The Applied Materials Earnings Conference Call begins with an introduction from the operator, followed by a reminder about forward-looking statements and non-GAAP financial measures. The call is then turned over to Corporate Vice President Michael Sullivan, who introduces President and CEO Gary Dickerson. Dickerson discusses the company's strong results and its unique portfolio that positions it to outperform the industry. He also shares insights from a recent investor event that highlighted the technology trends driving the semiconductor industry and Applied's role in enabling them.

The speaker will discuss key themes from a recent event, including the importance of energy-efficient computing for deploying AI at scale, the role of materials engineering in this roadmap, and Applied Material's efforts to accelerate progress. Semiconductors are crucial for major technological shifts such as AI, and companies are now prioritizing power efficiency over speed. A 10,000 times improvement in performance-per-watt is needed in the next 15 years, and this requires major innovations in device architecture, driven by materials science where Applied is a leader.

The paragraph discusses the role of advanced chips in datacenters for training AI models. It mentions the four key categories of semiconductor technology used, including leading-edge logic, high-performance DRAM, high-bandwidth memory, and advanced packaging. The transition from FinFET to gate-all-around transistors is expected to increase the available market for transistor modules, and the implementation of Backside Power Delivery is predicted to increase the available market for interconnect modules. The company also expects to gain share in both areas. In DRAM, the company has established leadership and expects future growth with the next major inflection. The paragraph also mentions the company's position to enable the 4F-squared inflection.

Applied expects a 15% increase in their addressable market with the transition to 3D DRAM technology. They also have strong leadership positions in die-stacking technologies for high-bandwidth memory and expect to generate $600 million in revenue from HBM packaging this year. They anticipate their advanced packaging product portfolio to grow to $1.7 billion in 2024 and believe that their materials engineering expertise will play a crucial role in future device architecture inflections. Their investments and strategy are focused on accelerating the industry's roadmap to support high-growth areas such as AI datacenters, edge-AI and IoT, robotics, electric vehicles, and clean energy. This is enabled by their broad and connected portfolio of highly enabling technologies.

Applied Materials is continuously improving and expanding its offerings to address the evolving needs of its customers. This includes providing integrated solutions, building new capabilities and teams, and fostering collaboration with customers and partners. The company is also focused on helping customers bring new technologies to market quickly and efficiently. These efforts have contributed to record growth for Applied Materials and position the company well for future success.

The paragraph discusses the increasing demand for semiconductors and the need for innovation in the industry. It also mentions the retirement of Mike Sullivan and the introduction of Liz Morali as the new Head of Investor Relations for Applied Materials. The company's strong execution in the third quarter and positive outlook for the fourth quarter are also highlighted.

In Q3, the industry saw strong demand for AI and data center computing, leading to record revenue for the company. There were improvements in key metrics and operational performance, resulting in a non-GAAP gross margin increase of 100 basis points. R&D investments were focused on technology inflections, leading to a 12% increase in non-GAAP EPS. The company generated significant cash flow and distributed $1.2 billion to shareholders. In the Semiconductor Systems segment, sales were up 5% year-over-year, with a 130 basis points increase in non-GAAP operating margin. DRAM sales grew by nearly 50% year-over-year.

The company's DRAM sales in China declined as expected, resulting in a decrease in overall revenue in China. However, NAND memory sales saw a 10% increase year-over-year. Foundry-logic demand was lower compared to the previous year but showed sequential growth. The company expects to generate significant revenue from gate-all-around nodes this year and even more next year. The ICAPS market is expected to remain strong due to advancements in IoT, autonomous and electric vehicles, and the global energy transformation. The company is investing in new products and working with customers to enable new device architecture inflections. Applied Global Services had record revenue in Q3, with recurring revenue growing faster than overall segment revenue. Customer factory utilization improved across different segments, and future growth indicators for AGS are positive.

The company's installed base of systems and chambers increased 7% and average revenue-per-unit increased. The average subscription agreement length increased to 2.8 years with a renewal rate above 90%. The company expects low double-digit growth in its AGS division and has a history of increasing dividends. In the Display division, revenue was up 7% and the company is confident in the adoption of OLED technology in larger screens. The company expects revenue of $6.93 billion and non-GAAP EPS of $2.18 in Q4, with growth in all divisions. The Q&A portion of the call will be limited to one question per person.

The speaker is answering a question about the company's outlook for the second half of the year and for 2025. He mentions that there is strong energy around AI inflections and leading-edge technology, and the company's forecast for gate-all-around related equipment remains the same. The ICAPS business is also strong and continues to exceed expectations. There is a lot of investment in AI and DRAM/HBM memory.

In the paragraph, the speaker discusses key themes for the company's future, including gate-all-around technology and their enthusiasm for leading-edge technologies. They also address the company's revenue from China, stating that it has increased to 32% due to a strong market for ICAPS and adding new customers. The speaker expects this trend to continue in the next quarter and for the rest of the fiscal year.

In the upcoming quarter, the company expects to see a decrease in DRAM sales in China, but still predicts a strong year for DRAM globally. The company also expects growth in ICAPS, driven by clean energy and AI edge sensors. They anticipate mid- to high-single-digit growth for ICAPS in the long term.

The speaker, Brice, was asked about the impact of recent CapEx cuts at Intel on the WFE market. However, Brice stated that their outlook for the fiscal year remains unchanged, with a projected $2.5 billion for the leading-edge market. He also mentioned that they regularly receive updates from customers and there have been no significant changes to their view for the leading-edge market.

The speaker responds to a question about the growth expectations for foundry-logic in 2025, specifically in relation to new process nodes like gate-all-around and capacity. They mention that utilization has improved in all end markets this quarter and expect it to continue next quarter. They also mention that there is optimism for DRAM and NAND WFE growth, but they cannot comment on next year specifically. They believe that DRAM will put new capacity in place, leading to investment in the market.

In the third quarter, there was an increase in wafer start capacity for DRAM and more allocation of capacity to HBM. This resulted in higher investment levels compared to NAND. However, both DRAM and NAND saw improvements in utilization and prices, leading to a more positive outlook for both memory technologies. The services business also experienced solid growth, with low double-digit growth expected in the future. While there was some impact from slower utilization growth, overall there is good news as utilizations are improving and expected to continue improving in the future.

The company's CEO and CFO discuss the stability and growth potential of the business, with 85% of revenue coming from recurring sources. They also mention a focus on new device architectures and high-complexity integrated platforms, which are expected to drive growth. In terms of advanced packaging, the company expects a significant increase in revenue due to HBM-related equipment, while the non-memory portion is expected to remain stable.

The speaker discusses the company's gross margins, which were at 47.4% in the quarter. They were pleased with their performance in cost and pricing, despite a decline in their mix to China. They aim to reach a baseline of 47.4% and a goal of 48% or higher next year. They believe they can make improvements going forward.

The speaker discusses the push for advanced manufacturing and packaging technologies, with a focus on 2-nanometer and 3-nanometer designs. These designs are being used for AI and accelerated compute GPUs and are targeting the second half of 2025 and beyond. The use of 3D SoIC architectures is also mentioned.

The company Applied is focused on heterogeneous integration, which is a key part of the race for 100x improvement in energy-efficient computing. They have a broad portfolio in packaging, including hybrid bonding and digital lithography, and are working on new technologies to expand their portfolio even further. They have an advanced full flow packaging lab in Singapore and are co-innovating with customers to accelerate architecture inflections. The company expects to double their packaging revenue in the next few years.

The speaker discusses the growth of energy-efficient computing and the decline in China revenue for Applied Materials. They expect the China revenue to decrease by 15-20% next year, with the exception of the ICAPS market. The speaker also mentions that utilizations are improving in China.

The company is seeing growth in their customer base, particularly in factory projects. Excluding extraordinary DRAM shipments, the ICAPS market is expected to grow mid- to high-single-digits. TSMC was a 10% customer in Q3 and there is a lot of energy and investment in leading-edge technologies. The company's outlook for leading-edge has not changed throughout the year.

The speaker asks for clarification on the growth of a segment in the previous quarter and the expected growth in the future. They mention the strong performance of the leading-edge and ICAPS markets, and ask for more information on the mix and utilization. The speaker also mentions various end markets that are expected to drive growth in ICAPS in the future. Another person on the call then asks a question about ICAPS.

The speaker discusses the growth potential of the ICAPS market, driven by various segments such as IoT, industrial automation, and edge computing. They mention their focus on innovation and new product development in this market, as well as collaborations with customers on new architectures. They believe that the ICAPS market will continue to grow and they have invested heavily in this area.

The speaker discusses the potential growth opportunities in the ICAPS market and the company's positive positioning in that market. They also mention that two regions have shown growth in the third quarter. The speaker expects gradual improvements in gross margin towards the target of 48%, despite some headwinds. They also mention the EPIC R&D center and its importance in accelerating co-innovation with customers, although they did not receive the expected grants for the project. The company will continue with the investment and will benefit from an investment tax credit.

The speaker discusses the help they receive from the government and mentions some modeling notes, including an increase in CapEx and a higher tax rate. They also mention the EPIC center, which will enable them to bring energy-efficient innovations to market and is receiving positive feedback from customers and partners. The company has built an innovation engine and has teams working on various areas of the industry.

Brice Hill, Chief Financial Officer of Applied Materials, is pleased with the company's recent financial results and believes they are well positioned to grow with emerging technologies such as datacenter AI. The company plans to continue investing in their technology roadmap and distributing profits to shareholders. A replay of the conference call will be available on their website.

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