AMAT Q3 2025: China headwinds weigh on Q4, $500M GAA order shortfall
- Leading‐edge technology transition: Applied Materials is gaining significant advantage as it shifts to gate all around and backside power distribution technologies, which can deliver a 30% revenue uplift on equivalent fab capacity. This positions the company to capture additional market share as production ramps in coming years.
- Robust DRAM and advanced packaging performance: The company’s DRAM business is performing strongly, with leading edge DRAM revenue expected to grow around 50% year-over-year, and the advanced packaging segment, already a high-share market area, is on track to more than double to over $3 billion in annual revenue.
- Resilient customer engagement and secular growth exposure: Despite near-term uncertainties, the company maintains deep, diversified customer relationships and robust visibility into multi-year demand trends, particularly in critical segments such as DRAM and leading-edge logic—a key foundation for long-term growth driven by AI and semiconductor innovation.
- China Exposure and Licensing Uncertainty: The Q&A highlighted that China revenues are expected to be significantly lower in Q4 due to capacity digestion and a large backlog of pending export license applications, suggesting that a prolonged weakness in the China market could weigh on near-term revenue growth.
- Underperformance in Leading Edge Logic Orders: There was concern over a roughly $500,000,000 shortfall in leading edge (gate all around) orders (guidance of ~$4.5B vs. earlier ~$5.0B), indicating potential challenges in capturing the expected ramp in advanced semiconductor spending.
- Uncertain Order Visibility and Uneven Demand Ramps: Multiple questions underscored the difficulty in achieving a linear ramp-up on key leading edge segments due to customer order timing uncertainties and cautious capital commitments, which could contribute to erratic revenue performance in upcoming quarters.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue ($USD Billions) | Q4 2025 | $7.2 billion ± $500 million (6% increase YoY) | $6,700,000,000 ± $500,000,000 (4.9% decrease YoY) | lowered |
Non-GAAP EPS ($USD) | Q4 2025 | $2.35 ± $0.20 (11% increase YoY) | $2.11 ± $0.20 (9% decrease YoY) | lowered |
Semiconductor Systems Revenue ($USD Billions) | Q4 2025 | Approximately $5.4 billion (10% increase YoY) | Approximately $4.7 billion (down 9% YoY) | lowered |
Applied Global Services (AGS) Revenue ($USD Billions) | Q4 2025 | Approximately $1.55 billion (2% decrease YoY) | Approximately $1,600,000,000 (2% decrease YoY) | raised |
Display Revenue ($USD) | Q4 2025 | Approximately $250 million | Approximately $350,000,000 (significant increase YoY) | raised |
Non-GAAP Gross Margin (%) | Q4 2025 | Approximately 48.3% | Approximately 48.1% | lowered |
Non-GAAP Operating Expenses ($USD Billions) | Q4 2025 | Approximately $1.3 billion | Approximately $1,310,000,000 | raised |
Tax Rate (%) | Q4 2025 | Approximately 13% | 12.6% | lowered |
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China/Leading Edge
Q: Why is Q4 outlook weaker in China?
A: Management explained that China’s revenue is weaker due to ongoing capacity digestion and a less linear ramp in leading edge orders, despite solid longer‐term fundamentals. -
Guidance Outlook
Q: Will Q1 and FY26 offset China's slowdown?
A: They noted that while near-term visibility is low—with customers delaying orders—the underlying strength in DRAM and leading logic should help offset the softer China side, though uncertainty remains. -
License Backlog
Q: How do export licenses affect Q4 revenue?
A: Management is conservative by excluding any revenue from the large backlog of pending export licenses, so no immediate upside is expected from those approvals. -
China Mix
Q: Was China revenue higher than anticipated?
A: They confirmed that China’s share, now around 35% in Q3, was noticeably robust—reflecting stronger-than-expected business even as Q4 guidance targets a lower level. -
Shipment Timing
Q: Did shipments shift from Q2 into Q3?
A: Management clarified that Q3’s higher numbers are due to genuine business increases rather than a timing shift from Q2, while licensing delays continue to keep some revenue deferred. -
Market Visibility
Q: Why is there less visibility for leading edge?
A: Customer order timing for leading edge is more uneven because of varied capital planning, unlike China’s more predictable cycle, leading to a broader uncertainty on future builds. -
Leading Edge & OpEx
Q: How is the gate-all-around ramp and OpEx trending?
A: They expect ramping in gate-all-around nodes—with about 100,000 wafer starts soon—and foresee operating expenses clustering near 18% as caution prevails amid current headwinds. -
Logic Revenue Gap
Q: Is the $500M shortfall a share issue?
A: The approximately $500M lower than expected revenue in leading edge logic is attributed to a non-linear order ramp rather than a loss of market share, with confidence intact in future gains. -
Capacity Build
Q: What scale of investment is behind gate-all-around?
A: Management estimates nearly 100,000 wafer starts this quarter—a sign of an early-stage but significant capacity build that promises further momentum as the technology matures. -
Advanced Packaging
Q: What growth is expected in packaging?
A: The advanced packaging segment is performing steadily and is on track to more than double over the coming years, supported by strong customer co-innovation and technology integration. -
CapEx Assumptions
Q: What are the assumptions for second tier capex spending?
A: Although details are limited, management stated they update forecasts regularly with major customers and factor in variability for second-tier players like Intel and Samsung. -
Multinational Impact
Q: How significant are multinational contributions in China?
A: Multinational revenue from China has been a noticeable contributor, though future China percentages are expected to hover around levels seen in Q2/Q4, without dramatic changes. -
ICAPs Stability
Q: Is the non–China ICAP business stabilizing?
A: While overall utilization remains low in mature node segments (ICAPs), there are early signs outside China of modest recovery, though headwinds persist for the near term.
Research analysts covering APPLIED MATERIALS INC /DE.