Q4 2024 Earnings Summary
- Strong Growth in Leading-Edge Foundry Logic: Applied Materials anticipates "significant growth in leading-edge foundry-logic" driven by AI and energy-efficient computing. The company is "well positioned to gain share" in new architectures like gate-all-around transistors and backside power distribution.
- Improved Gross Margins Through Value-Based Pricing: The implementation of value-based pricing and operational improvements have enhanced gross margins. The underlying gross margin rate has improved to about 48.0%, with further gains expected from shipping "more valuable products."
- Increasing Demand in DRAM and High-Bandwidth Memory (HBM): DRAM customers are adding capacity, particularly for HBM, where demand is growing at about 30%. Approximately 10% of DRAM wafers are allocated to HBM production, and Applied Materials sees "capacity increases in the DRAM customers."
- Operating margins in the services business have declined due to structural changes, including increased allocation of corporate expenses, potentially impacting profitability in this segment.
- Reliance on value-based pricing to maintain gross margins, necessitated by supply chain cost increases, may face customer resistance and challenges in implementation, as the company is only in the "third inning" of this process.
- Significant revenue exposure to China, with approximately 30% of revenues coming from China, which may be subject to geopolitical risks and export controls, potentially affecting future growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +5% | Increased demand in Semiconductor Systems and AGS more than offset lower Display revenues, supported by growing investments in DRAM and next-generation technology nodes; export regulation considerations partially constrained growth in certain regions. |
Semiconductor Systems | +6% | Higher customer investments in DRAM transitions and advanced-node expansions drove revenue gains; foundry-logic spending was more mixed, reflecting selective capacity additions in mature nodes. |
Applied Global Services (AGS) | +11% | Expanded installed base and long-term service agreements supported recurring revenue growth, complemented by record spares and higher service intensity on newer tools; continued secular shift toward more comprehensive service contracts. |
Display | -29% | Weaker consumer electronics demand (especially TVs and mobile) drove lower manufacturing equipment investments; this segment remained volatile due to uneven spending patterns and regulatory restrictions in certain geographies. |
Corporate and Other | -75% | Reflects unallocated costs (e.g., management, finance, R&D) and one-time charges tied to restructuring; fewer unallocated sales also contributed to the YoY decline in this category. |
Taiwan | +39% | Increased investments in semiconductor manufacturing, particularly for leading-edge foundry and memory, drove strong regional growth; favorable capacity expansions among key customers contributed to higher revenue. |
China | -28% | Normalization of DRAM shipments followed several quarters of elevated activity; export regulations and some weaker spending in specific memory segments tempered overall revenue growth. |
Korea | +57% | Surging memory (DRAM) investments and strategic technology transitions propelled revenue, offsetting earlier weakness in certain consumer-related areas; overall foundry and packaging spending also increased. |
Southeast Asia | +87% | Higher customer investments in OSAT and back-end semiconductor equipment, along with growing regional manufacturing strategies, significantly boosted revenue; expanding packaging capabilities also supported the rise. |
United States | +44% | Government and customer investments in local capacity for critical industries (e.g., automotive, industrial) spurred capital spending; strong ICAPS demand and continued onshoring efforts further propelled growth. |
Europe | -8% | Reduced spending on high-end production equipment by certain European customers lowered revenue, despite ongoing efforts to diversify regional chip production; cyclical industry patterns also weighed on European growth. |
Net Income | -14% | Higher operating expenses (including R&D and corporate overhead) and ongoing regulatory impacts compressed profitability; while revenue grew, margins were pressured by product mix shifts and incremental costs. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | no prior guidance | $6.93B ± $400M (up 3% YoY) | no prior guidance |
Non-GAAP EPS | Q4 2024 | no prior guidance | $2.18 ± $0.18 (up 3% YoY) | no prior guidance |
Semi Systems Revenue | Q4 2024 | no prior guidance | $5.1B (up 4% YoY) | no prior guidance |
Applied Global Services (AGS) Rev | Q4 2024 | no prior guidance | $1.61B (up 9% YoY) | no prior guidance |
Display Revenue | Q4 2024 | no prior guidance | $200M | no prior guidance |
Non-GAAP Gross Margin | Q4 2024 | no prior guidance | 47.4% | no prior guidance |
Non-GAAP Operating Expenses | Q4 2024 | no prior guidance | $1.275B | no prior guidance |
Tax Rate | Q4 2024 | no prior guidance | 12.5% | no prior guidance |
Total Revenue | Q1 2025 | no prior guidance | $7.15B ± $400M (up 7% YoY) | no prior guidance |
Non-GAAP EPS | Q1 2025 | no prior guidance | $2.29 ± $0.18 (up 7% YoY) | no prior guidance |
Semiconductor Systems Revenue | Q1 2025 | no prior guidance | $5.3B (up 8% YoY) | no prior guidance |
Applied Global Services (AGS) Rev | Q1 2025 | no prior guidance | $1.65B (up 12% YoY) | no prior guidance |
Display Revenue | Q1 2025 | no prior guidance | $175M | no prior guidance |
Non-GAAP Gross Margin | Q1 2025 | no prior guidance | 48.4% | no prior guidance |
Non-GAAP Operating Expenses | Q1 2025 | no prior guidance | $1.33B | no prior guidance |
Tax Rate | Q1 2025 | no prior guidance | 14% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $6.93 billion ± $400 million | 7,045 million | Beat |
Semiconductor Systems Revenue | Q4 2024 | Approximately $5.1 billion | 5,177 million | Beat |
Applied Global Services Revenue | Q4 2024 | Approximately $1.61 billion | 1,639 million | Beat |
Display Revenue | Q4 2024 | Around $200 million | 211 million | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Gate-all-around transistors | Consistently discussed as a major inflection (Q1–Q3) with >50% process spending share, driving significant revenue. | Seen as difficult but critical for advanced nodes; revenue from GAA expected to double in 2025. | Bullish across all periods; remains a core driver of growth and investment. |
Backside power delivery | Mentioned Q1–Q3 as a major device inflection, expecting 50%+ share once it ramps in volume. | Highlighted as critical alongside GAA for energy-efficient computing; adds $1B in spending for each 100k WSPM. | Consistent bullish tone; a key enabler of next-gen logic performance. |
3D DRAM architectures | Recurrent mentions of it increasing TAM by up to 15%. Emphasis on materials co-optimization for DRAM inflections in Q2–Q3. Q1 called it “not specifically mentioned” but HBM was. | Discussed as further out but highly materials-intensive; a future opportunity for Applied. | Ongoing positive sentiment; recognized as a strategic, longer-term growth driver. |
4F squared | Cited in Q3 as adding 10% to DRAM TAM before 3D DRAM. Not mentioned in Q2–Q1 [“No mention” in those calls]. | Described as vertical channel DRAM that is more materials-intensive; part of the lined-up DRAM inflections. | Newer focus; continuing to gain importance for DRAM scaling. |
Energy-efficient computing | Cited throughout the year as a top priority for AI/data center; demands architecture inflections (FinFET→GAA, advanced packaging). | Stressed as central to industry, with AI pushing for major gains in performance per watt; crucial technologies include GAA, backside power, 3D DRAM. | Consistent bullish driver; pivotal theme linked to AI and data centers. |
Advanced packaging | Strong growth from $1.1B to $1.7B (Q3), driven by high-bandwidth memory and future doubling. | Generated $1.7B in FY24, expected to double as heterogeneous integration gains traction. | High-growth area; remains a strategic priority. |
High-bandwidth memory (HBM) | Q3–Q2 saw steep ramp (4x–6x growth in packaging revenue), driven by AI workloads. Q1 indicated 5% DRAM wafer allocation to HBM. | 10% of DRAM wafers devoted to HBM, demand growing 30% annually; contributed >$700M in FY24 packaging revenues. | Bullish momentum; a top driver in DRAM and packaging segments. |
Services business | Q3–Q1 showed ongoing growth (mid- to high-20% margins), recurring revenue 80+%, multi-year agreements. | Posted record AGS revenue of $1.64B and 30% margin, up 2.7 points YoY; over 90% renewal rate. | Steady expansion; continues to provide stable, recurring income. |
Services business margins | Margin in the high-20%/low-30% range over Q3–Q1 (29.6%, 28.5%, 28.3%). | Non-GAAP operating margin at 30%, up 2.7 points YoY. | Improving margin profile, aided by long-term contracts and stable revenue. |
Value-based pricing | Not mentioned in Q3, Q2, or Q1. | Identified as a key contributor to improving gross margins; specifically mentioned in Q4 for integrated applications. | Newly highlighted strategy to capture more value from integrated solutions. |
ICAPS segment | Strong in Q3 with record shipments, mid- to high single-digit growth outlook. Some Q2–Q1 softness expected in 2024, but still a long-term driver. | Slight demand moderation vs. last year but still healthy globally (30% business in China); automotive/industrial/analog/image sensor end markets are slower. | Steady but moderating; remains a significant contributor, especially in China. |
Automotive, industrial, analog… | Mixed signals in Q3–Q1: weaker auto/industrial but some strength in image sensors/power chips. | Called out as slower end markets under ICAPS in Q4, potentially lowering investment pace. | Cautious sentiment; growth slower vs. other ICAPS areas. |
DRAM business | Q3–Q1 saw varied tailwinds from HBM and new architectures. Strong but reliant on next-gen transitions (4F²/3D DRAM). | Up 60+% in FY24, driven by HBM demand; 10% of DRAM wafers for HBM. | Continued optimism, especially from HBM-led demand growth. |
NAND business | Historically depressed in Q2–Q1, with limited new starts but incremental upgrades. | Described as largely a technology upgrade market rather than new wafer adds; bit density fueling supply. | Neutral sentiment; no major capacity expansions expected near term. |
China revenue dependence | Q3–Q1 flagged elevated China DRAM shipments in prior quarters, expected to normalize to 30%. | 30% of total revenue cited as a normalized level, mostly from ICAPS; no leading-edge DRAM/logic sold there. | Stabilized around 30% mix after a prior spike from DRAM shipments. |
Market share expansion | Seen in Q3–Q1 with consistent share gains in logic (GAA), DRAM, advanced packaging. | Growing share in GAA (>50%), DRAM (+10 pts over a decade), and advanced packaging ($1.7B in FY24). | Positive momentum; leveraging inflections for further gains. |
Integrated platforms | Q3–Q1 references cite “fab-in-a-fab” solutions, up from 20% to 30% share of solutions. | About 30% of Semi Systems revenue; key to energy-efficient architectures and 50% resistance improvement claims. | Steady growth in adoption; central to co-optimized device breakthroughs. |
Heterogeneous integration | Q3–Q1 described it as a major enabler for AI and next-gen packaging, with potential to drive revenue higher. | Emphasized in advanced packaging strategy; expected to double advanced packaging business in the coming years. | High-impact for future chip designs; a sustained investment focus. |
Hybrid bonding | Highlighted in Q3–Q2 as a key advanced packaging solution, integral to 3D stacking and HPC memory. | No mention in Q4. | Not currently mentioned; was prominent earlier in 2024. |
Digital lithography | Briefly noted in Q2 as part of advanced packaging portfolio but no major updates. | No mention in Q4. | Low emphasis recently; not a focus in Q3–Q4. |
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Gross Margin Outlook
Q: What's driving gross margin improvement to 48%?
A: The underlying gross margin rate has improved to about 48.0% due to business improvements across logistics, inventory management, cost controls, and the implementation of value pricing. For Q1, they are guiding to 48.4%, benefiting from a strong product mix. They view 48% as the right level longer term and will continue working to improve it. -
China Sales
Q: Is China revenue expected to remain at 30%?
A: China revenue was 30% of total revenue in Q4, down from mid-40s previously when fulfilling specific DRAM demand. The Q1 outlook is also approximately 30%, which they consider a normalized rate. Future levels depend largely on the health of the ICAPS market in China. -
Leading-Edge Foundry Growth
Q: How do you view leading-edge foundry demand?
A: They anticipate significant growth in leading-edge foundry-logic driven by AI and the need for energy-efficient computing. Architecture changes like gate-all-around and backside power distribution improve power efficiency by 20% to 30%, providing a tailwind for Applied Materials. They are well positioned to gain share as customers adopt these new nodes. -
DRAM Capacity and HBM Demand
Q: Are DRAM customers adding capacity for conventional DRAM?
A: Customers are adding overall DRAM capacity, with about 10% of DRAM wafers allocated to high-bandwidth memory (HBM) production. HBM demand is growing at about a 30% rate, leading to more capacity allocated each quarter. They see the DRAM market continuing to be fairly strong. -
WFE Spending Intensity
Q: What's the outlook for WFE spending intensity?
A: WFE intensity increased to around 17% in 2023 due to China's capacity ramp but is expected to decrease slightly over time. They are comfortable with it staying in the mid-teens to support the projected $1 trillion semiconductor market by 2030. -
Value-Based Pricing
Q: How is value-based pricing impacting margins?
A: Value-based pricing is contributing to gross margin improvements. They are in the "third inning" of this initiative, enhancing evaluation of the value provided for each application and strengthening customer communications. Integrated platforms, crucial for technology inflections, make up about 30% of revenue and bolster their value pricing capability. -
ICAPS Market Outlook
Q: Despite slow end markets, how is ICAPS performing?
A: ICAPS remains strong globally, including China. While markets like automotive, industrial, analog, and image sensors have been slower, power-related components and microcontrollers are performing well. They expect customers to continue adding capacity over time , though there may be some slowing of investment due to lower utilizations. -
Services Business Margins
Q: Why are services operating margins below targets?
A: Operating margins are about 100 basis points below prior levels due to allocating more corporate expenses to the segments. They expect to continue improving operating profit even with these increased allocations. -
NAND Market Outlook
Q: What's your outlook for NAND spending?
A: They see a slight growth in NAND in their Q1 outlook. Due to impressive shrink rates delivering needed bits, there hasn't been a need for new wafer starts in NAND, making it more of an upgrade market. -
Impact of Administration Changes
Q: How might a new administration affect restrictions?
A: It's too early to speculate on changes due to a new administration, and they can't provide insights on potential policy shifts at this time.
Research analysts covering APPLIED MATERIALS INC /DE.