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APPLIED MATERIALS INC /DE (AMAT)·Q3 2025 Earnings Summary

Executive Summary

  • Record revenue $7.30B (+8% YoY) and record non-GAAP EPS $2.48 (+17% YoY); GAAP EPS $2.22 (+8% YoY). Gross margin expanded to 48.8% GAAP / 48.9% non-GAAP; operating margin to 30.6% GAAP / 30.7% non-GAAP .
  • Revenue modestly above consensus ($7.21B*), and non-GAAP EPS beat ($2.36*); GAAP/non-GAAP margins ran ahead of prior-year levels despite tariff headwinds and mix changes . Values retrieved from S&P Global*.
  • Q4 FY2025 guide implies sequential decline: revenue $6.7B ± $0.5B, non-GAAP GM ~48.1%, EPS $2.11 ± $0.20; drivers are China “digestion” and non-linear leading-edge demand due to market concentration and fab timing .
  • Stock reaction catalysts: stronger-than-expected Q3 execution against macro/trade uncertainty; explicit Q4 reset tied to China moderation and leading-edge timing visibility; sustained DRAM momentum and advanced packaging trajectory .

What Went Well and What Went Wrong

What Went Well

  • Record quarter with broad-based strength; Semiconductor Systems revenue $5.43B (+10% YoY), AGS core services growth (~+10% YoY), Display second consecutive quarter of growth; non-GAAP EPS $2.48 (record) .
  • Leadership in AI-enabling device inflections (gate-all-around, backside power, HBM/advanced packaging); CEO: “We are best positioned at the major device inflections that enable the AI roadmap” .
  • DRAM strength: expected ~50% FY25 growth from leading-edge customers; Edge services surpassed $1B revenue in the quarter; “DRAM is very strong… not a blip” .

What Went Wrong

  • Q4 guide reset: sequentially lower revenue and EPS driven by China capacity digestion and non-linear leading-edge demand; China expected ~29% of Q4 revenue vs 35% in Q3 .
  • Lower-than-anticipated Q3 leading-edge growth due to slower fab build schedules; GAA purchases for FY25 revised to “just over $4.5B” vs prior ~$5B .
  • AGS margin compression (27.8% vs 29.6% YoY) on customer mix; continued muted ICAPS investment amid lower utilizations, with only “green shoots” ex-China .

Financial Results

Core P&L Trend (sequential: Q1 → Q3 FY2025)

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Billions)$7.17 $7.10 $7.30
GAAP Gross Margin %48.8% 49.1% 48.8%
Non-GAAP Gross Margin %48.9% 49.2% 48.9%
GAAP Operating Margin %30.4% 30.5% 30.6%
Non-GAAP Operating Margin %30.6% 30.7% 30.7%
GAAP EPS ($)$1.45 $2.63 $2.22
Non-GAAP EPS ($)$2.38 $2.39 $2.48

YoY Comparison (Q3 FY2025 vs Q3 FY2024)

MetricQ3 FY2024Q3 FY2025YoY
Revenue ($USD Billions)$6.78 $7.30 +8%
GAAP Gross Margin %47.3% 48.8% +150 bps
GAAP Operating Margin %28.7% 30.6% +190 bps
GAAP EPS ($)$2.05 $2.22 +8%
Non-GAAP EPS ($)$2.12 $2.48 +17%

Consensus vs Actuals

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue Consensus Mean ($USD)$7.159B*$7.123B*$7.212B*
Revenue Actual ($USD)$7.166B $7.100B $7.302B
EPS Consensus Mean ($)$2.296*$2.310*$2.359*
EPS Actual (Non-GAAP, $)$2.38 $2.39 $2.48

Values retrieved from S&P Global*.

Segment Breakdown

Segment Net Revenue ($USD Millions)Q1 FY2025Q2 FY2025Q3 FY2025
Semiconductor Systems$5,356 $5,255 $5,427
Applied Global Services$1,594 $1,566 $1,600
Display$183 $259 $263
Segment Operating Margin % (GAAP)Q1 FY2025Q2 FY2025Q3 FY2025
Semiconductor Systems37.1% 36.2% 36.2%
Applied Global Services28.0% 28.5% 27.8%
Display7.7% 26.3% 23.6%

KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Cash from Operations ($USD Billions)$0.93 $1.57 $2.63
Non-GAAP Free Cash Flow ($USD Billions)$0.54 $1.06 $2.05
Capital Expenditure ($USD Millions)$381 $510 $584
China % of Revenue31% 25% 35%
Taiwan % of Revenue17% 28% 25%
Korea % of Revenue23% 22% 16%
Share Repurchases ($USD Billions)$1.318 $1.670 $1.056
Dividends Paid ($USD Millions)$326 $325 $368
Cash & Equivalents ($USD Billions)$6.26 $6.17 $5.38
Total Debt ($USD Billions)~$6.26 (LT $5.461 + ST $0.799) ~$6.26 (LT $5.462 + ST $0.799) ~$6.26 (LT $5.463 + ST $0.799)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Net Revenue ($USD Billions)Q3 FY2025 → Q4 FY2025$7.2 ± $0.5 $6.7 ± $0.5 Lowered
Non-GAAP Gross Margin %Q3 FY2025 → Q4 FY202548.3% ~48.1% Lowered
Non-GAAP EPS ($)Q3 FY2025 → Q4 FY2025$2.35 ± $0.20 $2.11 ± $0.20 Lowered
Non-GAAP OpEx ($USD Billions)Q4 FY2025N/A~$1.31 New
Non-GAAP Tax Rate %Q4 FY2025N/A~12.6% New
Segment Revenue ($USD Billions)Q4 FY2025N/ASemi Systems ~$4.7; AGS ~$1.6; Display ~$0.35 New
China % of RevenueQ4 FY2025N/A~29% incl. Display New
Gate-All-Around Purchases (FY2025)FY2025~$5.0B (prior view) “just over” $4.5B Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1, Q2)Current Period (Q3)Trend
AI/technology initiativesEnabling leading-edge inflections; export headwinds noted Reaffirmed leadership in GAA/backside power, DRAM/HBM; integrated systems adoption; EPIC Center on track for Spring 2026 Strengthening strategic positioning
Supply chainRobust global manufacturing footprint; no significant demand changes in Q2 Leveraging robust supply chain and footprint to navigate near-term uncertainties Stable/positive
Tariffs/macroExport control headwinds (Q1 outlook) Tariff-related headwinds offset via mix/pricing; macro/policy uncertainty lowers visibility Persistent headwind
Product performance (GAA)Ramp expected; multi-year trajectory FY25 GAA purchases revised to ~$4.5B; uneven order pattern from market concentration/fab timing Near-term slower, long-term intact
Regional trendsChina % rev: 31% (Q1), 25% (Q2) China 35% in Q3; guided to ~29% in Q4; digestion to last “several quarters” Moderating from Q3 spike
Regulatory/legalExport licenses impacting trajectory Backlog of export licenses; Q4 guide assumes no approvals Visibility constraint
R&D executionEPIC investments ramping EPIC capex continues; global EPIC platform supports co-innovation Investment sustained
Advanced packagingStrong CAGR; high share “On track to more than double to >$3B” over next few years; steady pace vs last year Durable growth

Management Commentary

  • CEO: “Applied Materials delivered record performance in our third fiscal quarter… very confident in the longer-term growth opportunities for the semiconductor industry and Applied Materials.”
  • CFO: “We are expecting a decline in revenue in the fourth quarter driven by both digestion of capacity in China and non-linear demand from leading-edge customers given market concentration and fab timing.”
  • CEO: “Our long-term growth thesis… remains unchanged… Applied is best positioned at the major device inflections that enable the AI roadmap.”
  • CFO: “Non-GAAP gross margin was 48.9, up 150 basis points year over year… driven by product and segment mix and pricing as we work to offset tariff-related headwinds.”
  • CEO (on packaging): “We are well positioned… our packaging business is on track to more than double to greater than $3,000,000,000 over the next few years.”

Q&A Highlights

  • China trajectory and visibility: Management expects China revenue to be ~15–20% below 2024 levels for “the next few quarters,” with Q4 guide assuming ~29% share and no license approvals; digestion from heavy 2023–2024 builds .
  • Leading-edge logic nonlinearity: Order pattern uneven due to market concentration and fab timing; underlying demand intact, but FY25 GAA purchases revised to just over $4.5B (vs ~$5B prior) .
  • DRAM/HBM durability: Leading-edge DRAM expected to post record or near-record year; pull from HBM growth (30–40%) supports sustainable DRAM investment .
  • Advanced packaging: Pace steady relative to last year; highest share area; >$3B trajectory over next few years; not materially impacted by leading-edge timing .
  • Licenses: Backlog growing; no immediate upside even if approvals occur—build planning and services activation require time .

Estimates Context

  • Q3 FY2025 revenue beat: $7.302B actual vs $7.212B consensus*; Q3 non-GAAP EPS beat: $2.48 vs $2.36 consensus*. Values retrieved from S&P Global*.
  • Sequentially, AMAT was slightly below revenue consensus in Q2 ($7.10B vs $7.12B*) but above EPS consensus ($2.39 vs $2.31*), and above both revenue/EPS in Q1 ($7.166B vs $7.159B*; $2.38 vs $2.296*) . Values retrieved from S&P Global*.
MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue Consensus Mean ($USD)$7.159B*$7.123B*$7.212B*
Revenue Actual ($USD)$7.166B $7.100B $7.302B
EPS Consensus Mean ($)$2.296*$2.310*$2.359*
EPS Actual (Non-GAAP, $)$2.38 $2.39 $2.48

Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Execution strong into Q3 with margin expansion and segment breadth; but Q4 guide reset frames a near-term digestion phase driven by China moderation and leading-edge timing. Expect volatility but maintain focus on secular drivers .
  • DRAM/HBM remains a core bright spot with sustainable investment trends; monitor leading-edge logic orders for linearity and backlog conversion into 2026 .
  • Advanced packaging is a multi-year growth vector (> $3B trajectory) with high share; less sensitive to near-term leading-edge timing .
  • Watch China revenue mix normalization (~29% guide) and export license backlog—management is conservative and assumes no approvals in Q4; upside timing uncertain .
  • Non-GAAP EPS benefited and GAAP EPS was impacted by tax items (valuation allowance, intra-entity intangible transfers); effective non-GAAP tax rate modeled ~12.6% in Q4 .
  • Capital returns ongoing ($1.4B distributed in Q3; $14.8B buyback authorization remaining), supported by robust cash generation (CFO ~$2.6B, FCF ~$$2.05B in Q3) .
  • Near-term trading: skewed to guidance/visibility headlines (China %; leading-edge order timing). Medium-term thesis: AMAT’s leadership at AI device inflections (GAA, backside power, HBM, heterogeneous packaging) underpins multi-year share gains and revenue opportunity expansion .

Appendix: Additional Data Points

  • Geography (Q3): China $2.548B (35%), Taiwan $1.843B (25%), Korea $1.160B (16%), U.S. $0.683B (9%), Japan $0.713B (10%) .
  • Q4 modeling elements: Semi Systems ~$4.7B, AGS ~$1.6B, Display ~$0.35B; non-GAAP GM ~48.1%; OpEx ~$1.31B; tax rate ~12.6% .
  • Non-GAAP reconciliations: EPS excludes ~$0.01 acquisition charges; includes ~$0.04 tax benefit from intra-entity intangible transfers in Q4 outlook; GAAP tax provision impacted by $410M valuation allowance in Q3 .
  • Strategic U.S. manufacturing: New $200M Arizona components facility; partnership supplying American-made equipment to TI for Apple’s program .