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APPLIED MATERIALS INC /DE (AMAT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 delivered resilient growth: revenue $7.10B (+7% y/y), GAAP EPS $2.63 (+28% y/y), and non-GAAP EPS $2.39 (+14% y/y), with record profitability supported by 49.2% non-GAAP gross margin and 30.7% non-GAAP operating margin . Versus consensus, EPS beat ($2.39 vs $2.31*) while revenue was roughly in line/slightly below ($7.10B vs $7.12B*). Values retrieved from S&P Global.
  • Mix quality and leading-edge demand were key drivers: Semiconductor Systems revenue rose to $5.26B (+7% y/y) with 36.4% non-GAAP segment margin, AGS held steady at $1.57B (+2% y/y), and Display rose to $259M (+45% y/y) .
  • Q3 FY2025 guidance indicates continued y/y growth at the midpoint: total revenue $7.2B ±$500M, non-GAAP gross margin ~48.3%, and non-GAAP EPS $2.35 ±$0.20; management modeled tax rate ~13% and opex ~$1.3B .
  • Capital returns remain a catalyst: $2.0B distributed in Q2 ($1.67B buybacks; $325M dividends), a 15% dividend increase to $0.46/quarter announced in March, and a new $10B repurchase authorization (with ~$15.9B capacity remaining) .

What Went Well and What Went Wrong

What Went Well

  • Record EPS and margin expansion: non-GAAP gross margin reached 49.2% (highest since FY2000), driven by favorable product mix and value-based pricing . “Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year and our highest quarterly gross margin since fiscal year 2000” .
  • Strategic positioning at AI-driven inflections: strong traction in gate-all-around, backside power delivery, DRAM/HBM, and advanced packaging; Sym3 Magnum etch exceeded $1.2B since Feb-2024 launch; PDC posted record revenues . “High-performance, energy-efficient AI computing remains the dominant driver of semiconductor innovation” .
  • Healthy capital allocation: Q2 cash from operations was ~$1.57B (22% of revenue), non-GAAP FCF ~$1.06B, plus dividend raised 15% and buyback capacity expanded .

What Went Wrong

  • China/export headwinds and 200mm equipment softness pressured AGS optics: core services grew, but 200mm equipment declines and flat fab utilization weighed on sequential momentum; trade rules remain a drag . Q2 China share of revenue fell to 25% with restrictions impacting services .
  • ICAPS investment moderated after two strong years, partially offset by leading-edge logic acceleration; NAND still largely an upgrades market; DRAM growth stable but subject to mix shifts .
  • Macro/trade volatility prompted wider guidance range (+/−$500M vs +/−$400M prior) for Q3, reflecting tariff/geopolitical uncertainty despite flexible manufacturing .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$7.045 $7.166 $7.100
GAAP Gross Margin %47.3% 48.8% 49.1%
Non-GAAP Gross Margin %47.5% 48.9% 49.2%
GAAP Operating Margin %29.0% 30.4% 30.5%
Non-GAAP Operating Margin %29.3% 30.6% 30.7%
GAAP Net Income ($USD Billions)$1.731 $1.185 $2.137
GAAP Diluted EPS ($USD)$2.09 $1.45 $2.63
Non-GAAP Diluted EPS ($USD)$2.32 $2.38 $2.39
Cash from Operations ($USD Billions)$2.575 $0.925 $1.571
Non-GAAP Free Cash Flow ($USD Billions)$2.168 $0.544 $1.061

Segment breakdown (Q2 FY2025 vs Q2 FY2024):

SegmentQ2 FY2024 Net Rev ($MM)Q2 FY2025 Net Rev ($MM)y/yQ2 FY2024 Op Margin %Q2 FY2025 Op Margin %
Semiconductor Systems$4,901 $5,255 +7% 34.7% 36.2%
– Foundry, Logic and Other Mix65% 65% ———
– DRAM Mix32% 27% ———
– Flash Mix3% 8% ———
Applied Global Services$1,530 $1,566 +2% 28.5% 28.5%
Display$179 $259 +45% 2.8% 26.3%
Corporate & Other (Total)$(230) $(245) ———

Q2 FY2025 KPIs:

KPIQ2 FY2025Q2 FY2024
Cash & Equivalents ($B)$6.169 $7.085
Total Debt ($B)~$6.261 (short $0.799 + long $5.462) ~$6.259 (short $0.799 + long $5.460)
R&D Expense ($MM)$893 $785
Capex ($MM)$510 $257
Share Repurchases ($MM)$1,670 $820
Dividends Paid ($MM)$325 $266
Employees (Regular Full-Time, ‘000)36.0 34.8
Net Revenue by Geography (China %)25% 43%
Net Revenue by Geography (Taiwan %)28% 15%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Net Revenue ($B)Q2 FY2025$7.1 ± $0.4 Achieved $7.10 Maintained (in-line)
Non-GAAP Gross Margin %Q2 FY202548.4% Reported 49.2% Outperformed vs guide
Non-GAAP EPS ($)Q2 FY2025$2.30 ± $0.18 Reported $2.39 Outperformed vs guide
Total Net Revenue ($B)Q3 FY2025—$7.2 ± $0.5 New (initial)
Non-GAAP Gross Margin %Q3 FY2025—~48.3% New (initial)
Non-GAAP EPS ($)Q3 FY2025—$2.35 ± $0.20 New (initial)
Semiconductor Systems Rev ($B)Q3 FY2025—~$5.4 New (initial)
AGS Rev ($B)Q3 FY2025—~$1.55 New (initial)
Display Rev ($MM)Q3 FY2025—~$250 New (initial)
Non-GAAP OpEx ($B)Q3 FY2025—~$1.3 New (initial)
Tax Rate (Non-GAAP)Q3 FY2025—~13% New (initial)
Dividend per Share ($)OngoingIncreased to $0.46 (Mar-2025) $0.46 (June payable) Raised (15%)
Share Repurchase AuthorizationOngoing+$10B new authorization ~$15.9B capacity remaining Increased capacity

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
AI/Technology InitiativesIntegrated solutions ~30% of Semi Systems; gate-all-around revenue ~$2.5B in FY2024, expected to double in FY2025 Strong leading-edge logic momentum; EPIC platform and packaging CHIPS grants; hybrid bonding progress Continued traction at AI inflections; Sym3 Magnum >$1.2B; PDC record; EPIC Center on track for spring 2026 Accelerating
Supply Chain & OpsMargin baseline uplift to ~48%; operational improvements Favorable mix; value-based pricing; diversified manufacturing Flex manufacturing mitigates tariffs; cost/pricing initiatives ongoing Stable/Improving
Tariffs/Macro/TradeChina normalized ~30%; watch ICAPS demand Export rules headwind ~$400M in FY2025; China mix to fall in Q2 Guidance range widened due to volatility; China share mid-20s including services Persistent headwind
Product PerformanceDRAM/HBM strength; Packaging ~$1.7B in FY2024 NAND modest; DRAM healthy; packaging doubling trajectory DRAM stable with HBM wafer share (~16% in 2025); NAND upgrades pacing Positive mix
Regional TrendsChina 30% of revenue; normalization Q2 China expected ~5pp lower vs Q1 to ~26% Q2 China 25%; Taiwan/Korea up; US/Europe down y/y China down; ex-China up
Regulatory/LegalExport restrictions impact China mix ~$400M revenue headwind quantified Impact continues; AGS affected; guidance range widened Ongoing
R&D ExecutionEPIC Center construction for 2026 EPIC packaging summit; hybrid bonding milestones EPIC Center schedule affirmed; deeper co-innovation On track
Services (AGS)Record Q4; subscriptions, longer tenures Low double-digit core growth despite trade headwinds Core record; 66% subscriptions; ~90% recurring; 200mm weakness Resilient core

Management Commentary

  • “High-performance, energy-efficient AI computing remains the dominant driver of semiconductor innovation, and Applied is working closely with our customers and partners to accelerate the industry’s roadmap” — Gary Dickerson, CEO .
  • “Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments” — Brice Hill, CFO .
  • “We expect total revenue of $7.2 billion, plus or minus $500 million… and non-GAAP EPS of $2.35, plus or minus $0.20… non-GAAP gross margin of approximately 48.3%… modeled tax rate of approximately 13%” — Brice Hill .
  • “We have a very flexible manufacturing operation with a global footprint… we’ll be making price adjustments for the things that cannot be managed from a tariff perspective” — Brice Hill .

Q&A Highlights

  • AGS and China impact: Core services hit a record and should grow low double digits; 200mm equipment and flat utilization tempered sequential growth; subscriptions ~66%, recurring revenue ~90% .
  • Gross margin baseline: Company operating around 48.2–48.3% normalized margin with flexible operations limiting tariff impact; continued progress expected via value-based pricing and cost management .
  • Memory dynamics: HBM expected to reach ~16% of DRAM wafer starts in 2025; HBM and DDR5 driving ~40% growth at top DRAM customers; compute memory (HBM/DRAM) remains a strong growth vector .
  • NAND spending: Growth is driven by technology upgrades rather than new wafer starts; customers prioritize node advancements amid lower utilization .
  • Guidance range: Q3 range widened by $100M to ±$500M due to macro/trade volatility and larger business scale; management emphasized prudent scenario planning .
  • China competition: Management highlighted strong ICAPS innovation pipeline and higher share at 28nm nodes; confidence in competing effectively despite local entrants .

Estimates Context

How results compared to Wall Street consensus (S&P Global):

MetricQ4 2024Q1 2025Q2 2025
Revenue Actual ($USD Billions)$7.045 $7.166 $7.100
Revenue Consensus Mean ($USD Billions)6.968*7.159*7.123*
EPS Actual ($USD)$2.32 $2.38 $2.39
Primary EPS Consensus Mean ($USD)2.195*2.296*2.310*
Revenue — # of Estimates27*25*25*
EPS — # of Estimates28*28*26*
  • Q2 FY2025: EPS beat; revenue essentially in line/slightly below consensus.
  • Q3 FY2025: Company guide midpoints (rev $7.2B, EPS $2.35) are roughly in line with consensus means (rev ~$7.21B*, EPS ~$2.36*). Values retrieved from S&P Global.

Key Takeaways for Investors

  • Leading-edge exposure is the core driver: accelerating gate-all-around/backside power and HBM positioning should sustain mid-to-high-quality mix and margins into H2 FY2025 .
  • Margin durability: normalized non-GAAP gross margin at ~48.2–48.3% with tactical pricing and flexible manufacturing to mitigate tariffs; watch mix and tariff developments for upside/downside .
  • Services resilience: despite China restrictions and 200mm softness, AGS core is growing at low double digits; subscriptions and recurring profile underpin dividend growth .
  • Capital return catalyst: 15% dividend hike, expanded repurchase capacity (~$15.9B remaining) and ongoing buybacks ($1.67B in Q2) support per-share compounding and floor on pullbacks .
  • China mix pivot: Q2 China revenue share fell to 25% with strength outside China (Taiwan/Korea); monitor ICAPS pacing, 28nm concentration, and local competition .
  • Semis memory cycle: DRAM/HBM demand remains robust with HBM wafer intensity tailwinds; NAND largely an upgrades market—expect less wafer-start driven capex .
  • Near-term trading lens: focus on any updates to tariff/regulatory landscape and leading-edge ramp signals; modest guide range widening suggests caution but fundamentals remain intact .

Footnote: Values marked with an asterisk (*) are retrieved from S&P Global.