The paragraph is an introduction to the Applied Materials Second Quarter Fiscal 2025 Earnings Conference Call. It features remarks from Liz Morali, Vice President of Investor Relations, who introduces the purpose of the call and its key speakers, Gary Dickerson (CEO) and Brice Hill (CFO). The discussion will include forward-looking statements and non-GAAP financial measures, with references to ongoing risks, uncertainties, and available reconciliations in their financial filings. Gary Dickerson mentions the company's strong performance, including record earnings per share, which he attributes to effective global operations and supply chain management, amidst a dynamic macro environment and consistent customer focus on innovative technologies.

Applied is collaborating with customers and partners to accelerate growth in the semiconductor industry amid major technological shifts like IoT, automation, electric vehicles, and clean energy, all reliant on advanced semiconductors. Central to this is AI, considered the most transformative technology with limitless applications. Significant advances in computing performance and energy efficiency are needed for AI's large-scale deployment, reshaping semiconductor design and manufacturing. This is affecting investment patterns in the wafer fab equipment market, with increased investment in leading-edge foundry-logic and DRAM anticipated by 2025, despite reduced spending in China for DRAM and mature logic. There is also a slight increase in NAND investment from previously low levels.

Applied Materials is strategically poised for growth in 2025 and beyond, despite experiencing market access challenges in China in 2024. The company has outpaced peers outside of China due to strengths in leading-edge foundry and DRAM, and has grown revenues for five consecutive years, continuing this momentum in 2025 with a 7% revenue increase year-to-date. Applied Materials is increasing high-value service coverage, with over two-thirds of service revenue from subscriptions, and anticipates further growth. The company is well-positioned for future industry developments, leveraging leadership in key device architecture innovations and a unique solutions portfolio. These developments enhance opportunities for growth in the wafer fab equipment market, particularly in advanced foundry-logic.

The paragraph discusses how Applied Materials is capitalizing on advancements in semiconductor technology, particularly integrated gate-all-around and backside power delivery, which increase their revenue potential compared to previous FinFET technology. They are also focusing on advanced DRAM technologies, anticipating a 40% revenue growth by 2025 due to investments in DDR-5 and high-bandwidth memory. The company is introducing innovative solutions, such as the Sym3 Magnum etch system and Cold Field Emission eBeam technology, which are gaining market adoption and boosting revenues. With a broad product portfolio, Applied Materials emphasizes early market entry through high-velocity co-innovation and collaboration with customers and partners, aiming for faster development of next-generation technologies.

The paragraph outlines Applied's strategy and performance updates. The company is on track with the construction of its new R&D facility, the EPIC Center in Silicon Valley, which is set to open in Spring 2026. Despite a dynamic macro environment, Applied maintains strong financial performance and stable customer demand. The semiconductor industry's focus on high-performance, energy-efficient AI computing continues to drive its roadmap, and Applied is well-positioned to capitalize on major device architecture changes. Their co-innovation strategy with customers and partners helps accelerate market entry for new technologies. Brice Hill highlights the company's robust fiscal Q2 results, including significant revenue growth and record earnings per share, driven by investments in AI-related semiconductors amid a challenging economic and trade landscape.

In Q2, the company experienced strong financial performance, distributing approximately $2 billion to shareholders through dividends and share repurchases, and buying back 1.4% of outstanding shares. Total net revenue increased by 7% year-over-year to approximately $7.1 billion, with growth across all business segments. The non-GAAP gross margin reached 49.2%, the highest since 2000, due to a favorable product mix, while operating expenses were contained, with increased R&D spending balanced by reduced G&A costs. Non-GAAP earnings per share hit a record $2.39, a 14% rise from the previous year. Semiconductor Systems revenue rose by 7% to $5.26 billion, driven by growth in foundry-logic and NAND upgrades, despite declines in ICAPS nodes and DRAM. Applied Global Services (AGS) saw a 2% revenue increase to $1.57 billion, with stable operating margins, as service growth offset a decline in 200-millimeter equipment sales. The Display business earned $259 million, maintaining an operating margin of 26.3%.

In the recent quarter, the company closed with $6.2 billion in cash and $6.3 billion in debt, generating $1.6 billion in cash from operations, which constituted 22% of revenues. Capital expenditures rose to $510 million due to investments in the EPIC facility. Free cash flow stood at $1.1 billion, with capital allocation increasing to $2 billion through $325 million in dividends and $1.7 billion in share buybacks. The Board approved a 15% dividend increase and an additional $10 billion for share repurchases, leaving $15.9 billion available for future buybacks. Looking ahead, the company anticipates growth in Q3 led by advanced foundry logic products and stable DRAM and NAND markets.

The paragraph provides a financial outlook for fiscal Q3, anticipating total revenue of $7.2 billion, with a 6% year-over-year increase at the midpoint, and a non-GAAP EPS of $2.35, reflecting an 11% increase. The Semiconductor Systems segment is expected to generate $5.4 billion, up 10% year-over-year, while AGS revenue is projected at $1.55 billion, down 2% due to trade restrictions and reduced demand for 200mm equipment. Display revenue is expected to be $250 million. The company forecasts a non-GAAP gross margin of 48.3% and operating expenses of $1.3 billion, with a tax rate of 13%. It highlights its agility in managing supply chain challenges and remains optimistic about long-term growth, driven by a $1 trillion semiconductor market prospect by the decade's end. The paragraph ends with a transition to a Q&A session, encouraging participants to limit their questions to one.

Stacy Rasgon from Bernstein Research inquires about the performance of the services segment in China, specifically regarding the impact of China restrictions on equipment and services, and the apparent lack of sequential growth in Q3 for the AGS segment. Brice Hill responds by acknowledging the elements Rasgon mentioned, noting that while the core business saw record performance in Q2 and is expected to grow at low double digits annually, there were impacts from reduced China business due to trade restrictions. The 200-millimeter equipment slowdown contributed to the weaker Q3 performance, though year-over-year growth was achieved. Hill emphasizes that AGS is expected to grow at low double digits moving forward as the company adapts to the new trade rules, with marginal growth reflected in the Q3 guidance.

The paragraph discusses the financial outlook and factors affecting a business segment. The core business is expected to see low double-digit year-over-year growth, mainly due to its recurring revenue model, with 90% being recurring revenue and 66% under subscription agreements. However, the 200-millimeter segment is weaker than expected due to lower utilization and demand for power electronics, leading to declines in that area. Despite these challenges, there's confidence in achieving low double-digit growth, supported by service innovation and a significant number of connected tools. The section also includes interactions from analysts asking questions about these dynamics.

In the paragraph, Brice Hill and Gary Dickerson discuss their company's growth projections, highlighting that their sales growth is consistent at around 7%, compared to peers expecting double-digit growth. They attribute this to their exposure to the ICAPS end-markets, which include IoT, communication, automotive, and power sensors. They expect mid-to-high single-digit growth in these mature logic markets, aiming for a $1 trillion to $1.3 trillion market by 2030. Approximately 25% of their business involves China's semiconductor market, where they face some competition restrictions but still perform well. China is investing in 28-nanometer technology, an area where the company holds a strong position. Gary Dickerson clarifies that the mid-20s percentage represents their total company revenue from China's semiconductor market, including equipment and service.

The paragraph discusses the positive outlook for Applied's business, emphasizing their strong positioning in key growth areas related to AI, such as high-performance logic, memory, and power electronics. It highlights their focus on expanding in the ICAPS sector, with new products targeting large new segments and cost-sensitive markets. The company has experienced growth over the past five years and anticipates continued growth moving forward. CJ Muse from Cantor Fitzgerald then asks Brice about gross margins, referencing a previous discussion about a 48.2% margin floor due to China normalization and potential trade tensions, and inquires about future margins in relation to pricing, cost reductions, and manufacturing distribution between Austin and Singapore.

The paragraph discusses the company's financial performance and strategies for managing costs and tariffs. Brice Hill mentions that the company achieved a margin of 48.2% to 48.3%, an improvement from previous levels, due to favorable product mix, pricing, cost management, and logistics improvements. Tariffs had a minimal impact on margins due to pre-tariff inventory and a flexible global manufacturing and supply chain. The company anticipates sustainable margin improvements through value-based pricing and continued cost management. Gary Dickerson echoes these points, emphasizing progress in cost improvements and value capture, which contributes to sustainable margin enhancement.

The paragraph discusses the current state and growth prospects of the DRAM sector, particularly focusing on High Bandwidth Memory (HBM). Melissa Weathers from Deutsche Bank inquires about balancing the cyclical aspects of DRAM with the growth driven by HBM. Brice Hill responds by highlighting that HBM is significantly contributing to DRAM's success, representing 16% of DRAM wafer starts and growing at a 40% rate. This has kept DRAM, particularly in the AI data center segment, at very high operational levels, potentially reaching record figures. Gary Dickerson adds that over the past decade, their company has gained 10 points of market share in the DRAM sector.

The paragraph discusses the rapid growth in the compute-memory market, particularly within the AI data center sector. It highlights the increasing adoption of DDR5 and HBM by top customers, leading to 40% growth. The company is strategically positioned in the DRAM market and anticipates significant advancements with the new 4F2 architecture, which presents substantial opportunities. This positions the company, Applied, for continued strong growth and innovation in the DRAM sector. Additionally, Harlan Sur from JPMorgan inquires about the expected acceleration in spending on leading-edge technologies for the second half of the year. Brice Hill responds positively, confirming that there is indeed an acceleration of leading-edge technology investments.

The paragraph discusses the anticipated trends in investment and growth within the semiconductor industry. It notes that after a period of slower investment in mature technologies, leading-edge technologies are expected to accelerate in 2023 and 2024, driven by factors like increasing capital expenditure by cloud service providers and new factory announcements from leading companies. The growth trend is expected to be sustained, particularly in areas such as AI data centers and leading-edge logic. Equipment utilization is high, and the business is growing at a nearly 7% rate. Timothy Arcuri from UBS Securities asks for confirmation on growth expectations, assuming a 30% increase in the second half of the year and queries about overall growth for the year, considering that other companies anticipate a first-half-weighted growth in wafer fabrication equipment (WFE).

In the conversation, Brice Hill discusses the outlook for their core business, highlighting that despite challenges in serving some accounts in China, they are expecting low double-digit growth for the year, excluding 200-millimeter equipment sales. The 200-millimeter sales will make the overall AGS business growth appear smaller. For the first half, Applied's growth is near 7%, driven by stable market trends and an acceleration in leading-edge technology. While specific guidance for the latter half of the year isn't provided, the current demand trends remain steady. Timothy Arcuri seeks clarity on whether the second half will be flat compared to the first, but Brice Hill reiterates that they are not giving guidance beyond acknowledging steady growth trends.

Krish Sankar asks about the momentum of leadership products in light of new technologies and competition, particularly given emerging Chinese competitors in CVD, Etch, and CMP. Gary Dickerson responds, emphasizing that their leadership products are targeting key technology inflections driven by AI, such as gate-all-around and backside power distribution, where they expect to capture over 50% of the available market. He highlights their strong positioning and market gains in high-performance logic, compute memory, DRAM, high-bandwidth memory, and advanced packaging, all of which are crucial for AI advancements. Additionally, he mentions their significant share and deep industry engagements in these areas, discussing meeting with key CEOs in the sector.

The paragraph discusses the company's confidence in gaining market share through early and deep collaborations with customers in response to new architecture inflections. It mentions the theme of high-velocity co-innovation and the importance of being first to market. The conversation then shifts to BESI, highlighting a 5-year collaboration that was recently extended. The company values BESI's energy-efficient compute solutions and has invested in BESI, alongside other investments like the EPIC facility in Sunnyvale and share buybacks. Gary Dickerson emphasizes BESI's leadership in die-to-wafer and die-to-die bonding and notes the development of an integrated hybrid bonding product involving six technologies.

The paragraph discusses a discussion on the revenue guidance for the July quarter, which is set between $6.7 billion and $7.7 billion. Brice Hill explains that the range has been widened by $100 million due to increased business size and heightened volatility in macroeconomic, market, geopolitical, and trade conditions. This adjustment is not based on a mathematical formula but rather aims to reflect the current uncertain environment. Mehdi Hosseini questions if this volatility affects more the ICAP business compared to leading-edge strategic parts, to which Gary Dickerson agrees, noting that regulatory changes and tariffs contribute to this uncertainty.

The paragraph consists of a Q&A session during a conference call, focusing on the NAND business. Srini Pajjuri from Raymond James inquires about the sustainability of growth in the NAND sector, despite customers reducing utilization while spending is expected to improve. Brice Hill responds by acknowledging recent growth in the NAND business, attributing it to technology and factory upgrades aimed at reaching the latest nodes. He notes that although utilization is lower, investments are primarily for process technology advancements with a view to supporting a projected low-20s percentage growth in bit demand. Consequently, customers continue with planned technology upgrades despite changes in utilization.

The paragraph discusses Applied Materials' strategy and approach to innovation and risk in the advanced packaging industry. Gary Dickerson explains that advanced packaging is a critical industry inflection point, involving the integration of various high-performance technologies. Applied Materials is a leader in this space, actively investing in new capabilities and operating an advanced packaging lab in Singapore. The company maintains strong, collaborative relationships with customers, which provides high visibility into industry trends and helps guide strategic investment decisions. This deep customer engagement, along with Applied's extensive portfolio, positions the company well to drive industry innovation and expand their market presence.

The paragraph discusses the growth and market position of Applied Materials, particularly in China. Timm Schulze-Melander and Charles Shi are in conversation, with Shi inquiring about competition from a new Chinese company, Scaria, which launched tools overlapping with Applied Materials' offerings. Shi is concerned about the potential impact on Applied's market share as new companies emerge in China. Gary Dickerson responds by emphasizing that China is a significant portion of their revenue, particularly in the 28-nanometer space where they hold a higher market share. He reassures that Applied Materials has a strong innovation pipeline through their ICAPS group, which was established in 2019, to expand their market with new products that offer cost innovations, thereby enhancing their competitive position and market potential.

The paragraph discusses the competitive nature of the ICAPS market and the confidence in their positioning for upcoming technology advancements in Advanced Logic, specifically regarding 2-nanometer and 16-angstrom nodes. Despite current geoeconomic uncertainties, they believe that demand, particularly driven by data centers and AI components, remains strong. Leading-edge factories are operating at full capacity, and the gate-all-around technology, especially with backside power delivery, is expected to significantly enhance power performance and density, indicating a promising technological advancement.

The paragraph discusses the positive outlook for the demand and growth in the semiconductor industry, particularly towards 2030. It mentions expectations of significant technology advancements and investments by key players, such as cloud service providers and foundries. Chris Caso from Wolfe Research inquires about the growth perspective for the upcoming year, especially concerning the WFE (wafer fab equipment) models. Brice Hill explains that they foresee a steady growth trajectory for the equipment business, driven by technologies like AI, data centers, robotics, and large language models. These technologies are seen as strong demand drivers, with corresponding industry investments already underway.

The paragraph discusses investment trends and growth expectations for a company referred to as "Applied," which has seen five years of growth and is currently experiencing a 7% year-to-date increase. The focus is on whether investment in key areas like cloud service providers, foundries, and innovation platforms will continue. Brice Hill provides a year-over-year outlook on various market segments: foundry and logic are expected to grow due to leading-edge improvements offsetting declines in mature logic, DRAM is stable, and NAND is growing year-over-year but might be down sequentially. The expectation is for smooth growth towards 2030, acknowledging potential unevenness.

The paragraph discusses the current state and outlook of the DRAM business, indicating that it's performing well despite some variations in shipments over different quarters, particularly to China. Stacy Rasgon and Brice Hill discuss expectations for DRAM, NAND, and foundry and logic segments, with DRAM expected to decrease sequentially while NAND, foundry, and logic are expected to increase. Brice Hill expresses satisfaction with record operations and highlights investments in industry collaborations. The call concludes with upcoming investor events and the availability of a replay on the Investor Relations website.

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