievement, not tied to a single region, and pointed to record revenue in Japan from a new foundry as a significant contributor.

Stacy Rasgon of AB Bernstein asked about the drivers of China revenue in the September quarter, the reasons for the expected decline in December, and sought to reconcile record foundry revenue with a sequential decline in revenue from Taiwan.

Answer

EVP and CFO Doug Bittinger confirmed China revenue would be up in the September quarter and that the expected December decline reflects a normalization of revenue and mix, as well as higher tariffs. He clarified that record foundry revenue was driven by spending in multiple regions, not just Taiwan, and pointed to Japan as a region with record revenue, where a large new foundry is being built.

Stacy Rasgon challenged the 'flat' CSBG outlook, questioning if the Reliant decline could fully offset strong NAND upgrade revenue, and asked if increasing customer headwinds imply a declining China revenue percentage through the year.

Answer

EVP & CFO Douglas Bettinger defended the flat CSBG outlook by highlighting the significant impact of lost Reliant business from restricted customers in China, noting the $700 million in lost 2025 forecast revenue would have been largely Reliant systems. On China's mix, he reiterated that the full-year percentage will be down from 2024 but declined to provide a quarterly profile.

Stacy Rasgon probed the gross margin trade-off, asking if operational gains could fully offset the negative mix from a declining China business. He also asked whether a capacity-driven or a technology-transition-driven NAND market is better for Lam in absolute dollar terms.

Answer

CFO Douglas Bettinger stated that while operational efficiencies provide a significant benefit, the net impact on gross margin will depend on revenue levels, and he refrained from calling a bottom. Regarding the NAND market, he explained that while Lam's relative outperformance is greater in a tech-transition-driven market, the total industry spend is lower, making the absolute dollar comparison dependent on specific spending levels.

Stacy Rasgon asked for explicit gross margin expectations for Q4 2025, confirming a potential drop to around 55%, and how much cost reduction from 150mm fab closures is anticipated in the first half of 2026. He also questioned if the Q4 2025 guide, being down seasonally, indicates a return to pre-COVID seasonality and what normal Q1 seasonality looks like.

Answer

CEO Haviv Ilan and CFO Rafael Lizardi confirmed the gross margin ballpark, attributing it to lower revenue, higher depreciation, and moderated wafer starts, emphasizing the long-term owner mindset. CEO Haviv Ilan and Head of Investor Relations Mike Beckman agreed that Q4's guide is roughly seasonal due to a moderate recovery, and historically, Q4 to Q1 typically sees a slight sequential decline.

Stacy Rasgon sought explicit clarification on Q4 gross margin expectations, estimating a decline to around 55%, and asked about the anticipated cost reduction from 150mm fab closures in the first half of next year. He also questioned if the Q4 guide reflected pre-COVID seasonality and what 'normal' Q1 seasonality would entail.

Answer

CEO Haviv Ilan confirmed the gross margin was in the ballpark, impacted by lower revenue, increased depreciation, and moderated wafer starts, emphasizing the company's focus on long-term free cash flow per share growth. Mr. Ilan and Head of Investor Relations Mike Beckman noted the Q4 guide was roughly seasonal due to a moderate recovery, and historically, Q1 revenue is slightly down sequentially from Q4.

Stacy Rasgon questioned management's perceived change in tone regarding the cyclical recovery, noting it seemed less confident than in the prior quarter, and asked about the sequential weakness in the automotive market. He also followed up on Q3 gross margin guidance, which appeared to imply a sequential decline.

Answer

CEO Haviv Ilan affirmed that the cyclical recovery is proceeding in four of five end markets but acknowledged the automotive market is lagging and that geopolitical uncertainty necessitates flexibility. CFO Rafael Lizardi clarified that Q3 gross profit margin is expected to be flat sequentially, not down, as higher depreciation will offset the benefit from increased revenue. He also noted an expected $20 million unfavorable impact from other income and expense.

Stacy Rasgon from Bernstein Research pressed for clarification on whether recent strength was due to demand pull-forwards, questioning if TI would simply ship all orders regardless of the reason. He also asked if order rates had materially accelerated since the tariff announcements.

Answer

CEO Haviv Ilan distinguished between Q1's broad industrial recovery and a Q2 guess that customers may want to replenish empty shelves amid uncertainty, which he views as typical cycle behavior. He asserted that TI has a playbook to manage anxious buying and would not simply 'flood' customers. Executive Mike Beckman noted that Q2 order linearity has been normal for a recovery period and it's difficult to attribute orders to any single cause, with no unusual acceleration observed post-tariff announcements.

Stacy Rasgon from Bernstein Research questioned if the strength seen in China is confined to the auto sector or is present in other markets like industrial. He also asked about the possibility of pre-buying due to geopolitical concerns and requested clarification on typical Q1 seasonality.

Answer

CEO Haviv Ilan confirmed the China strength is primarily in automotive, which is hitting new highs. In contrast, the industrial market in China remains weak, hovering at the bottom and down about 40% from its peak, with no evidence of significant pre-buying. For seasonality, management described Q4 as typically down 7-10% sequentially, while Q1 is generally flattish to slightly down.

Stacy Rasgon questioned the Q3 revenue mix, noting China's strength at 35% of revenue seemed higher than anticipated, and asked for a breakdown of the Q4 equipment revenue decline between China and other segments.

Answer

CFO Brice Hill clarified that the Q3 mix was largely as expected. For the Q4 guidance, he attributed the sequential decline in equipment revenue to an approximately $500 million drop from China and a $500 million drop from leading-edge logic, partially offset by some strength in rest-of-world ICAPS.

Stacy Rasgon questioned the performance of the Applied Global Services (AGS) segment, noting its guidance was flattish sequentially despite previous expectations for a return to growth, and asked about the impact from China and the 200mm equipment business.

Answer

CFO Brice Hill acknowledged that while the core services business hit a record and is expected to grow low-double-digits for the year, the overall AGS segment is weighed down by the full impact of China trade restrictions and a significant slowdown in 200mm equipment sales. CEO Gary Dickerson added that the 200mm business, tied to currently weak power electronics, has strong long-term growth potential.

In a follow-up question, Stacy Rasgon sought to clarify the segment growth commentary for Q3. He asked for confirmation that the statements on foundry-logic, DRAM, and NAND were year-over-year and what they implied for sequential growth.

Answer

CFO Brice Hill confirmed the commentary was year-over-year and affirmed the analyst's interpretation of the sequential implications. He agreed it was fair to assume that for Q3, foundry & logic would be up sequentially, while DRAM would be down sequentially, and NAND could be up sequentially based on the year-over-year dynamics discussed.

Stacy Rasgon asked for clarification on how the Applied Global Services (AGS) segment could return to growth in Q3 while the China-related headwind was expected to be more weighted to the second half. He also asked if AGS would still show low-double-digit growth for the year if the China impact were excluded.

Answer

CFO Brice Hill clarified that the Q2 impact is a one-time step-down in the revenue base, not a sequential headwind. He explained that AGS will grow from this new, lower base. He also confirmed that the core AGS business, excluding the $200 million China impact, is growing at a low-double-digit rate or higher.

Stacy Rasgon asked about Applied Materials' expectations for its China revenue mix in the upcoming year and the specific drivers of the forecasted Q1 strength in the ICAPS market, questioning the split between China and the rest of the world.

Answer

CFO Brice Hill clarified that the China mix normalized to 30% in Q4 and is expected to remain at that level in the Q1 outlook. He noted that the ICAPS market is healthy globally, including in China, despite some slower end markets like automotive and industrial. For the follow-up on gross margins, Hill explained the underlying rate has improved to about 48.0% due to broad operational enhancements and value pricing, with the strong 48.4% Q1 guide being driven by a favorable product mix. CEO Gary Dickerson added that shipping more valuable products for key technology inflections also provides a tailwind for margin expansion.