The Applied Materials' Earnings Conference Call begins with an introduction from the operator and then Michael Sullivan, Corporate Vice President, takes over. He is joined by Gary Dickerson, President and CEO, and Brice Hill, Chief Financial Officer. The call contains forward-looking statements and non-GAAP financial measures. There is also a calendar announcement for a panel on the future of logic at the IEDM Conference in San Francisco. Gary Dickerson briefly speaks about the recent terrorist attacks in Israel.

Applied Materials is committed to helping their team in Israel stay safe during the dangerous conditions in the country. Despite a decrease in semiconductor and wafer fabrication equipment spending, Applied Materials had a strong finish to fiscal 2023 with record earnings and revenue. They attribute this success to their broad portfolio and their central role in enabling major industry inflections. Many of their business units achieved new records and milestones in the past year, and they believe they can sustain this outperformance in the coming years.

Applied Materials has focused on strengthening their ICAPS business, delivering growth in Services, and improving operations and supply chain. They have a strong installed base and have increased the number of tools under long-term subscription agreements. They are prepared to scale as the industry grows. The company believes that semiconductors will continue to outgrow GDP and the market for wafer fab equipment will grow as technology becomes more complex.

Applied Materials is predicted to outperform wafer fab equipment due to their strong focus on materials science and engineering. They are also expected to see growth in their service business by providing advanced solutions to customers. The company has made strategic investments in their product portfolio and capabilities, making them well-positioned to benefit from industry innovation and growth. They have a strong collaborative relationship with their customers and are expanding this platform with EPIC. Their advanced technology enabled services are highly valued by customers and provide a growing revenue stream for the company.

In summary, Applied Materials expects demand for its products to remain strong in 2024, with increases in demand from foundry logic customers and improvements in the DRAM market. However, demand for ICAPS may be lower due to softness in certain end-markets. The company is also focused on driving R&D programs, making operational improvements, and reducing its environmental impact. The recent export control rule changes are not expected to have a significant impact on Applied at this time.

Applied had a successful fiscal year in 2023, with growth in their semiconductor equipment and service businesses. They expect this outperformance to continue due to their strong positions and collaborations in the industry. They also have positive long-term growth opportunities, with expectations for semiconductors and equipment sales to outpace GDP and their service business to grow alongside equipment sales. Brice Hill, the speaker, thanks the team for their record results and explains how their unique business model, with a focus on R&D in the semiconductor market, creates value for shareholders. Their R&D spending allows them to work closely with customers to solve technical challenges and deliver better semiconductors for strategic markets.

Applied's strong relationships with customers and strategic R&D investments have allowed the company to gain market share and leadership in key semiconductor manufacturing trends. This success has led to impressive growth and returns for shareholders over the past 10 years. Looking ahead, Applied expects continued growth in the semiconductor and equipment markets, with the company's equipment and services businesses outpacing the market.

In the fourth quarter, the company's net sales were slightly lower compared to the previous year, but non-GAAP EPS reached a record high. The company also saw increases in non-GAAP gross margin and non-GAAP OpEx, with a majority of the increase in R&D. The Semi systems segment saw a decline in revenue, but still outperformed the market overall. Applied Global Services saw an increase in revenue and non-GAAP operating margin. For the full year, both segments saw growth despite trade restrictions and lower fab utilization rates.

In Q4, AGS growth was driven by an increase in the installed base, service intensity, and subscription agreements. The company also signed new agreements for sensor and AI-based solutions and eco-efficiency services. Display revenue and non-GAAP operating margin increased, and the company expects improvement in the Display cycle in 2024. In Q4, the company generated strong cash flows and distributed a significant amount to shareholders through dividends and buybacks. The recently updated trade rules are not expected to have a major impact on the company's business in China, which saw growth in Q4.

In Q4, revenue in China accounted for 44% of company sales, with Semi systems making up 20% and AGS and Display making up 7%. The company expects demand for equipment in China to remain strong due to a lower manufacturing capacity compared to global demand. For Q1, the company expects revenue of $6.47 billion and non-GAAP EPS of $1.90. They also disclosed a potential investigation into their China shipments to SNEC, which was previously mentioned in October.

Brice Hill from the company is responding to a question about potential legal issues related to shipments in China. He confirms that they disclosed receiving a subpoena from the U.S. Attorney's Office and are cooperating with the government. He cannot comment further on the ongoing legal matter. The company had previously disclosed this information in their K report. When asked about the strength of demand in China, Hill mentions that they expect it to remain healthy and that they had recently shipped additional DRAM products. He cannot provide further details on their China sales outlook, but mentions that they expect it to stay strong in the future.

The company expects to see elevated shipments to China in the first quarter, with DRAM products being a major contributor. However, they anticipate a decrease in China's share of their business for the rest of 2024. The non-China part of their ICAPS business is also experiencing some weakness, but they expect it to return to historical averages as DRAM shipments normalize.

The speaker discusses the growth of ICAPS over the next few years, expecting mid to high-single digits of growth. They mention that Q1 is a strong guide for ICAPS, but there has been lower utilization due to push-outs from customers. They anticipate a strong year for ICAPS in 2024, but not as strong as 2023. They also mention that Applied has outperformed the market for the past five years and the speaker is optimistic about their performance in 2024, especially in leading foundry logic with the ramping of Gate-All-Around and Backside Power Delivery.

The company expects to see revenue growth in 2024 and in the following years due to major inflections in Backside Power, foundry logic, DRAM, and packaging. They anticipate capturing more than 50% of the overall spend for these inflections and have gained 10 points of overall DRAM share in the last ten years. While ICAPS will be weaker in 2024, the opportunities in these other markets will offset the weakness. The company's CEO and CFO provide insights into each of the end markets and communicate their expectations going forward. A question is asked about gross margins.

The team services business is performing well, with strong year-over-year trends and increasing subscription attachments. Utilizations are still low, but have stabilized across advanced foundry logic and memory. Operating margins in AGS are slightly lower than previous quarters, but the company is committed to reaching its goal of 30-31%.

In response to a question about inflationary pressures and ICAP utilization rates, Brice Hill, the company's CFO, states that while there has been some digestion in ICAPs, the memory and logic segments have remained stable. He also mentions that the company will be improving margins in the AGS business and is committed to a low double-digit growth rate. The next question from Srini Pajjuri is about the non-China ICAPs business over the next 12 months.

Gary Dickerson and Brice Hill discuss the expected business mix for ICAPS, foundry logic, and memory in the coming years. They anticipate that ICAPS will continue to make up about half of the foundry logic business, with the remaining third split between leading edge and memory. They expect the overall market to grow at a mid to high single digit rate, with strong growth in both China and non-China markets. The current guidance for Q1 includes a strong ICAPS market, and they expect continued strength in the coming years.

The speaker from the company is responding to a question about the projected growth of the market in 2023 and 2024. They state that they are not providing a specific number for 2023, but they expect the market to continue growing. They also mention that their company has a strong position in DRAM and ICAPS, which helped offset weaknesses in other markets like NAND and leading logic. They do not provide a specific number for 2024, but they believe DRAM will continue to be strong and NAND will improve from a low position.

In the first part of the paragraph, the speaker discusses their expectations for growth in the leading logic market, particularly with the introduction of Gate-All-Around technology. They also mention that ICAPS, while strong in Q1, may see a decline in utilization. In the second part, the speaker addresses the question of how the recovery of leading edge foundry logic will offset the decline in ICAPS. They mention that while the semiconductor market may not grow as fast, the equipment market is expected to grow at a rate of 40% in 2022 and even faster in 2023. They also note that while ICAPS may not be as strong as it was in 2023, it is still expected to have a strong year.

The speaker discusses the potential offset of growing leading logic and the expected increase in investments due to the start of Gate-All-Around shipping. They also mention their strong position for upcoming inflections in foundry logic, DRAM, and packaging, with the goal of capturing more than 50% of the spend in these areas. The speaker then addresses a question about the utilization of foundries in China and its potential impact on their business, stating that while utilization has decreased globally, they have a diverse customer base serving various end markets in China.

The company believes that the DRAM business is currently in the process of ramping up yields and reaching maturity. They see this as a positive sign for the market as a whole, with a long list of customers and fab projects being installed across the country. The company also believes that the market will remain stable and a strong part of their portfolio going forward, as there is a commitment to self-sufficiency in chip production and incentives in place. The efficiency of spending will be lower for new customers, leading to lower wafer starts and output, but the gap between domestic demand and output will keep the market healthy for years. However, the company does expect slightly less growth in the ICAPS business due to lower utilization and push outs, resulting in a strong but not as strong as previous years.

The speaker is discussing the strong performance of the Semi systems revenue for DRAM this year, which is expected to exceed the last peak year in 2021. They attribute this outperformance to both a better-than-expected market and potential share gains. They also mention that the DRAM market is likely to continue strong due to technology upgrades rather than new capacity. The company's customers are optimistic about the demand for compute memory.

During a Q&A session, a question was asked about the potential impact of AI on the WFE (wafer fab equipment) market. The speaker provided a reference point of 5% of WFE supporting AI workloads, with an expected 30% growth rate in the future. They also mentioned that advanced foundry logic spending is expected to improve in the second half of 2024, with strong ICAPS and DRAM in the first quarter. The question was asked by Brian and answered by Brice Hill.

The speaker asks a question about the WFE and its expected growth compared to semiconductors. The company representative responds by stating that the industry has been growing and that new investments in wafer starts and capacity are necessary. They also expect the intensity to increase due to new technologies and capabilities. The next question asks about the tradeoff between leading edge and ICAPS next year.

During a recent earnings call, a question was asked about the outlook for foundry logic in 2024. The company's response was that they did not make a specific prediction, but they did mention that ICAPS would likely not be as strong as it was in 2023 due to pushouts and lower utilization. They also mentioned that leading logic is currently weak but expected to improve throughout the year with the ramping of new technologies. The company could not make a definitive call on which market would dominate. The last question asked was about the pushouts in ICAPS, and the company confirmed that it was related to the auto industry.

Brice Hill, CEO of Applied Materials, discusses the company's progress and success in a down year. They have seen growth in their Semi systems business and record sales in their services division. The company has made R&D investments to prepare for the next wave of inflection spending and has a line of sight to over 50% market share in key areas. They are also increasing gross margins and generating strong free cash flow, allowing for potential shareholder distributions. Brice concludes by thanking listeners and wishing them a happy Thanksgiving.

The speaker thanks everyone for participating in the call and announces that a replay will be available on the company's website. They express gratitude for the continued interest in Applied Materials and the operator concludes the call.

This summary was generated with AI and may contain some inaccuracies.