The operator welcomes participants to the Applied Materials Earnings Conference Call and explains the format of the call. Michael Sullivan, Corporate Vice President, introduces Gary Dickerson, President and CEO, and Brice Hill, Chief Financial Officer. He reminds listeners that the call contains forward-looking statements and includes non-GAAP financial measures. He also announces a technology breakfast event at Semicon West and invites listeners to join. Gary Dickerson thanks Michael and begins his presentation.

Applied Materials has had a strong performance in the second quarter and is well-positioned to benefit from the growing demand for semiconductors. The company's innovations are crucial in enabling major technology trends such as AI, IoT, and clean energy. This has resulted in double-digit growth for their service business. The increasing complexity of the semiconductor industry has led to closer collaboration with customers and partners, allowing Applied Materials to capture more value in their service business. The company is at the forefront of major technology inflections and is driving growth and innovation in the semiconductor ecosystem.

AI will have a significant impact on technology and the key to its success lies in advanced chips. Applied has leadership in four key semiconductor technologies and has made investments in next-generation solutions. They have a strong market share in both transistors and interconnects, and with the transition to gate-all-around transistors, their available market is expected to grow significantly. They expect to generate over $2.5 billion in revenue from gate-all-around nodes this year and potentially double that in 2025.

DRAM memory makers are using logic technologies in peripheral circuitry to improve performance and power consumption. The company is a leader in process equipment for DRAM and has strong positions in die-stacking technologies. Revenue from HBM packaging is expected to be 6 times higher this year, growing to over $600 million. Revenue from advanced packaging product portfolio is expected to reach $1.7 billion this year and has potential to double in the future. Applied Materials has invested in materials science and engineering solutions that enable major semiconductor inflections and has consistently outperformed the wafer fab equipment market for the past five years.

Despite facing trade restrictions in the China market, we have successfully gained share in our served market. We expect materials engineering to play a larger role in wafer fab equipment as technology advances. Our strategy includes earlier collaboration with customers and partners, providing complete solutions, and helping customers transfer new technology into high-volume manufacturing. Our service business is also experiencing double-digit growth, with a record revenue of $1.5 billion this quarter.

Applied Materials had a strong performance in 2024 and is well-positioned to benefit from the growing demand for semiconductors in various industries. The company's advanced technologies and collaboration with customers and partners are driving growth in their service business. Brice Hill, the company's spokesperson, discussed their business environment and highlighted their ICAPS business which serves multiple markets. He also discussed their capital allocation strategy and operating model, and provided a summary of their Q2 results and Q3 guidance. The global market for semiconductors is expected to continue growing, and the company is optimistic about the data center trends and strong capital spending plans from cloud service providers.

The data center market is expected to become the main driver of foundry-logic wafer starts, surpassing PCs and smartphones. The company had a strong quarter in DRAM, advanced packaging, ICAPS, and services. The data center AI trend is driving demand for leading-edge logic, DRAM, and advanced packaging. ICAPS is also seeing demand from IoT, electric and autonomous vehicles, and renewable energy. The company expects ICAPS to remain a large part of their business due to increasing demand and innovation. The company's capital allocation strategy is generating healthy free cash flow.

Applied Materials' top priorities are investing in research and development and capital infrastructure, as well as growing their dividend per share and distributing excess cash to shareholders. They invest heavily in R&D and capital additions each year, collaborate with customers, design manufacturing systems, manage a global factory and supply chain, and reinvest profits into R&D. They also distribute excess cash to shareholders and have a consistent and stable growth in their services sector.

In summary, the company has seen significant growth in revenue, non-GAAP EPS, free cash flow, and dividends per share over the past ten fiscal years. In the second quarter, net sales, non-GAAP gross margin, and non-GAAP EPS all increased year-over-year. The Semiconductor Systems and Applied Global Services segments performed well, while the Display segment showed potential for growth. The company also generated strong cash flows and distributed a significant amount to shareholders through dividends and buybacks. The guidance for the third quarter includes expected revenue of $6.65 billion and non-GAAP EPS of $2.01.

The paragraph discusses the company's revenue expectations for different sectors and their non-GAAP gross margin and operating expenses. The speaker also mentions their expectations for a tax rate and then moves on to discussing their ongoing conversations with large customers and their visibility for the second half of the year. They mention a drop-off in DRAM shipments but expect strength in ICAPS and leading-logic to backfill it. The company also expects a ramp-up in gate-all-around process technology and equipment in the second half.

In the paragraph, the speaker discusses the potential growth of the company in 2025, focusing on the gate-all-around technology and other key inflections in the fastest-growing markets. They mention a projected $2.5 billion growth in gate-all-around shipments in 2024, with expectations for significant growth in 2025 as the technology ramps up towards high-volume manufacturing. They also mention the potential for doubling growth in advanced packaging, as well as potential growth in HBM and ICAPS. The speaker suggests that the company has the potential to over-deliver relative to a flat WFE market in the coming years.

The company expects its leading-logic technologies, advanced packaging, HBM memory, and services business to grow faster than the average market and gain share over the next several years. They have seen a 10 percentage point improvement in DRAM share over the last 10 years and expect to continue to benefit from the architecture inflections in DRAM. The company has a strong presence in the foundry-logic leading-edge market and is well-positioned for future growth in gate-all-around and backside power delivery.

The company is focusing on materials engineering and packaging in order to increase their value and add more value to their services business. They have seen growth in their services business and expect to see even more growth as complex architecture inflections create a need for their services. They also expect to see a significant increase in gate-all-around equipment sales, with $2.5 billion this year and the potential to double that next year. The company is investing in materials engineering to move up the value chain and provide more value to their customers.

The speaker discusses how companies can increase their profitability by adding more value to their products and services. They mention how the industry is constantly evolving and customers are looking for new technologies to stay competitive. The speaker believes that their company, with its broad and connected portfolio, is well positioned to work with customers on these advancements and that this will lead to an increase in value for both parties. They also mention their focus on capturing more value as they work with customers to deliver more value.

Vivek Arya from Bank of America Securities asks about the recent increase in forecast for gate-all-around and HBM. Brice clarifies that the $2.5 billion mentioned this quarter is not an increase, but rather a change in how they are reporting the revenue associated with gate-all-around. The increase is not due to a change in perspective and can be seen in the Q3 guide.

The company is dropping off incremental China DRAM shipments and filling the gap with ICAPS strength and growing leading-logic shipments driven by gate-all-around. The incremental spending is driven by technologies that improve device performance, power consumption, and leakage. These technologies are difficult to achieve and require a broad portfolio of materials. The company expects to double its advanced packaging business in the future, but did not provide a specific timeframe. The growth will be driven by a mix of advanced packaging in logic and HBM.

The focus on advanced packaging and heterogeneous integration is driving innovation in the industry, particularly in high-bandwidth memory and connecting logic and memory chips. This growth is significant as Moore's Law has slowed down. Applied has a broad portfolio of technologies and is well-positioned to benefit from these architecture inflections. They have a full-flow packaging lab and strong relationships with their customers, giving them insight into future opportunities. While they did not give a specific timeframe, they are optimistic about their potential to double their business in packaging in the coming years.

The speaker is answering a question about China and the company's expectations for the country's revenue. They confirm that the percentage of revenue from China will return to the average of 30% in the second half of the year, as previously predicted. The decline in revenue is primarily due to a decrease in DRAM shipments, but this is offset by an increase in ICAPS and leading-edge logic business. The speaker also mentions that the end markets in China are mixed, with some areas showing strength and others being weaker.

The company has seen mixed end markets, but customers are investing in anticipation of future demand. Utilization in these markets has improved and the company predicts a strong quarter in the ICAPS market. There is a broad demand for gate-all-around technology across their customer base, but they will not disclose the breakdown of demand between customers. The company's broad technology portfolio and integration engineering have led to success in the gate-all-around market, with a variety of tools and processes being utilized.

The speaker discusses the company's strength in connecting its portfolio and co-optimizing its products for better power and performance. They also mention that HBM is sold out and could potentially see a large increase in business in 2025. On the NAND side, the business remains depressed but customers are showing improved profitability and cash flow. The company has seen an increase in orders for HBM, but it is not at full utilization.

The speaker discusses the growth potential of NAND technology and its role in the semiconductor industry. They also mention a potential increase in demand for HBM and the two different approaches to backside power delivery in the industry. They estimate a potential $1 billion increase in the market for 100,000 wafer starts per month.

In response to a question about the split between two different approaches and the expected revenues for Applied in backside power delivery, CEO Gary Dickerson stated that they are deeply engaged with customers on the inflection point and are leading in wiring overall. He also mentioned that the timing for revenue is small for 2024 and will grow in 2025, but the significant ramp for backside power is still beyond 2025. In regards to China DRAM, CFO Brice stated that it will come down by $500 million, but it is unclear if this will happen in fiscal Q3.

The speaker, Brice Hill, responds to a question about the company's DRAM business in China. He confirms that the company has seen an increase in DRAM revenue of more than $500 million in each of the last three quarters. However, he does not provide a specific breakdown of how much of this revenue is from China. He also mentions that the company's overall mix of revenue from China is around 30%. When asked about the trends in ICAPS, Hill states that the last three quarters have been strong and that there is no indication of a slowdown or digestion period.

The company had strong quarters in Q1 and Q2, and their Q3 outlook is also positive due to strong performance in ICAPS and expected growth in China in the fourth quarter. They expect China to be a large and important market for them in the future, with no signs of a decline. As the company transitions to a more advanced foundry-logic memory spending profile, this is expected to drive growth in their process control and diagnostics portfolio, which relies on their most advanced tools and solutions. They also anticipate growth in their leading-edge CFE-driven eBeam portfolio.

The pipeline for Applied team looks promising for next year, with process control and diagnostics intensity expected to rise faster than overall WFE intensity due to their unique capabilities and strong synergy with the rest of their portfolio. The coalfield emission technology is a key driver for their eBeam systems, with a projected 4x growth in revenue by 2024. The PDC business is also expected to be a strong growth driver, with a strong pipeline of new products and increasing synergy with the rest of their process equipment business.

Brice Hill, speaking on behalf of the company, discussed their expectations for increased wafer starts and new technologies in ICAPS, leading logic, and DRAM. He also mentioned their strong positions in gate-all-around chips, advanced packaging, and HBM stacking. They anticipate future growth in edge, AI, IoT, automotive, and clean energy, and Gary will be attending upcoming conferences to discuss these topics. The company's momentum in their systems business is driving steady growth in their service business, and they have increased their dividend at an accelerated rate. Brice concluded by thanking the host and announcing upcoming conferences.

The speaker thanks everyone for attending the call and announces that a replay will be available on their website later in the day. They also express gratitude for the audience's ongoing interest in the company. The operator then closes the call.

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