The Applied Materials Earnings Conference Call has begun with the operator introducing Michael Sullivan, Corporate Vice President, who will be leading the call. The call will include forward-looking statements and non-GAAP financial measures, and a panel discussion at the SPIE Advanced Lithography and Patterning Conference. CEO Gary Dickerson then discusses the company's strong start to fiscal 2024 and the success of their innovation strategy.

Applied has consistently outperformed its markets for the past five years and is well-positioned for the future as customers transition to new chip innovations. The company's technology capabilities and customer relationships allow them to anticipate and accelerate key technology advancements in areas such as AI, IoT, electric vehicles, and renewable energy. The company is seeing improvement in overall market dynamics and expects its business to continue to grow in 2024, particularly in leading-edge foundry-logic, ICAPS, NAND, and DRAM.

High-bandwidth memory (HBM) is a crucial technology for AI data centers, with a 50% annual growth rate. Applied has significantly increased its share of the DRAM market through its focus on process and packaging steps for next-generation technologies. Applied is also well-positioned for future growth in HBM and other advanced packaging technologies, with expected revenues of $1.5 billion in fiscal 2024.

Applied sees opportunities for its business to double again as heterogeneous integration becomes more widespread and new products are introduced. The company expects to gain a significant share of the market for gate-all-around transistors, which can improve energy efficiency by over 30%. They also anticipate significant growth in their CFE systems revenue and see potential in the ICAPS market, where they have already formed a dedicated team to cater to the needs of these customers.

Applied Materials has released over 20 new products targeting high value device innovations in markets such as AI, IoT, electric vehicles, and renewable energy. These markets are still in the early stages of adoption and require next-generation chips with improved performance, power, and cost. Applied Materials is well-equipped to address this complexity with their broad and deep portfolio of capabilities and products. They are also driving earlier collaboration with customers and partners through their global innovation network and partnerships with organizations like Leti and MIT. Additionally, their advanced services are helping customers accelerate R&D and optimize yield, output, and cost in their factories. As a result, their AGS division has seen 18 consecutive quarters of year-on-year growth.

In the first quarter, AGS saw an 8% increase in revenue and is now at a $6 billion annual run rate. The company expects to maintain this growth rate and has a high renewal rate for its service agreements. Applied Materials has consistently outperformed its markets and is well-positioned for future growth. The company is focused on collaborations and advanced services to drive innovation and meet customer needs. Brice Hill then discusses the company's value creation strategy, growth thesis, and Q1 results. Applied Materials has the most comprehensive process equipment portfolio and expertise in the industry.

Applied Materials is committed to collaborating with customers and investing in R&D to develop new solutions for semiconductor manufacturing challenges. This has led to record equipment sales and a strong position in the DRAM market. Over the past ten years, the company has shown significant growth in revenue, EPS, free cash flow, and dividends per share, while also increasing return on invested capital and reducing net shares outstanding. Looking ahead, Applied expects the semiconductor and equipment markets to continue growing, with the company's equipment business outpacing the market.

Applied Technologies is well positioned for future semiconductor process inflections, with a strong presence in data center AI, edge AI and IoT, and energy transformation. In Q1, net sales declined slightly but non-GAAP gross margin and EPS grew. Semiconductor Systems had strong revenue and record DRAM and edge system sales, while Applied Global Services had record revenue and continued year-over-year growth. The company is investing in R&D and expanding its manufacturing logistics and supply chain to support future growth.

In Q1, AGS revenue increased by 8% to $1.8 billion, with a non-GAAP operating margin of 28.3%. The installed base grew to nearly 49,000 tools and 200,000 chambers. Two thirds of recurring revenue came from subscription agreements. Display revenue was $244 million with a non-GAAP operating profit of 10.2%. Cash flow was $2.3 billion, with $966 million distributed to shareholders. Changes in estimated useful lives and stock-based compensation allocation were made, with no impact on operating profit or EPS but reducing segment operating profit and corporate unallocated costs. There was a 40 basis point increase in gross margin. Guidance for Q2 will be shared.

The company expects revenue to be $6.5 billion, with a potential range of $400 million, and non-GAAP EPS of $1.97, with a potential range of $0.18. They anticipate Semi Systems revenue to be around $4.8 billion, AGS revenue to be about $1.5 billion, and Display revenue to be around $150 million. Non-GAAP gross margin is expected to be 47.3% and operating expenses to be $1.235 billion. The company expects a tax rate of 12.5%. The first question in the Q&A focused on the strong performance of DRAM in China and the company's expectations for its trajectory in the upcoming quarter. The company stated that they saw high shipments of China DRAM in the previous quarter and expect it to remain elevated in the next quarter.

In the paragraph, Brice Hill and Stacy Rasgon discuss the estimated increase in DRAM and China mix for Q4 and the expected normalization throughout the rest of the year. They also mention that the long-term average for China mix is around 30% and it is currently at 45%. They then answer a question about the WFE environment in 2024, stating that they expect limited decline in ICAPS and continued growth in DRAM. They also mention that there is no change in their outlook for 2024 and that they believe DRAM will remain a strong market.

The company expects NAND to improve slightly and sees growth in leading logic due to new investments. They anticipate some digestion in ICAPS in China, but the overall market is expected to grow. They do not have a specific outlook for 2024, but had strong performance in 2023 due to growth in ICAPS, DRAM, and packaging. They expect to continue gaining market share in leading-edge foundry-logic and DRAM, but may see slower growth in ICAPS.

Brice Hill and Gary Dickerson discuss Applied Materials' potential for outperforming in 2024 due to their exposure to fast-growing markets and major inflections. They also mention the upcoming SPY conference and highlight their strong position in foundry-logic leading edge, ICAPS, DRAM, and packaging.

The company is set up for continued outperformance due to several factors, including their breakthrough pattern shaping technology, Sculpta, and new edge and CVD technology for patterning. They expect Sculpta to grow to close to $200 million in 2024 and ramp up to $0.5 billion in annual revenue in the next few years. The company has also increased their served market and share in patterning. As for the outlook for 2025, the company is balancing between customers burning off capacity and technology transitions, but some green shoots have been seen in the industry.

The speaker discusses improvements in the market and customer optimism for 2025. They also mention their broad product portfolio and how it gives them an advantage in new applications such as HBM, gate-all-around, and backside power delivery. They highlight the complexity of building a processor chip and the many steps involved.

Brice, in response to a question from Atif Malik, discussed the normalization of China mix from 45% to 30%. He mentioned that this is due to the shift in demand from China to other regions, and emphasized the company's strong position in other markets. He also highlighted the company's focus on innovation and co-optimization of technologies, which gives them a competitive advantage.

In response to a question about the impact of the mix on gross margin, Brice Hill from the company explains that the underlying gross margin is approximately 46.7% and is expected to improve slowly throughout the year. The company is still targeting a gross margin of 48% to 48.5% for 2025 and is making progress on pricing improvements and cost reduction. In regards to HBM, Gary Dickerson clarifies that it accounts for about 5% of industry output and is expected to see 50% growth in the next few years. It is unclear how much of DRAM WFE is going to HBM currently and if equipment spending will also grow 50%.

Brice Hill discusses the growth potential for the DRAM market, stating that it is difficult to estimate equipment purchases at this point due to the underloaded market. However, customers are shifting some capacity to HBM, which will help drive up utilization and eventually increase equipment orders. The DRAM business has been strong in the past and is expected to continue to be strong. Customers are also expanding their HBM capabilities alongside regular capacity, which will further increase utilization. Toshiya Hari asks about the conventional DRAM and NAND businesses, and Hill mentions the potential for HBM in the DRAM market.

The speaker is asking about the current state of the DRAM and NAND markets and whether there are signs of improvement. The response is that there have been improvements in utilization, pricing, and inventory, indicating rising optimism in the market. The focus for spending will be on technology upgrades and there are signals that spending will increase. Applied has gained significant market share in DRAM over the last 10 years and is well-positioned for future technology advancements.

The speaker discusses the company's strong position in advanced packaging and high bandwidth memory, which they believe will continue to outperform in DRAM. They also mention that they anticipate a healthy business in NAND, with revenue increasing in 2024 but still below 2022 levels. The next question from an analyst asks about delays in advanced foundry-logic programs due to the absence of grant funding from the CHIPS Act, to which the speaker responds that their outlook is consistent with any schedule changes and that the government is beginning to accelerate the process of disbursing funds.

The speaker is responding to a question about the impact of the current market on schedules and projects. They state that while there may be some changes in schedules, they do not expect it to affect the ultimate destination of the projects. The speaker also mentions that the ICAPS business grew by approximately 40% in 2022 and even faster in 2023, making it the largest market for Applied. They also mention that there will be some digestion in ICAPS and an acceleration in the leading-edge market, but they do not provide specific guidance for the quarters. The overall perspective on the market remains unchanged, with a projected $1 trillion semiconductor industry by 2030 and a focus on digital transformation and AI.

Brice and others have a positive outlook on 2025 and see long-term growth for Applied in the semiconductor industry. They are more focused on secular growth rather than quarter-to-quarter performance. There is a clarification on the 2023 WFE baseline and the question is raised about China WFE, with the concern that it may not be a free lunch and could be duplicative spending.

The speaker discusses Applied's performance in the 2023 WFE market, stating that they saw a strong year with ICAPS, DRAM, and packaging strength. They agree that the China WFE market is also strong, with no evidence of stockpiling. They believe there is a mix of leading and public companies investing in projects, and that the investments are rational. They do not see China demand or government incentives as a "free lunch," and believe that all equipment sold will be used and serve an end market.

The operator introduces a question from Joseph Moore about Applied's forecast for $500 million in HBM-related revenue and clarifies that this is a small portion of their overall DRAM run rate. Brice Hill explains that this estimate was based on elevated DRAM demand from China in the previous quarter. Gary Dickerson adds that HBM packaging will increase to $0.5 billion in 2024, while overall Advanced Packaging will reach $1.5 billion. The operator then introduces a question from Brian Chin about Applied's performance compared to the industry.

The speaker discusses the potential impact of material engineering on the performance of leading-edge foundry-logic in the next five years. They mention that in the last decade, multi-patterning had led to outperformance of depth and edge equipment suppliers, but with the adoption of EUV, this trend has reversed. However, with recent discussions about high-end EUV adoption being delayed, there may be a resurgence of multi-patterning, which could drive up material engineering intensity. The speaker also mentions that one of their largest customers has discussed their roadmap going forward.

The company discussed a concept called design technology co-optimization, which involves new structures and materials for scaling. They see a higher percentage of spending on materials innovations, such as gate-all-around and backside power, which will be accretive to their business. They also mentioned that Applied is well positioned for these innovations and expect significant revenue from them in the coming years. In the second half of the year, the ICAPS business may soften, but the leading edge business is picking up to offset this.

Brice Hill, CEO of Applied Materials, discusses the strength of the company's leading edge, which is primarily driven by greenfield new fab build-outs. He also highlights the company's strong portfolio and operational progress, as well as the accelerating growth of their services division. He invites listeners to attend the upcoming Morgan Stanley conference and thanks them for their interest in Applied Materials. A replay of the call will be available on the company's website.

The paragraph informs the reader that the program has ended and they may disconnect. The speaker also wishes them a good day.

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