Q3 2024 Earnings Summary
- Applied Materials is positioned to capture over 50% of the spending on new device architectures, such as gate-all-around transistors, due to strong positions in leading-edge technologies and inflections in AI and data center.
- Significant growth expected in advanced packaging, particularly in high-bandwidth memory (HBM), with revenue from advanced packaging projected to double over the next several years from the current $1.7 billion.
- Improving utilization across all markets, including DRAM and NAND, with positive outlook for memory investment in 2025, driven by AI energy and leading-edge acceleration.
- Gross margins are under pressure, with non-GAAP gross margin at 47.4%, partly due to headwinds from a decline in China mix to 32%. There are potential headwinds if services or display grow faster than the core business, which could impact margins.
- China revenue is declining, with DRAM sales in China decreasing as anticipated. The company is not expecting the elevated DRAM shipments to China to repeat next year, which could impact future revenue growth.
- Potential CapEx cuts at key customers like Intel could impact future orders, despite management stating no change in outlook; this could be a risk to future growth.
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China Sales
Q: How did China revenue perform this quarter?
A: China revenue mix declined to 32% this quarter, down from the mid-40s in the prior three quarters due to lower DRAM shipments. This 32% mix is considered normal and is driven by a robust ICAPS business in China. Applied expects the China mix to remain around 30% next quarter. , -
WFE Outlook
Q: What's the outlook for wafer fabrication equipment spending into 2025?
A: Applied Materials maintains its forecast of $2.5 billion in gate-all-around equipment for this fiscal year and sees strong acceleration in the leading-edge segment driven by AI and data center demand. While not providing specific guidance for 2025, the company is enthusiastic about continued growth fueled by these trends. , , -
Gross Margins
Q: How are gross margins trending, and what's the profitability outlook?
A: Gross margin for the quarter was 47.4%, now considered the baseline level. The company aims to achieve 48% or higher next year, despite headwinds from China mix and potential growth in services and display. Applied is focusing on cost improvements and pricing to enhance margins. , -
Advanced Packaging Growth
Q: What's the status of growth in advanced packaging, particularly non-memory segments?
A: Advanced packaging revenue is projected to grow from $1.1 billion last year to $1.7 billion this year, with $600 million of the growth coming from HBM-related equipment. Non-memory advanced packaging remains relatively stable. The company expects the total packaging business to double over several years due to demand for advanced technologies. , -
Intel CapEx Cuts
Q: How will Intel's CapEx cuts impact Applied's business?
A: Applied does not expect changes to its outlook despite Intel's CapEx cuts. The company continues to see strong demand in leading-edge investments, driven by AI and data center excitement. Their forecast remains unchanged, reflecting updates from all customers. -
Services Business
Q: How is the services business performing?
A: The services business grew 8% year-over-year in Q3 and is expected to grow 9% in Q4. While utilization improvements were slightly slower than anticipated, the company expects low double-digit growth going forward. About 85% of this revenue is recurring, providing stable operating profit and supporting dividend increases. -
TSMC as 10% Customer
Q: Did TSMC become a 10% customer this quarter?
A: Yes, TSMC was a 10% customer in Q3, reflecting their significant role in leading-edge investments, particularly in gate-all-around technologies. Applied sees continued acceleration in this segment throughout the year. -
EPIC R&D Center Investment
Q: How does the EPIC R&D center investment impact margins?
A: Despite not receiving expected grants, Applied is proceeding with the $4 billion EPIC R&D center, which will elevate CapEx going forward. The company benefits from investment tax credits related to such projects and expects these investments to accelerate co-innovation with customers, supporting long-term growth and profitability goals. -
ICAPS Business Outlook
Q: What's the outlook for the ICAPS business?
A: The ICAPS business remains very strong and is expected to have a record year. Applied anticipates mid- to high single-digit growth over time, driven by trends in clean energy, electrification, and AI edge sensors. Growth is robust both in China and other regions, with utilization improvements and new customer additions. , , ,
Research analysts covering APPLIED MATERIALS INC /DE.