The paragraph is an introduction to the Applied Materials Fourth Quarter Fiscal 2024 Earnings Conference Call. The operator announces that the call will include prepared remarks and a Q&A session, then turns it over to Liz Morali, Vice President of Investor Relations, who introduces the call and reminds participants about forward-looking statements and non-GAAP financial measures. Liz then passes the call to Gary Dickerson, President and CEO, who highlights the company's record revenue and earnings for the fourth quarter, marking the fifth consecutive year of growth and acknowledging the global team's efforts.

A year ago, the company set priorities for 2024 focused on enhancing its R&D programs, improving operations and supply chains, and ensuring sustainable growth. Over the past year, progress has been made in strengthening positions in logic, DRAM, and advanced packaging, achieving double-digit growth in parts and services, and supporting cash flow and margin improvement. Key strategic initiatives like the EPIC R&D platform and Net Zero Playbook are on track. The prepared remarks will address three main topics: the role of energy-efficient computing in driving semiconductor growth and innovation, the importance of Materials Science and Engineering in enabling major industry inflections, and the creation of growth opportunities through the company’s portfolio and advanced services amid increasing industry complexity. Significant technological advancements are anticipated in automation, robotics, transportation, clean energy, and AI.

The paragraph discusses the semiconductor industry's critical role in enabling AI's transformative potential across the economy, highlighting the need for a massive 10,000-fold improvement in computing-performance-per-watt over 15 years for large-scale AI deployment. It emphasizes that significant technological advancements in device architecture, including logic, memory, and advanced packaging, are necessary to achieve such energy efficiency. The text outlines three key opportunities for Applied: providing co-optimized and integrated technology solutions for energy-efficient architecture transitions, which already make up a significant revenue portion; driving earlier and wider collaborations through its global EPIC platform to expedite technology development and market introduction; and improving investment efficiencies.

The paragraph discusses several developments and growth opportunities for a company in the semiconductor industry. The EPIC Center in Silicon Valley is progressing well and expected to be operational by 2026. The company is focusing on services to help customers manage business complexity through advanced service products that enhance R&D, technology transfer, and manufacturing efficiency. This has resulted in double-digit growth in their parts and service business, largely from long-term subscriptions with high renewal rates. They achieved significant growth in their AGS division, with 21 consecutive quarters of year-on-year growth. In 2024, leading-edge logic companies began shifting advanced nodes to high-volume production, generating substantial revenue, which is expected to double by 2025. The transition to new chip architectures is expanding the company's market opportunity by increasing the available market value per capacity at advanced nodes.

In fiscal 2024, the company significantly increased its market share and revenues in key technology areas. It captured over 50% of the process equipment spending for gate-all-around nodes and saw over 60% year-on-year revenue growth in DRAM, driven by the demand for high-bandwidth memory in AI datacenters. The larger dies in high-bandwidth memory and advanced packaging further expanded its market. Its DRAM market share increased by 10 points over the past decade through a focus on enabling technologies. Advanced packaging also saw growth, with revenues reaching $1.7 billion, tripling in four years. The company anticipates continued growth as heterogeneous integration gains adoption and new solutions are introduced.

The paragraph highlights the growing importance of materials engineering in enabling advancements in semiconductor technologies, such as new transistor designs and power distribution methods. Applied Materials has experienced growth in revenue and earnings, driven by strategic positioning in technology inflections, double-digit growth in parts and services, and improved operational performance. Looking ahead, the company sees AI and energy-efficient computing as key industry drivers, with materials engineering expanding its market opportunities. Applied Materials is well-positioned for future success through its capabilities, strategy, and collaborations, delivering solutions to help customers succeed in device architecture developments. The paragraph concludes with the speaker handing over to Brice Hill.

In fiscal 2024, Applied Materials achieved record financial performance with net sales of $27.2 billion, a 2.5% increase from the previous year, and a non-GAAP gross margin of 47.6%, the highest since fiscal 2000. The company returned over $5 billion to shareholders through dividends and share repurchases. Non-GAAP earnings per share rose 7.5% to $8.65. In fiscal Q4, net sales were $7.05 billion, nearly 5% higher year-over-year, bolstered by growth in Semiconductor Systems and Services. China contributed 30% to revenue, aligning with expectations. The segment saw a 35.4% non-GAAP operating margin, slightly down due to the China mix. Overall, the company benefited from operational improvements, higher interest income, a lower effective tax rate, and share repurchases, resulting in a 9% increase in non-GAAP EPS to $2.32.

The paragraph reports on financial and operational results for a company. Key highlights include a 10% year-over-year decline in DRAM sales and flat NAND sales, while foundry-logic sales increased by 12% due to investments in new technology. ICAPS node sales decreased compared to the high demand last year. Applied Global Services (AGS) achieved record revenue of $1.64 billion, a 11% increase, driven by service growth despite decreased 200-mm equipment sales. Non-GAAP operating margin and income increased, with a notable rise in operational metrics such as a 7% increase in the installed base and a 10% increase in tools under service contracts. The Display business met revenue expectations at $211 million, with anticipated future growth in OLED technology investments. The company ended the quarter with $8 billion in cash and $6.3 billion in debt, generating $2.6 billion in cash from operations, and $2.2 billion in free cash flow.

In fiscal 2024, the company generated $8.7 billion in operating cash flow and $7.5 billion in free cash flow. They distributed $5 billion to shareholders, with $3.8 billion from share repurchases, marking a 75% increase from the previous year. There is still $8.9 billion available for further repurchases. For fiscal Q1, the company anticipates revenue of $7.15 billion and non-GAAP EPS of $2.29, both up by 7% year-over-year. The expected breakdown includes $5.3 billion in Semiconductor Systems revenue, $1.65 billion in AGS revenue, and $175 million in Display revenue. They project a non-GAAP gross margin of 48.4%, operating expenses of $1.33 billion, and a tax rate of 14%, all inline with current trade rules. The strong fiscal year was driven by momentum across various markets, supported by an investment-grade balance sheet and solid shareholder returns. The company's portfolio is well-positioned to capitalize on technology trends.

In the paragraph, Stacy Rasgon from Bernstein Research asks about expectations for the China mix and ICAPS strength in the upcoming quarters. Brice Hill responds by noting that the China mix was 30% in Q4 and is expected to remain at that level in Q1, after normalizing from earlier demand. Despite a slight decrease compared to Q4 of '23, the global ICAPS market remains healthy, including in China. Brice expects the market to grow over time, driven by mid- to high-single-digit growth at the device level and continued capacity additions by customers. There are concerns about slower markets like automotive and industrial, but the investment rate has not significantly decreased. Stacy Rasgon follows up by noting that increasing gross margins are not likely due to a rise in the China mix.

The paragraph discusses the factors contributing to the increase in gross margin for a company. Brice Hill explains that the company's underlying gross margin rate has improved to about 48% due to enhancements across various business areas, such as logistics, inventory management, and value pricing. For Q1, the gross margin is projected at 48.4%, mainly due to a strong product mix. Gary Dickerson mentions focusing on strategic opportunities and pricing improvements as key drivers for further margin enhancement. The discussion concludes with a question from CJ Muse regarding future growth plans, particularly for the years 2024 and 2025.

In the article, Gary Dickerson discusses the anticipated growth in the semiconductor industry, projecting it to reach a $1 trillion market by 2030 due to increased wafer starts and capacity expansion. He highlights the consistent growth over the past five years and the acceleration in logic components as advanced nodes are being globally invested in. However, regarding potential changes with the new administration, he cannot speculate on the impact of possible restrictions or policy directions. CJ Muse then asks about the company's gross margins, noting a 48% baseline as a noteworthy achievement. Brice Hill responds by stating that while 48.4% for Q1 is strong, it is neither the floor nor peak, and the company aims to improve margins further through cost projects and equipment enhancements.

The paragraph discusses the outlook for leading-edge technology in the semiconductor industry, addressing a question from Vivek Arya about the disparity between the performance of different foundries. Brice Hill explains that the demand forecast for the industry is driven by end-market requirements, such as data centers, PCs, smartphones, and AI, rather than which foundries supply the capacity. He states that the expectation for leading-edge capacity needs hasn't changed, despite shifts in customer schedules or forecasts. Gary Dickerson adds that there is a strong industry focus on improving energy-efficient computing, with AI significantly contributing to growth due to large die sizes.

The paragraph discusses the anticipated growth in leading-edge foundry logic, highlighting the importance of architectural changes like gate-all-around and backside power distribution in improving energy efficiency by 20% to 30%. It emphasizes the company's strong position to gain market share as these changes take place. The conversation then shifts as Atif Malik from Citigroup asks Brice Hill about their sales in China. Brice clarifies that contrary to Atif's reference to a 20% sales figure, their China sales accounted for 32% of their total revenue last quarter and 30% in the current and projected next quarter, which they consider a normalized rate.

The paragraph discusses how a company's DRAM demand, specifically related to some Chinese customers, initially increased to the mid-40% range but has since normalized to the 30% range, which is considered standard for the company across all its businesses, including Semi Systems, Services, and Display, with significant sales in China. The conversation then shifts to a question from Toshiya Hari from Goldman Sachs about the company's use of value-based pricing and its impact on gross margins. Brice Hill responds by saying they're in the "third inning" of this initiative, which intensified due to COVID-related supply chain issues and cost changes. The company has always considered value pricing but had to reassess it in response to these challenges, focusing on the value provided by their tools and unique applications.

The paragraph discusses the optimism within Applied regarding their technology and product pipeline, particularly concerning energy-efficient computing. Gary Dickerson expresses confidence in the company's growth potential, citing their integrated platforms which make up 30% of their revenue, and advances in areas like foundry-logic, DRAM, advanced packaging, and ICAPS. Toshiya Hari appreciates the insights, and Timothy Arcuri from UBS asks a question about the potential doubling of advanced node revenue from $2.5 billion this year to the next year, inquiring about how much of this growth would be incremental versus cannibalizing existing nodes like N3, N4, and N5. Brice Hill responds, linking this growth to shipments to gate-all-around nodes.

In the paragraph, the discussion revolves around the fiscal year 2024 and the company's shipment of approximately $2.5 billion worth of equipment for gate-all-around nodes, with expectations to double this amount next year. The cost increment for gate-all-around technology is described as increasing the investment from $6 billion to $7 billion for 100,000 wafer starts per month, which signifies a one-sixth increment. Most current shipments focus on leading-edge logic for gate-all-around nodes, replacing revenue from previous nodes. Timothy Arcuri raises a question about the wafer fab equipment (WFE) spending required to support $1 trillion in semiconductor revenue, noting past WFE intensity trends. Brice Hill responds that the increased intensity was largely due to China ramping up capacity, but moving forward, it’s expected to stabilize in the mid-teens percentage range. Gary Dickerson is also part of the discussion but doesn't provide additional input in the snippet provided.

The paragraph discusses the increasing collaboration between Applied Materials and its customers through high velocity co-innovation, focusing on long-term technology development across multiple nodes and enhanced partnerships. This collaboration aims to address rising capital intensity and materials engineering challenges. The conversation then shifts to a question from Krish Sankar about value-based pricing and its relation to technologies like gate-all-around. Gary Dickerson emphasizes the industry's focus on energy-efficient computing and the significant improvements being targeted, indicating that such advancements are challenging to achieve.

The paragraph discusses the challenges and advancements in semiconductor technology, emphasizing the importance of energy-efficient computing. Companies are investing in advanced nodes despite the higher costs because even a small improvement in energy efficiency is valuable. Applied Materials is highlighted for having a unique integrated platform that offers significant enhancements in resistance, which is essential for energy efficiency. The conversation then shifts to the team's services business, noting its consistent year-over-year growth for 21 quarters, which is expected to continue due to improving semiconductor demand. However, current operating margins are slightly below historical levels, prompting a question about the factors affecting margin expansion and the possibility of achieving previous profitability targets.

The paragraph discusses how the company has reallocated more corporate and central expenses to support its segments, which has impacted operating profit. Despite this, they expect to continue improving operating profit and have seen improvements over the last eight quarters. Gary Dickerson mentions significant opportunities in accelerating time to market for innovations and improving technology transfer and high-volume manufacturing. The company is also innovating in services, creating value for customers and enhancing margins. Harlan Sur inquires about the operational benefits of integrated systems, such as increased process module throughput, cycle time, and smaller tool footprint.

In the discussion, Gary Dickerson highlights the dual focus on energy-efficient computing and cost innovation, emphasizing collaboration with customers to optimize new device architectures and reduce costs. He mentions simplifying processes and using pattern-shaping technology to lower the number of EUV steps, which helps decrease costs. Service innovation also plays a crucial role in reducing operating costs. Later, Joe Quatrochi from Wells Fargo inquires about DRAM customers accelerating capacity plans, especially for HBM. Brice Hill responds by confirming that there is an increase in DRAM capacity in general, including more wafer start capacity, though he hasn't calculated how much is driven specifically by HBM.

The paragraph discusses the current state and growth prospects of the DRAM and high-bandwidth memory (HBM) markets. Currently, about 10% of DRAM wafers are dedicated to HBM production, with demand for HBM growing at a rate of approximately 30%. Capacity for HBM is increasing each quarter, indicating strong market growth. Srini Pajjuri asks about overall DRAM growth for fiscal 2024, noting strong past performance and specifying HBM growth contributing significantly. Brice Hill responds, noting the expected growth in the broader semiconductor market, with two-thirds in foundry logic and one-third in memory. He emphasizes a currently strong DRAM market, driven in part by high-bandwidth memory demand for artificial intelligence applications.

The paragraph discusses expectations for growth in NAND and DRAM technologies, with a noted difference in market dynamics. For NAND, the impressive shrink rate has met demand without the need for additional wafer starts, primarily resulting in an upgrade market, leading to a slight uptick in Q1 projections. In contrast, DRAM shows growth through added capacity and more wafer starts. The conversation then shifts to sales in China, where 30% is viewed as a normalized level. Although sales have risen above 40% recently, Brice Hill suggests that whether China sales could drop below 30% by 2025 depends on the health of the ICAPS market in China.

The paragraph discusses the current focus and challenges in the DRAM and NAND business, particularly in China, and the importance of the ICAPS market, which appears strong despite some signals of slower investment due to high inventory and sluggish end markets like automotive and industrial. It mentions optimism from ASML regarding AI-driven DRAM spending and increased lithography demands by decade's end, which may seem different from previous messaging about technologies like vertical transistor and 3D DRAM. However, the speaker views these developments as complementary, with increased lithography demand driving the need for more equipment. Additionally, they highlight active engagement with memory companies on DRAM roadmaps and mention that the shift towards vertical channel transistor DRAM will require more materials engineering.

The paragraph discusses two main topics. The first part highlights the focus on 3D DRAM development, which is expected to be more materials engineering intensive and involves collaboration with various companies. Brian Chin and the operator facilitate a Q&A, featuring Joseph Moore from Morgan Stanley, who asks about the strength in ICAPS despite weaknesses in automotive, industrial, analog, and image sensors. Brice Hill responds that power-related components and microcontrollers are performing well, and ICAPS continues to be strong, although slightly less so compared to the previous year. The semiconductor market is expected to grow towards $1 trillion by 2030, but current utilization levels are lower than ideal, potentially leading to slower investment. The segment concludes with the moderator noting time for one last question from Vijay Rakesh of Mizuho.

In the paragraph, Vijay Rakesh asks about the expectation for China revenues through calendar 2025. Brice Hill responds that the current revenue from China is around 30%, primarily from the ICAPS business, as they are not involved in DRAM, NAND, or leading-edge technology there. Hill sees potential growth in this area over time as the market develops. The session concludes with Brice Hill and Liz Morali thanking participants and informing them that a replay of the call will be available on the Investor Relations website. The conference is then formally closed by the operator.

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