The first paragraph is an introduction to Applied Materials' First Quarter Fiscal 2025 Earnings Conference Call. Liz Morali, the Vice President of Investor Relations, begins by welcoming participants and introducing CEO Gary Dickerson and CFO Brice Hill. She notes that the discussion will include forward-looking statements subject to risks and uncertainties, as outlined in recent SEC filings. Non-GAAP financial measures will also be referenced, with corresponding GAAP reconciliations available on their Investor Relations website. Gary Dickerson then highlights that Applied Materials achieved record revenues in the first fiscal quarter of 2025, driven by advanced semiconductor technology trends that support industry growth and position the company for continued success.

The paragraph discusses the central role of AI in driving innovation and growth in the technology sector, particularly its impact on the semiconductor industry. It highlights the expectation of AI enabling significant advancements in energy efficiency and cost reduction, with the global semiconductor market projected to surpass $1 trillion in annual revenues by 2030. To unlock AI's potential, innovation is required across the technology stack, including data center architecture, chip design, and semiconductor manufacturing. Key focus areas in the industry include leading-edge logic, high-performance DRAM, high bandwidth memory (HBM) through DRAM stacking, and advanced packaging. Additionally, emerging innovations in power electronics aim to reduce energy consumption and power losses within data centers.

The paragraph discusses Applied Materials' strong position in future technology developments like next-generation transistors and advanced packaging, which expand the market for wafer fab equipment. The transition to integrated gate-all-around transistors and other innovations is increasing their total available market and expected revenue significantly. While U.S. trade restrictions impact their ability to serve the Chinese market, Applied Materials anticipates growth across leading-edge markets outside China. The company’s strategy is to focus on high-growth areas to maximize value creation and capture. They are already benefiting from these technological advancements but expect more substantial impacts in the future.

The paragraph outlines the company's strategy to offer unique and connected solutions through its diverse technologies and partnerships, with a focus on high-value, hard-to-replicate integrated systems. An example given is their integrated hybrid bonding interconnect solution, which has seen successful milestones and volume orders, bolstering their leadership in advanced packaging. The company aims to capture more than half of the market by 2024 and double its revenues in the coming years. Another strategic pillar is high-velocity co-innovation, which accelerates technology development and reduces costs through ecosystem collaborations. The company recently launched its EPYC advanced packaging strategy and participated in initiatives funded by CHIPS Act grants to develop advanced packaging substrates.

The paragraph discusses the progress and strategic initiatives of a company, highlighting the construction of the EPIC Center in Silicon Valley, set to open in 2026, and the partnership with TPG to make the Applied Thin Film Battery business independent. The company is enhancing its collaboration model and services to support customers in handling complex, next-gen technology through tools like the Actionable Insight Accelerator platform. Despite trade restrictions impacting near-term growth, they anticipate low double-digit growth in their service division, AGS. The company is focused on innovation and strong financial performance, particularly in areas critical to energy-efficient AI. They report a strong start to the fiscal year, with revenue growth and a 12% increase in non-GAAP earnings per share.

In the fiscal Q1, the company reported net sales of $7.2 billion, a 7% increase year over year, driven by growth in semiconductor systems and global services. The non-GAAP gross margin reached 48.9%, the highest since 2000, due to a favorable mix and adoption of advanced technologies. Operating expenses were $1.31 billion, with increased R&D investments. Non-GAAP EPS was a record $2.38, up 12%. Semiconductor system sales grew by 9%, with significant growth in foundry logic but a decline in DRAM sales. Applied Global Services (AGS) revenue grew 8%, though operating margin slightly decreased. The display business revenue was $183 million. The company had cash and debt of $6.3 billion each at the quarter's end.

In the latest quarter, the company reported $925 million in cash from operations, $381 million in capital expenditures, and $544 million in free cash flow. They returned $1.6 billion to shareholders, including $1.3 billion in share buybacks and $326 million in dividends, with $7.6 billion remaining for share repurchases. The company forecasts strong growth in leading-edge foundry logic but expects more measured investments in ICAPS nodes. Despite robust DRAM demand, they face challenges with year-over-year comparisons due to previous large purchases by Chinese customers in 2024. NAND growth is expected from low levels. Export controls from late 2024 will negatively impact revenue by $400 million in fiscal 2025, affecting AGS significantly in Q2, but growth is anticipated in Q3. China’s revenue contribution is expected to be lower in Q2. Overall, Q2 revenue is projected at $7.1 billion, a 7% year-over-year increase, with non-GAAP EPS projected at $2.30, a 10% increase.

The company anticipates revenue growth in several areas, including semiconductor systems ($5.3 billion, up 8% year over year), AGS ($1.55 billion, up 1%), and display ($250 million). They expect non-GAAP gross margin and operating expenses to be around $1.3 billion and have modeled a 13% tax rate. The business is reported strong with confidence in growth across segments, significant investments in R&D, and increased capital investments for co-innovation with customers, capitalizing on technology transitions and semiconductor growth. Liz Morali invites questions, starting with Toshiya Hari from Goldman Sachs, who inquires about the company's general outlook for the year regarding WFE numbers.

The paragraph discusses the market outlook for 2025, with Brice Hill providing insights. The Q2 guide suggests strong growth in leading-edge technologies like AI, DRAM, advanced logic, and HBM, despite a lower ICAP market in China. Memory remains mostly stable, with NAND showing some growth offset by a slight decline in DRAM. Additionally, while sales and equipment additions in advanced packaging, particularly HBM, continue, the pace has slowed following last year's significant capacity increases. Overall, the outlook reflects consistent year-over-year market growth.

The paragraph discusses the company's strong performance and market position in various advanced technology sectors over the past four years, particularly in advanced logic, DRAM, high bandwidth memory, and ICAPS markets outside of China. Gary Dickerson highlights their focus on AI and energy-efficient computing and their ability to capture significant market share, such as over 50% in gate-all-around and backside power in foundry logic. The company has gained DRAM market share and is well-positioned for future gains as advanced architectures are adopted. Their packaging business has tripled over four years and is expected to double in the coming years. In ICAPS, they have increased their market share since forming the group and have a strong pipeline of new products. Overall, they are confident in their ability to continue outperforming in these segments.

Atif Malik asks Brice Hill about the potential for growth in silicon systems in the coming quarters. Brice responds that while they are waiting to see specific outcomes in semiconductor systems, they anticipate growth in leading-edge technologies due to their advantages in the market. There's uncertainty in the ICAPS market, particularly with ICAPS China, which seems to change quarterly. The services business is expected to experience a temporary setback due to new trade rules, but is projected to grow at a low double-digit rate as new services, customers, and locations are added. Stacy Rasgon from Bernstein Research inquires about the impact of China on AGS in the second half and seeks clarification on how AGS can return to growth in Q3 despite this impact.

In the paragraph, Brice Hill addresses a question about the financial impact of China sanctions on AGS, stating that approximately half of the $200 million impact will occur in Q2, with continued effects in subsequent quarters. Despite these sanctions, AGS is expected to grow in low double digits. Hill reassures that from a core AGS perspective, growth remains strong, excluding the $200 million issue. In response to CJ Muse's question about gross margins, Hill confirms a consistent 48% underlying rate despite challenges, and discusses maintaining strong mix strength, acknowledging lesser mix strength for Q2 due to China impacts.

The paragraph discusses the company's expectation for gross margins, suggesting that without exceptionally strong quarters, they aim for a normalized rate of around 48%, though they are not providing annual guidance. The focus is on pricing dynamics, emphasizing the value of the solutions they're developing and the importance of strategic pricing discussions with customers. The company is investing R&D in high-value market areas and acknowledging that realizing this value requires effective execution. The process of pricing is described as being in its early stages ("third inning"). The paragraph ends with a transition to a question from Vivek Arya of Bank of America, asking Gary about the growth prospects and market share potential of LIDHO versus HNEP in the context of overall WFE (Wafer Fabrication Equipment) and semiconductor industry growth.

In the paragraph, Gary Dickerson discusses various technological advancements in the semiconductor industry, highlighting key areas of focus such as leading-edge foundry logic, gate-all-around, backside power, and DRAM innovations like 4F squared and 3D DRAM. He emphasizes significant benefits such as improved area scaling, power, and performance with minimal changes in feature size. Dickerson also notes the industry's increasing emphasis on advanced packaging and materials engineering, particularly for future AI server architectures, predicting that spending on materials innovation will rise significantly across different market segments.

In the paragraph, Bryce Hill discusses the company's market share and challenges related to the WFE (Wafer Fab Equipment) market, particularly concerning competition in China. While the company believes it has gained market share across most markets, China remains challenging due to the advantages held by local vendors under existing trade rules. The company sees China as a significant market, particularly in ICAPS, and continues to add customers there despite lower visibility and headwinds. The equipment investments in recent years have been robust, and the company anticipates growth in China's market over time.

In the paragraph, the speaker discusses the company's strong position in leading-edge foundry logic, DRAM, bandwidth memory, advanced packaging, and ICAPS. They highlight their gains in DRAM market share, advancements in 4F squared and 3D DRAM, and significant growth in advanced packaging. Additionally, the company is focusing on expanding its ICAPS segment and launching new products to increase its total available market. The operator then introduces Harlan Sur from JPMorgan, who asks about the impact of the upcoming two-nanometer node transition and its potential volume production compared to three nanometers, noting accelerated design starts in areas like AI, accelerated compute, and mobile. Brice Hill acknowledges the question and suggests that Gary might add more insights.

The paragraph features a discussion about the significance of the two-nanometer node, with expectations for it to be a major advancement akin to the seven-nanometer node. Gary Dickerson emphasizes the focus on energy-efficient computing for AI, and highlights optimism about the node's potential size. Krish Sankar inquires about the company's position and market share in the gate-all-around technology, where Gary expresses confidence in maintaining more than a 50% share of the incremental total addressable market. He mentions strong partnerships and future innovations, particularly in the Epi steps, which strengthens their market stance.

The paragraph features a discussion about the company's outlook and market strategy in China amidst export restrictions. Srini Pajjuri from Raymond James inquires about the company's expectations for their exposure to the Chinese market, referencing a previous 30% target. Brice Hill responds that 30% remains a long-term goal, noting that while the company can't access the leading-edge market, they still see growth potential in the ICAPS market within China, which is projected to grow as part of a $1.3 trillion semiconductor market by 2030. In Q2, the company's exposure to China was 26%, with a target of 30% long-term, including all business segments. Gary Dickerson adds that China is still their largest market within the ICAPS sector, even as the leading-edge market grows.

The paragraph discusses a strategic overview of a company's investment and market growth trajectory. It mentions a slight slowdown in the rate of investment following two years of significant growth, but emphasizes long-term growth opportunities and continued customer acquisition. Gary Dickerson highlights the potential for the ICAPS market to grow in the mid to high single digits over time, supported by new products that expand market opportunities. Additionally, Brice Hill addresses a $549 million backlog reduction, clarifying that the actual impact for the fiscal year is closer to $400 million, with part of the backlog extending beyond the 12-month period.

In the paragraph, Joe Quatrochi from Wells Fargo asks about expectations for DRAM growth, specifically excluding the impact of increased China spending from a year ago. Brice Hill acknowledges two strong years for DRAM and mentions that despite not specifying the year, the global investment in DRAM continues, driven by demand for high-performance systems and HBM solutions. Gary Dickerson adds that they are more optimistic about growth in compute memory compared to storage memory, noting that producing HBM requires three times the number of wafers, which boosts growth. The conversation then shifts to Charles Shi from Needham and Company, who inquires about expected revenues from gate-all-around nodes, referencing a previously mentioned figure of over $2.5 billion for 2024 and querying any changes in expectations for 2025, tied to 100k global capacity at two-nanometer nodes.

The paragraph discusses the expectations for growth in gate-all-around related equipment spending leading into 2026. Brice Hill explains that they anticipate spending $2.5 billion in 2024, with the potential to double that in 2025, reaching over $7 billion. This indicates significant manufacturing capacity being established, potentially involving around 100,000 wafer starts in high-volume manufacturing. The discussion also mentions that adding backside power enhances their market opportunity. Gary Dickerson highlights that combining gate-all-around and backside power increases their available market. The paragraph concludes with Chris Caso from Wolfe Research asking about the company's confidence in customer forecasts, acknowledging good visibility despite the lack of full-year guidance.

In the paragraph, Brice Hill discusses the varying levels of confidence and visibility in different segments of the semiconductor industry. There is high confidence and visibility with larger customers, particularly in leading logic, DRAM, and NAND segments, due to longer planning perspectives requested post-COVID and inflation events. In the ICAP segment, visibility is also good with mature companies, but less so with newer ones, leading to volatility in forecasts. Hill notes increased Chinese forecasts over recent years and mentions the need to understand end demand in markets like data centers, PCs, and smartphones for leading logic predictions. The focus then shifts to Vijay Rakesh from Mizuho, who is about to ask a question related to the packaging side.

The discussion focuses on the growing importance of packaging in the semiconductor industry, particularly for memory and logic components. Brice Hill highlights that their packaging-related revenues are expected to be $1.7 billion in 2024, indicating strong growth due to the increasing demand for high-performance systems. Gary Dickerson mentions the goal to double packaging revenue in the coming years, driven by innovations and new technologies supported by CHIPS grants. He emphasizes that changes in AI server architecture will further boost this segment, presenting significant growth opportunities. Mehdi Hosseini then presents a question regarding an SSG backlog of $8.3 billion, which is a 23% decline year over year.

The paragraph discusses the backlog of $6.8 billion for AGS (presumably a company division) that is up by 32%, noting that multi-year contracts contribute to this large backlog. The average contract life is around 2.9 years, which distorts or enlarges the backlog figures. There is a brief mention of a $200 million reduction due to restrictions in China, which is a small part of the AGS backlog. Brice Hill explains that such contracts affect the book-to-bill ratio. On the equipment side, the company has stopped quarterly reporting of the backlog as it doesn't accurately reflect the business due to supply chain and COVID-19 impacts, and they seek longer commitments from customers. No additional information beyond their 10-K filing is provided. Tim Schultz Milander from Redburn Atlantic then asks questions to Gary and Bryce. Tim asks Gary about advanced packaging and volume orders, seeking details on device applications and manufacturing timelines. He asks Bryce to provide more details on tax asset revaluation for modeling purposes.

In the paragraph, Gary Dickerson discusses the company's strong position in packaging revenue across different architectures and emphasizes the potential for innovation in energy-efficient computing. Brice Hill addresses a tax-related question, explaining that a recent renewal of incentive rates in Singapore has reduced the value of a deferred tax asset created when assets were moved to Singapore. This change in tax rates results in a lower tax rate, which is good news, but also makes the tax asset less valuable. The $674 million revaluation of the tax asset is a specific event, and Hill suggests there is no significant forward-looking impact.

The paragraph describes the conclusion of a conference call. During the call, participants could ask questions by pressing a specific phone key sequence. Bryce Hill highlighted their company's strong position in the semiconductor industry and collaboration efforts. Liz Morali then announced that a replay of the call would be available on the Investor Relations website. The operator ended the call by thanking participants and confirming the call's conclusion.

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