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APPLIED MATERIALS INC /DE (AMAT)·Q1 2025 Earnings Summary

Executive Summary

  • Record revenue and margin expansion: Net revenue $7.17B (+7% y/y), non-GAAP gross margin 48.9% (+100 bps y/y), and non-GAAP EPS $2.38 (+12% y/y) on favorable mix, adoption of leading-edge systems, and progress on value-based pricing .
  • GAAP EPS declined 40% y/y to $1.45 due to a one-time $644M ($0.79 per share) tax expense from Singapore deferred tax asset remeasurement; non-GAAP tax rate was 12.8% .
  • Q2 FY25 guidance: revenue $7.10B ± $0.40B, non-GAAP gross margin ~48.4%, non-GAAP EPS $2.30 ± $0.18; segment guide: Semi Systems ~$5.3B, AGS ~$1.55B, Display ~$250M; modeled tax rate ~13% and OpEx ~$1.3B .
  • Export-control headwind: ~+$400M FY25 revenue impact (≈$200M in Q2), weighted more to AGS in 2H; China mix expected ~5 pts lower in Q2 vs Q1 (to ~26%) .
  • Stock reaction catalysts: record margins and strong Q2 outlook despite export-control headwinds; strategic positioning at AI-driven inflections (GAA, backside power, HBM, advanced packaging) and value-pricing momentum .

What Went Well and What Went Wrong

What Went Well

  • Leading-edge momentum and mix: “Non-GAAP gross margin was 48.9%, up 100 bps y/y...result of a very favorable mix and increasing adoption of our leading-edge technologies and advanced integrated systems” .
  • Share gains at key inflections: “On track to capture >50% share of served market in gate-all-around and backside power...gained 10 points of DRAM share” .
  • Advanced packaging traction: $1.7B AP revenue in FY24 with plans to double “over the next several years”; volume orders received for integrated hybrid bonding system .

What Went Wrong

  • China/exports headwinds: incremental ~+$400M FY25 headwind, with ~half in Q2 and remainder more weighted to AGS in 2H as certain customers can no longer be served .
  • Display softness: segment revenue fell to $183M and margin 7.7% amid lower investment levels and end-market weakness .
  • Cash conversion slower: Cash from ops fell to $925M and non-GAAP FCF to $544M on working capital movements and lower new billings; DSO rose to 76 days (vs 64) on timing of payments and revenue linearity .

Financial Results

MetricQ1 FY2024 (oldest)Q4 FY2024Q1 FY2025 (newest)
Revenue ($USD Billions)$6.71 $7.05 $7.17
GAAP Gross Margin (%)47.8% 47.3% 48.8%
Non-GAAP Gross Margin (%)47.9% 47.5% 48.9%
GAAP Operating Margin (%)29.3% 29.0% 30.4%
Non-GAAP Operating Margin (%)29.5% 29.3% 30.6%
GAAP Net Income ($USD Billions)$2.02 $1.73 $1.19
GAAP EPS ($)$2.41 $2.09 $1.45
Non-GAAP EPS ($)$2.13 $2.32 $2.38
Segment (Q1 FY)Q1 FY2024Q1 FY2025
Semiconductor Systems Revenue ($USD Billions)$4.91 $5.36
Foundry/Logic Mix (%)62% 68%
DRAM Mix (%)34% 28%
Flash Mix (%)4% 4%
Semi Systems Operating Margin (%)35.5% 37.1%
Applied Global Services Revenue ($USD Billions)$1.48 $1.59
AGS Operating Margin (%)28.3% 28.0%
Display Revenue ($USD Billions)$0.24 $0.18
Display Operating Margin (%)10.2% 7.7%
KPIs (Q1 FY2025)Value
Cash from Operations ($USD Billions)$0.93
Non-GAAP Free Cash Flow ($USD Billions)$0.54
Capital Expenditures ($USD Billions)$0.38
Share Repurchases ($USD Billions)$1.32
Dividends Paid ($USD Billions)$0.33
Cash & Cash Equivalents ($USD Billions)$6.26
Total Debt ($USD Billions)$6.26 (short + long term)
Geographic Mix – China (%)31% (rev $2.24B)
Geographic Mix – Korea (%)23% (rev $1.67B)
Geographic Mix – Taiwan (%)17% (rev $1.18B)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Net Revenue ($USD Billions)Q1 FY2025$7.15 ± $0.40 Actual: $7.17 Met/above midpoint
Non-GAAP EPS ($)Q1 FY2025$2.29 ± $0.18 Actual: $2.38 Above midpoint
Non-GAAP Gross Margin (%)Q1 FY2025~48.4% Actual: 48.9% Above
Total Net Revenue ($USD Billions)Q2 FY2025N/A$7.10 ± $0.40 Initiated
Non-GAAP EPS ($)Q2 FY2025N/A$2.30 ± $0.18 Initiated
Non-GAAP Gross Margin (%)Q2 FY2025N/A~48.4% Initiated
Segment Revenue ($USD Billions)Q2 FY2025N/ASemi ~$5.3; AGS ~$1.55; Display ~$0.25 Initiated
Tax Rate (Non-GAAP)Q2 FY2025N/A~13% Initiated
Non-GAAP OpEx ($USD Billions)Q2 FY2025N/A~$1.3 Initiated
Quarterly Dividend per Share ($)Ongoing$0.40 (declared Dec 2024) $0.46 (effective June 12, 2025) Raised (+15%)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024)Current Period (Q1 FY2025)Trend
AI-driven leading edge (GAA/backside power)Expect ~doubling of GAA shipments in FY25; integrated solutions ≈30% of Semi Systems revenue TAM grows >15% per 100k WSPM; >50% share targeted at GAA/backside power Strengthening
DRAM/HBMFY24 DRAM +60% y/y; HBM packaging >$700M; 3× wafers per HBM bit Healthy demand; bullish on compute memory; DRAM momentum continues; 4F² and 3D DRAM materials intensity rising Constructive
Advanced PackagingFY24 ~$1.7B; plan to double; leadership in front/back wiring and packaging Hybrid bonding volume orders; EPIC collaboration push; doubling over next several years Accelerating
Value-based pricing/gross marginUnderlying baseline ~48%; mix lifted margins 48.9% achieved; reiterate ~48% baseline; pricing “third inning” Sustained
China/export controlsNormalized ~30% mix; watch ICAPS moderation FY25 headwind ~$400M; Q2 China % ~5 pts lower than Q1; AGS impacted in 2H Headwind intensifying
ICAPSHealthy globally; some end markets slower More measured after strong ’23-’24; volatility in China; medium-term mid-high single-digit device growth Moderating near-term

Management Commentary

  • “Applied Materials is enabling the major device architecture inflections critical for energy‑efficient AI...positioning Applied for continued growth and outperformance” — Gary Dickerson, CEO .
  • “Non‑GAAP gross margin was 48.9%, up 100 basis points y/y...our highest quarterly gross margin since fiscal year 2000” — Brice Hill, CFO .
  • “We estimate the incremental impact of these new rules will be around $400 million of revenue in fiscal 2025, approximately half of which is service revenue” — Gary Dickerson .
  • “We expect total revenue of $7.1B ± $400M and non‑GAAP EPS of $2.30 ± $0.18 for Q2” — Brice Hill .

Q&A Highlights

  • WFE and share outperformance: Management expects leading-edge acceleration to offset ICAPS moderation; reiterated share gains in GAA/backside power, DRAM, HBM, packaging .
  • AGS trajectory under controls: ~half of FY25 impact in Q2; returns to growth in Q3 despite continued constraints; core AGS still low double-digit growth ex-impact .
  • Gross margin sustainability: Baseline ~48% with mix upside; value-pricing “third inning” with disciplined execution tied to integrated solutions .
  • 2nm node outlook: Expected to be a large node given energy-efficiency focus in AI; bullish customer sentiment .
  • China mix: Long-term normalized ~30%; Q2 modeled ~26% given controls; ICAPS remains the largest China driver .

Estimates Context

  • S&P Global consensus estimates (EPS and revenue) were not available at time of analysis due to provider request limits; therefore, beat/miss vs consensus cannot be assessed. Values from S&P Global were unavailable.
  • Where guidance comparisons are provided, they reference company-issued guidance and reported actuals from primary source documents .

Key Takeaways for Investors

  • Mix-led margin story: Record non-GAAP gross margin (48.9%) with continued pricing discipline and adoption of integrated systems supports durable baseline ~48% through FY25 despite export headwinds .
  • Leading-edge capacity ramps: Strong positioning at GAA/backside power and compute DRAM/HBM (materials intensity tailwind) underpins Semi Systems growth trajectory in FY25 and beyond .
  • Export-control overhang manageable: ~$400M FY25 revenue impact, ~half in Q2, weighted to AGS in 2H; management still guides y/y growth in Q2 and expects AGS to resume growth in Q3 .
  • Geographic mix shifting away from China near term (Q2 down ~5 pts vs Q1), with Korea/Taiwan strength; reduces policy risk concentration while sustaining demand via leading-edge ramps .
  • Capital returns remain robust: $1.64B returned in Q1; dividend raised to $0.46/quarter and repurchase authorization increased by $10B, signaling confidence in multi-year outlook .
  • Display a smaller contributor with volatile investment cycles; near-term softness offset by expected OLED IT adoption cycle and current Q2 rebound in segment guide ($250M) .
  • Near-term trading: Watch Q2 mix and China percentage, confirmation of Semi Systems ~$5.3B and gross margin ~48.4%; medium-term thesis anchored on AI-enabled device architecture inflections and AP growth .