Q1 2024 Applied Materials Inc Earnings Call
Okay.
Welcome to the applied materials earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session. I would now like to turn the conference over to Michael Sullivan Corporate Vice President. Please go ahead Sir.
Operator: Welcome to the Applied Materials Earnings Conference call. During the presentation, all participants will be in a listen-only mode.
Operator: Afterward, you will be invited to participate in a question and answer session. I would now like to turn the conference over to Michael Sullivan, Corporate Vice President. Please go ahead, sir.
Michael Sullivan: Good afternoon, everyone and thank you for joining apply its first quarter of fiscal 2024 earnings call. Joining me are Gary Dickerson, our president and CEO and Brice Hill, our Chief Financial Officer before.
Michael Sullivan: Good afternoon, everyone, and thank you for joining Applied's first quarter of fiscal 2024 earnings call. Joining me on the call are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer. Before we begin, I'd like to remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause our actual results to differ. Information concerning these risks and uncertainties is contained in Applied's most recent Form 10-K filing with the SEC.
Speaker Change: Before we begin I'd like to remind you that today's call contains forward looking statements, which are subject to risks and uncertainties that could cause our actual results to differ information concerning the risks and uncertainties is contained and apply its most recent Form 10-K filing with the SEC.
Michael Sullivan: Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures are found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. Before we begin, I have a calendar announcement. On Monday evening, February 26th, Applied will host a panel at the SPIE Advanced Lithography and Patterning Conference in San Jose.
Speaker Change: Today's call also includes non-GAAP financial measures.
Speaker Change: Reconciliations to GAAP measures are found in today's earnings press release and in our quarterly earnings materials, which are available on our website at IR dot applied materials Dot com.
Speaker Change: Before we begin I have a calendar announcement on Monday evening February 26th applied will host a panel at the SPE advanced lithography and patterning conference in San Jose joining us will be leading experts from Nvidia Intel imac and Siemens ebay will also have demonstrations with several new products in <unk>.
Michael Sullivan: Joining us will be leading experts from NVIDIA, Intel, IMEC, and Siemens EDA. We'll also have demo stations with several new products and technologies we'll be introducing at the event. There won't be a webcast, so we hope you'll join us in San Jose.
<unk> will be introducing at the event there won't be a webcast. So we hope you'll join us in San Jose.
Speaker Change: And with that introduction I'd like to turn the call over to Gary Dickerson.
Gary E. Dickerson: And with that introduction, I'd like to turn the call over to Gary Dickerson. Thank you, Mike. Applied Materials made a strong start to fiscal 2024 with first quarter revenue in the high end of our guidance and earnings that exceeded our guided range. Our inflection-focused innovation strategy is delivering results. We have outperformed our markets for five consecutive years and believe we are in a great position as customers transition major new chip innovations to high-volume production over the next several years. The breadth of our technology capabilities, combined with our deep customer relationships, allows us to see inflections early and accelerate key technological innovations that are critical to scaling AI, IoT, electric vehicles, and renewable energy. We have reshaped and expanded our portfolio of solutions that enable next-generation transistors, new interconnect schemes, including backside power delivery, high-performance DRAM, including high-bandwidth memory, and specialty applications in the ICAPS market.
Thank you Mike.
Gary E. Dickerson: Slide materials made a strong start to fiscal 2024 with first quarter revenue and the high end of our guidance and earnings that exceeded our guided range.
Gary E. Dickerson: Our inflection focused innovation strategy is delivering results, we have outperformed our markets for five consecutive years and believe we are in a great position as customers transition major new chip innovations to high volume production over the next several years.
Gary E. Dickerson: The breadth of our technology capabilities combined with our deep customer relationships allows us to see inflections early and accelerate key technology innovations that are critical to scaling AI Iot electric vehicles and renewable energy.
Gary E. Dickerson: We have reshaped and expanded our portfolio of solutions that enable next generation transistors, new interconnect schemes, including backside power delivery high performance DRAM, including high bandwidth memory and specialty applications in the <unk> market.
Gary E. Dickerson: In my prepared remarks today I'll provide some examples of how these inflections grow applied available market and are highly accretive to our share.
Gary E. Dickerson: In my prepared remarks today, I'll provide some examples of how these inflections grow Applied's available market and are highly accretive to our share. I'll also talk about our long-term strategy to accelerate innovation and commercialization velocity through tighter collaboration with our customers and partners. But to begin, let me share our latest perspective on the market environment. In our discussions with customers, we hear that overall market dynamics are improving.
Gary E. Dickerson: Also talk about our long term strategy to accelerate innovation and commercialization velocity through tighter collaboration with our customers and partners, but to begin let me share our latest perspective on the market environment.
Gary E. Dickerson: And our discussions with customers, we're hearing that overall market dynamics are improving.
Gary E. Dickerson: There is a reacceleration of capital investment by cloud companies.
Gary E. Dickerson: There is a reacceleration of capital investment by cloud companies, fab utilization is increasing across all device types, and memory inventory levels are normalizing. In terms of applied business in 2024, we see leading-edge foundry logic being stronger year over year, even though some important projects are delayed. We're forecasting ICAP's demand to be slightly lower than in 2023, with weakness in some end markets being offset by strong regional investment.
Gary E. Dickerson: <unk> utilization is increasing across all device types and memory inventory levels are normalizing.
Gary E. Dickerson: In terms of applied business in 2024, we see leading edge foundry logic being stronger year over year, even though some important projects are delayed we're forecasting <unk> demand to be slightly lower than 2023 with weakness in some end markets being offered.
Gary E. Dickerson: Sad by strong regional investments.
Gary E. Dickerson: We expect our NAND revenues to be up year-on-year, but NAND revenues to remain less than 10% of total wafer fab equipment spending. And we see continued strength in our DRAM business driven by customers ramping up the production of high bandwidth memory. High-bandwidth memory, where high-performance DRAM dies are stacked and connected to logic dies with advanced packaging, is a key enabler for the AI data center. However, the dies used in high-bandwidth memory are more than two times larger than standard DRAM, which means that more than twice the capacity is needed to produce the same volume of chips.
We expect our NAND revenues to be up year on year, but NAND to remain less than 10% of total wafer fab equipment spending.
Gary E. Dickerson: And we see continued strength in our DRAM business driven by customers ramping production of our high bandwidth memory.
Gary E. Dickerson: High bandwidth memory, where high performance DRAM dies are stacked and connected to logic dye with advanced packaging is a key enabler for the AI data center.
Gary E. Dickerson: The dyes used in high bandwidth memory or more than two times larger than standard DRAM, which means that more than twice the capacity is needed to produce the same volume of chips.
Gary E. Dickerson: On top of this, the packaging steps needed for die stacking further increase our total available market. High Bandwidth Memory, or HBM, made up only about 5% of DRAM output in 2023 but is expected to grow at a 50% compound annual growth rate over the coming years. DRAM is a great example of how our inflection-focused innovation approach is working. By focusing on the critically enabling process and packaging steps for next-generation technologies, Applied has significantly increased its share of the DRAM market. In 2023, we estimate that our DRAM share will be more than 10 points higher than it was a decade earlier. And our DRAM revenues were larger than our two closest process equipment peers combined. We're also best positioned for future growth thanks to our leadership and logic technologies that have been implemented in DRAM peripheral circuitry applications to enable significantly increased IO speeds, our strong position in DRAM patterning, our unique co-optimized hard mask solutions, which are critical for capacitor scaling, and advanced packaging, where we have strong leadership positions in micro bump and through silicon via that will enable multiple generations of high bandwidth memory. In fiscal 2024, we expect our HBM packaging revenues to be four times larger than last year, growing to almost half a billion dollars.
Gary E. Dickerson: On top of this the packaging steps needed for die stacking further increase our total available market.
Gary E. Dickerson: High bandwidth memory or HBM made up only about 5% of DRAM output in 2023, but is expected to grow at a 50% compound annual growth rate over the coming years.
Gary E. Dickerson: DRAM is a great example of how our inflection focused innovation approach is working by focusing on the critically enabling process and packaging steps for next generation technologies applied has significantly increased our share of the DRAM market.
Gary E. Dickerson: In 2023, we estimate that our DRAM share it was more than 10 points higher than it was a decade earlier in our DRAM revenues were larger than our two closest process equipment peers combined.
Gary E. Dickerson: We're also are best positioned for future growth.
Gary E. Dickerson: Two our leadership in logic technologies that have been implemented for DRAM peripheral circuitry applications to enable significantly increased I O speed.
Gary E. Dickerson: Our strong position in DRAM patterning, our unique co optimized hard mask solutions, which are critical for our capacitor scaling and advanced packaging, where we have strong leadership positions and micro bump and through silicon via that will enable multiple generations of high bandwidth.
Gary E. Dickerson: Memory.
Gary E. Dickerson: In fiscal 2024, we expect our HBM packaging revenues to be four times larger than last year growing to almost half a billion dollars and across all device types. We expect revenue from our advanced packaging product portfolio to grow to approximately.
Gary E. Dickerson: And across all device types, we expect revenue from our advanced packaging product portfolio to grow to approximately $1.5 billion. Looking further ahead, we see opportunities for this business to double again, as heterogeneous integration is more widely adopted, and we introduce new products that expand our served market. Another key inflection that will transition to high-volume production beginning this year is gate-all-around transistors in leading-edge foundry logic. These complex 3D structures can provide a more than 30% improvement in a chip's energy efficiency.
Gary E. Dickerson: $1 $5 billion.
Gary E. Dickerson: Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted and we introduced new products that expand our served market.
Gary E. Dickerson: Another key inflection that will transition to high volume production beginning this year is gate, all around transistors, and leading edge foundry logic. These.
These complex <unk> structures can provide a more than 30% improvement and of chips energy efficiency.
Gary E. Dickerson: This is especially beneficial for high-performance AI data center applications. The shift from FinFET to Gate-All-Around grows Applied's available market by $1 billion for every 100,000 wafer starts per month of capacity, and we're on track to gain share and capture over 50% of the spending for the process equipment used in this new transistor module. Major advances in leading-edge foundry logic and DRAM are also driving the need for more and better metrology and inspection to be integrated into the manufacturing flow. We have developed industry-leading cold field emission e-beam technology that enables highly sensitive 2D and 3D imaging at up to 10 times higher speeds.
Gary E. Dickerson: This is especially enabling for high performance AI data center applications.
Gary E. Dickerson: The shift from Finfet gate, all around grow supplies available market by $1 billion for every 100000 wafer starts per month of capacity and we're on track to gain share and capture over 50% of the spending for the process equipment used in this new transistor module.
Gary E. Dickerson: A major advances in leading edge foundry logic and DRAM are also driving the need for more and better metrology and inspection to be integrated into the manufacturing flow.
We have developed industry, leading coldfield emission E beam technology that enables highly sensitive to D and three D imaging.
Gary E. Dickerson: At up to 10 times higher speeds, we expect our Cfe systems revenue to grow by a factor of four in 2024 and represent 50% of our total E beam system sales.
Gary E. Dickerson: We expect our CFE systems revenue to grow by a factor of four in 2024 and represent 50% of our total e-beam system sales. The incredible innovation we see in the industry today is not limited to the leading edge. In recent years, ICAP's customers have invested about 10 percent of their revenues, or about $30 billion annually, in research and development to accelerate the roadmap for IoT, communications, automotive, power, and sensor technologies. ICAPS technology depends less on shrinking device features, and customer investments are heavily weighted toward new structures, new materials, and new integration approaches playing to the core strengths of Applied.
Gary E. Dickerson: Incredible innovation, we see in the industry today is not limited to the leading edge and.
Gary E. Dickerson: In recent years I caps customers have invested at about 10% of their revenues or about $30 billion annually in research and development to accelerate the roadmap for Iot communications automotive power and sensor technologies.
Gary E. Dickerson: <unk> technology depends the last on shrinking device features and customer investments are heavily weighted towards new structures, new materials, and new integration approaches playing to the core strengths of applied.
Gary E. Dickerson: ICAPS is another area where we saw market inflections early, and five years ago, we formed a dedicated team to focus on the needs of these customers. Since then, we've released more than 20 new iCAPS products that target the highest value device innovations in these markets, and we have a robust development pipeline of unit process and integrated solutions. While major inflections such as AI and IoT, electric vehicles, and renewable energy are already driving semiconductor growth and innovation, it's important to recognize that they are still in the early stages of adoption. For example, high-performance GPUs for AI data centers only represent 6% of leading-edge foundry logic wafer starts today. The full potential of technologies like AI cannot be unlocked without next generation chips with better performance, power, and cost. The technology roadmap for semiconductors is rich with possibilities and opportunities but also incredibly complex.
Gary E. Dickerson: I caps is another area, where we saw market inflections early and five years ago, we formed a dedicated team to focus on the needs of these customers.
Gary E. Dickerson: Since then we've released more than 20, new <unk> products that target the highest value device innovations in these markets and we have a robust development pipeline of unit process and integrated solutions.
Gary E. Dickerson: While major end market inflections, such as AI, and Iot electric vehicles, and renewable energy are already driving semiconductor growth and innovation. It's important to recognize they are still in the early stages of adoption.
Gary E. Dickerson: For example high performance Gpus for AI data centers, only represent 6% of leading edge foundry logic wafer starts today.
Gary E. Dickerson: The full potential of technologies like AI cannot be unlocked without next generation chips with better performance power and cost the technology Road map for semiconductors is rich with possibilities and opportunities, but also incredibly complex.
Gary E. Dickerson: No company is better placed to address this complexity than Applied Materials. With the industry's broadest and deepest portfolio of capabilities and products, we have a unique ability to combine, co-optimize, and integrate our technologies to develop highly differentiated solutions for our customers. To bring these advances to market faster, we're also innovating the way we innovate, by driving earlier and deeper collaboration with our customers and partners. We are expanding our global innovation network that will connect to the Epic Center we're building in Silicon Valley.
Gary E. Dickerson: No company is better placed to address this complexity then applied materials.
Gary E. Dickerson: With the industry's broadest and deepest portfolio of capabilities and products, we have a unique ability to combine co optimize and integrate our technologies to develop highly differentiated solutions for our customers.
To bring these advances to market faster. We're also innovating the way, we innovate by driving earlier and deeper collaboration with our customers and partners. We are expanding our global innovation network that will connect into the Epic Center, we're building in Silicon Valley.
Gary E. Dickerson: During the quarter, we announced an expansion of our long-term partnership with LEDI, which is focused on accelerating ICAPS innovation, and we launched a new collaboration with MIT, which is centered around next-generation power electronics. As industry complexity rises, we're also delivering more value to customers with our advanced services that enable our customers to accelerate R&D, transfer new technology into volume manufacturing faster, and then optimize yield, output, and cost in AGS has delivered 18 consecutive quarters of year-on-year growth. Revenue for the first quarter was up 8% versus the same period last year, and the business is now at a $6 billion annual run rate. AGS has the opportunity for double-digit growth this year, and we believe we can sustain this growth rate into the future. A significant portion of AGS revenue is generated from subscriptions.
Gary E. Dickerson: During the quarter, we announced an expansion of our long term partnership with <unk>, which is focused on accelerating <unk> innovation and we launched a new collaboration with M. I T, which is centered around next generation power electronics.
Gary E. Dickerson: As industry complexity rises we're also delivering more value to customers with our advanced services that enable our customers to accelerate R&D transfer of new technology into volume manufacturing faster and then optimize yield output and cost in their factories.
Gary E. Dickerson: <unk> has delivered 18 consecutive quarters of year on year growth revenue for the first quarter was up 8% versus the same period last year and the business is now at a $6 billion annual run rate.
<unk> has the opportunity for double digit growth this year and we believe we can sustain this growth rate into the future.
Gary E. Dickerson: A significant portion of Ags revenue is generated from subscriptions.
Gary E. Dickerson: We have almost 17000 tools under service agreements up 8% year on year and these agreements have a very high renewal rate over 90%.
Gary E. Dickerson: We have almost 17,000 tools under service agreements, up 8% year-on-year, and these agreements have a very high renewal rate of over 90%. Before I pass the call over to Brice, I will quickly summarize. Applied Materials outperformed our markets in 2023 for the fifth consecutive year, and we delivered strong results in the first quarter of 2024. The positions we've established at key industry inflections will support continued outperformance as customers ramp next-generation chip technologies into high-volume production. We're strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity, improvements in mutual success rates, and R&D investment efficiencies. And we see growing demand for our advanced services that are helping customers manage increasing complexity in their business as the industry scales. Now, I'll hand it over to Brice.
Speaker Change: Before I pass the call over to Bryce I will quickly summarize.
Bryce: Applied materials outperformed our markets in 2023 for the fifth consecutive year and we delivered strong results in the first quarter of 2024.
Bryce: The positions we've established a key industry inflections will support continued outperformance as customers ramp next generation chip technologies into high volume production.
Bryce: Our strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity improvements and mutual success rate and R&D investment efficiencies.
And we see growing demand for our advanced services that are helping customers manage increasing complexity in their business as the industry scales now I'll hand over to Bryce. Thank you Gary.
Brice A. Hill: Thank you, Gary, and I'd like to thank our teams for delivering strong revenue and margins this quarter and making further improvements in our operating performance. On today's call, I'll discuss our value creation strategy and the results it is producing. Then I'll summarize our growth thesis and why we believe we will outperform our markets in the years ahead. Finally, I'll summarize our Q1 results and provide our guidance for Q2. I'll begin by discussing how our assets and strategy create value for shareholders. Applied has the broadest and deepest process equipment portfolio and expertise in the industry. We are highly invested in collaborating with our customers, allocating $3 billion in annual R&D to invent new solutions to the most critical semiconductor manufacturing challenges. Increasingly, the only way to solve these challenges is by co-optimizing and integrating our chamber technologies in new ways.
Bryce: I'd like to thank our teams for delivering strong revenue and margins this quarter and making further improvements in our operating performance.
Bryce: On today's call I'll discuss our value creation strategy and the results. It is producing then I'll summarize our growth thesis and why we believe we will outperform our markets in the years ahead.
Bryce: Finally, I'll summarize our Q1 results and provide our guidance for Q2.
Bryce: I'll begin by discussing how our assets and strategy create value for shareholders.
Bryce: Applied has the broadest and deepest process equipment portfolio and expertise in the industry. We are highly invested in collaborating with our customers allocating $3 billion in annual R&D to invent new solutions to the most critical semiconductor manufacturing challenges.
Bryce: Increasingly the only way to solve these challenges by co optimizing and integrating our chamber technologies in new ways. In addition, identify new materials and processes early and collaborating closely with customers leads to faster results a higher probability of success greater efficiency and strong.
Brice A. Hill: In addition, identifying new materials and processes early and collaborating closely with customers leads to faster results, a higher probability of success, greater efficiency, and a stronger financial return. The benefits of our value creation strategy are being demonstrated in our financial results. We generated record equipment sales of $20.7 billion in calendar 23, including legacy equipment reported in AGS.
Bryce: Longer financial returns.
Bryce: The benefits of our value creation strategy are being demonstrated in our financial results, we generated record equipment sales $27 billion in calendar 'twenty three include.
Bryce: Including legacy equipment reported in Ags.
Brice A. Hill: And we extended our strong position in DRAM with record calendar year sales of over $4.3 billion. In fact, over the past 10 years, the company has gained over 10 points of DRAM share and multiple points of overall share. This has contributed to Applied delivering a fifth straight year of overall WFE share gains and one of the best share outcomes of the past 20 years. Additionally, over the same 10 fiscal years, we've grown company revenue at a compound rate of over 13 percent, non-GAAP EPS at nearly 30 percent, free cash flow at 33 percent, and dividends per share at nearly 12 percent. Also, over this period, we increased return on invested capital from 8% to 35% and reduced net shares outstanding by over 30%.
Bryce: And we extended our strong position in DRAM with record calendar year sales of over $4 3 billion.
Bryce: In fact over the past 10 years. The company has gained over 10 points of DRAM share in multiple points of overall share.
This has contributed to apply delivering a fifth straight year of overall WSI share gains and one of the best share outcomes of the past 20 years over.
Bryce: Over the same 10 fiscal years, we've grown company revenue at a compound rate over 13% non-GAAP EPS at nearly 30% free cash flow at 33% and dividends per share at nearly 12%.
Bryce: Also over this period, we increased return on invested capital from 8% to 35% and reduced net shares outstanding by over 30%.
Bryce: Next I'll summarize our growth thesis as we look out over the planning horizon, we expect semiconductors to grow significantly faster than GDP.
Brice A. Hill: Next, I'll summarize our growth thesis. As we look out over the planning horizon, we expect semiconductors to grow significantly faster than GDP. Second, we expect the equipment market to grow as fast or faster than semiconductors over time, driven by increasing technical complexity.
Bryce: We expect the equipment market to grow as fast or faster than semiconductors overtime, driven by increasing technical complexity.
Bryce: Third we expect to apply its equipment business to outgrow the market.
Brice A. Hill: Third, we expect Applied's equipment business to outgrow the market. And fourth, we expect our services business to grow as fast or faster than our equipment business. I'll take a moment to support the third pillar of our thesis, that the applied equipment business will outgrow the market. The reason is that our technologies enable the key semiconductor advances needed to drive growth in AI, IoT, and renewable energy. Looking ahead to the semiconductor process inflections that will play out over the next several years, the company is extremely well positioned in data center AI. We are number one in process equipment for advanced logic and compute memory, both standard DRAM and high bandwidth memory. We also have line-of-sight to share 50% or more in gate all-around transistors, backside power delivery, and advanced packages. We are equally strong in edge AI and IoT with the number one position in iCAP silicon, which is used to sense and convert analog information and transmit it to the cloud. We are also innovating rapidly in ICAPS technology for the global energy transformation, including through new agreements with partners like Letty and MIT, as Gary described.
Bryce: And fourth we expect our services business to grow as fast or faster than our equipment business.
Bryce: I'll take a moment to support the third pillar of our thesis that applies equipment business will outgrow the market.
Bryce: The reason is that our technologies enable the key semiconductor advances needed to drive growth in AI, Iot and renewable energy.
Bryce: Looking ahead to the semiconductor process inflections that will play out over the next several years. The company is extremely well positioned in data center AI. We are number one in process equipment for advanced logic, and compute memory, both standard DRAM and high bandwidth memory.
Bryce: We also have line of sight to share of 50% or more and gate all around transistors backside power delivery and advanced packaging.
Bryce: We are equally strong and edge AI and Iot with the number one position in cap silicon, which is used to sense and convert analog information and transmitted to the cloud.
Bryce: We are also innovating rapidly and <unk> technology for the global energy transformation, including through new agreements with partners like <unk> and <unk>, which Gary described in summary, we feel confident that our unique assets and collaboration strategy position applied to continue to outpace our markets and deliver strong shareholder returns as the.
Brice A. Hill: In summary, we feel confident that our unique assets and collaboration strategy position us to continue to outpace our markets and deliver strong shareholder returns as these major inflections play out over the next several years. Now I'll summarize our Q1 results. On a year-over-year basis, net sales declined slightly to $6.7 billion.
Bryce: These major inflections play out over the next several years.
Bryce: Now I'll summarize our Q1 results on a year over year basis, net sales declined slightly to $6 7 billion.
Bryce: non-GAAP gross margin grew 110 basis points to 47, 9% non-GAAP Opex grew five 6% to $1 3 billion and non-GAAP EPS grew nearly 5% to $2 13.
Bryce: Turning to our segment results semiconductor systems revenue was strong at $4 91 billion and included record DRAM in etch system sales segment non-GAAP operating margin was 35, 7%.
Brice A. Hill: Non-GAAP gross margin grew 110 basis points to 47.9%, and non-GAAP OPEX grew 5.6% to $1.23 billion. And non-GAAP EPS grew nearly 5% to $2.13. Turning to our segment results, semiconductor systems revenue was strong at $4.91 billion and included record DRAM and etch system sales. The Segment Non-Gap Operating Margin was 35.7%. While our operating expenses are primarily focused on R&D programs for emerging technology inflections, we are also investing to expand and diversify our manufacturing logistics and supply chain to efficiently serve future growth. Applied Global Services delivered record revenue in its 18th consecutive quarter of year-over-year growth.
Bryce: While our operating expenses are primarily focused on R&D programs for emerging technology inflections. We are also investing to expand and diversify our manufacturing logistics and supply chain to efficiently serve feature growth.
Bryce: Applied global services delivered record revenue and its 18th consecutive quarter of year over year growth.
Bryce: Ags revenue increased approximately 8% year over year to nearly 1.48 billion.
Bryce: And segment non-GAAP operating margin was 28, 3%.
Bryce: Our installed base surpassed 49000 tools during the quarter and grew to nearly 200000 chambers.
Bryce: Around two thirds of Ags recurring services and parts revenue was delivered as subscription agreements.
Bryce: Finally, <unk> continued to produce more than enough operating profit to fund applied growing dividend.
Brice A. Hill: AGS revenue increased approximately 8% year-over-year to nearly $1.48 billion, and the segment non-gap operating margin was 28.3%. Our installed base surpassed 49,000 tools during the quarter and grew to nearly 200,000 chambers. Around two-thirds of AGS's recurring services and parts revenue was delivered as subscription agreements. Finally, AGS continued to produce more than enough operating profit to fund Applied's growing dividend. Moving to display, Q1 revenue was $244 million, and segment non-GAAP operating profit was 10.2%. We continue to look forward to our opportunity in the upcoming OLED IT growth and flex. Turning to cash flows, in Q1, we generated $2.3 billion in operating cash flow and $2.1 billion in free cash flow. We distributed $966 million to shareholders, including $266 million in dividends and $700 million in buybacks. We repurchased nearly 5 million shares at an average price of $152.60.
Bryce: Moving to display Q1 revenue was $244 million and segment non-GAAP operating profit was 10, 2%. We continue to look forward to our opportunity in the upcoming OLED IP growth inflection.
Bryce: Turning to cash flows in Q1, we generated $2 3 billion in operating cash flow and $2 1 billion and free cash flow, we distributed $966 million to shareholders, including $266 million of dividends and $700 million of buybacks, we repurchased nearly 5 million shares at an average price of one.
Bryce: $152 60.
Bryce: Please note that our Q1 results include the following first as we discussed in our recent 10-K report we increased the estimated useful lives of our plant equipment and this increased non-GAAP EPS by <unk> <unk>.
Bryce: Also effective Q1, we refine the way, we allocate stock based compensation and moving the majority of the expenses from corporate unallocated to the operating segments, which gives managers greater visibility over costs will the change has no impact on company operating profit or EPS. It reduces segment operating profit and Corp.
Bryce: Unallocated costs proportionately to.
Bryce: To help you with your segment models, our quarterly earnings presentation includes a table showing what operating profits would have been in fiscal 2022 and in each quarter of fiscal 2023 on a like basis.
Brice A. Hill: Please note that our Q1 results include the following. First, as we discussed in our recent 10K report, we increased the estimated useful lives of our plant equipment, and this increased non-GAP EPS by 3 cents. Also, effective in Q1, we refine the way we allocate stock-based compensation, moving the majority of the expenses from corporate unallocated to the operating segments, which gives managers greater visibility over cost. However, the change has no impact on company operating profit or EPS. It reduces segment operating profit and corporate unallocated cost proportionally. To help you with your segment models, our quarterly earnings presentation includes a table showing what operating profits would have been in fiscal 2022 and in each quarter of fiscal 2023 on a like basis. Finally, the reduction in depreciation and share-based compensation in cost of sales increased gross margin by approximately 40 basis points.
Bryce: Finally, the reduction in depreciation and share based compensation in cost of sales increased gross margin by approximately 40 basis points.
Speaker Change: Now I'll share our guidance for Q2.
Speaker Change: We expect revenue to be $6 5 billion.
Speaker Change: Plus or minus $400 million, and we expect non-GAAP EPS of $1 97, plus or minus 18.
Speaker Change: Within this outlook, we expect semi systems revenue of around $4 8 billion.
Ags revenue of about $1 $5 billion and display revenue of around $150 million.
Speaker Change: We expect non-GAAP gross margin to be approximately 47, 3% and non-GAAP operating expenses to be around 123 5 billion.
Speaker Change: We are modeling a tax rate of 12, 5%.
Speaker Change: Thank you and now Mike let's begin the Q&A.
Mike: Our goal is to help as many of our analysts as possible with that in mind. Please ask just one question on today's call. If you have another question. Please re queue and we will do our best to come back to you later in the session operator, let's please begin.
Operator: Certainly and then as a reminder, if you have a question. Please press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star. One again. Our first question comes from the line of Stacy Raskin from Bernstein Research. Your question. Please.
Brice A. Hill: Now I'll share our guidance for Q2. We expect revenue to be $6.5 billion plus or minus $400 million, and we expect non-GAAP EPS of $1.97 plus or minus $0.18. Within this outlook, we expect semi-systems revenue of around $4.8 billion, AGS revenue of about $1.5 billion, and display revenue of around $150 million. We expect non-GAAP gross margin to be approximately 47.3 percent, and non-GAAP operating expenses to be around $1.235 billion. We are modeling a tax rate of 12.5%.
Stacy Aaron Rasgon: Hi, guys. Thanks for taking my question.
Stacy Aaron Rasgon: I wanted to ask about DRAM and China. So DRAM was very strong was supposed to be strong, but it was quite a bit stronger than I think we had thought it was going to be.
Can you tell us how much of that was China versus non China and going forward last quarter, you had talked about the expectations.
Stacy Aaron Rasgon: Expectations for the China piece of that.
Stacy Aaron Rasgon: That had been pull forward due to the sanctions to roll off as we went through the rest of the year. What are your thoughts on that China trajectory as we go into April quarter and into the second half.
Stacy Aaron Rasgon: Yeah.
Speaker Change: Hi, Stacy Thanks for your question I think so.
Speaker Change: In.
Speaker Change: In the current in the quarter. We just closed we did see high shipments of China, DRAM and we it.
Speaker Change: It was approximately the same in terms of the higher quantity as we saw in Q4 and just to be clear, we will expect another quarter in Q2.
Michael Sullivan: Thank you. And now, Mike, let's begin the Q&A. Thanks, Brice.
Operator: Our goal is to help as many of our analysts as possible. With that in mind, please ask just one question on today's call. If you have another question, please repeat it, and we'll do our best to come back to you later in the session. Operator, let's please begin. Certainly. And as a reminder, if you have a question, please press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again.
Speaker Change: Our outlook quarter that it should remain elevated I think for the Q4, we had said it was approximately $500 million increase on the DRAM side.
That's probably a good estimate for all of those quarters.
Speaker Change: And then.
Speaker Change: The second part of the question as we look through the rest of the year, we will expect that to normalize our China mix should normalize.
The levels, it's at right now to something that's more typical with our average.
Speaker Change: Which is what is that what's the typical I would say from a long term from a many year perspective, we averaged approximately 30%. So if we're at 45 right now will decline across the year somewhere around that level.
Operator: Our first question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please. Hi guys.
Stacy Aaron Rasgon: Thanks for taking my question. I wanted to ask about DRAM and China. So DRAM was very strong, was supposed to be strong, but it was quite a bit stronger than I think we thought it was going to be. I guess, can you tell us how much of that was China versus non-China?
Speaker Change: Got it that's helpful guys. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our.
Speaker Change: Our next question comes from the line of Vivek Arya from Bank of America. Your question. Please.
Vivek Arya: Thank you for taking my question.
Brice A. Hill: And going forward, last quarter, you talked about the expectations for the China piece of that that had been pulled forward due to the sanctions to roll off as we went through the rest of the year. What are your thoughts on that China trajectory as we go into the April quarter and into the spring? Hi, Stacy.
Vivek Arya: Was hoping if you could give us your view on how you see the <unk> environment in 'twenty four I think many of your competitors have suggested kind of a low to mid single digit growth, but within that the move towards more leading edge in DRAM and less on the trailing edge, but just given how.
Strongly applied grew in some of your trailing edge and <unk>.
Brice A. Hill: Thanks for your question. So, in the quarter we just closed, we did see high shipments of Chinese DRAM, and it was approximately the same in terms of the higher quantity as we saw in Q4. And just to be clear, we'll expect another quarter in Q2, in our outlook quarter, that it should remain elevated. I think for Q4, we had said it was approximately $500 million increase on the DRAM side. That's probably a good estimate for all of those quarters, and then... The second part of the question, as we look through the rest of the year, we'll expect that to normalize. Our China mix should normalize from the levels it's at right now to something that's more typical of our average. Which is what? What's the typical?
Vivek Arya: How does that position you in this new WRC environment, because I think I know you said that you only see only limited decline on the <unk> side, but when I look at the Capex of many of the auto industrial and analog companies.
Vivek Arya: In the U S. They are cutting it quite sharply so thats.
Vivek Arya: I was curious why you think that it's only going to decline. So just broadly comment on WMC and the different piece parts, and then maybe China versus non China.
Speaker Change: Cutting of that thank you.
Speaker Change: Thanks Vivek.
Speaker Change: No real change I think in our outlook for 'twenty four in terms of shaping how those end markets are evolving. So we do think DRAM will continue to be a strong market. We think NAND will improve from its low levels, a little bit we think leading logic will be larger as gate, all around and new investments.
Brice A. Hill: Well, I would say from a long-term, you know, from a many-year perspective, we average approximately 30%, so if we're at 45% right now, we'll decline across the year to somewhere around that level. Got it. That's helpful, guys. Thank you. Thank you. Thank you.
Speaker Change: Start to ramp towards the back half of the year and we do think there will be some digestion and <unk> in China, both just to be Crystal clear, we had enormous growth for two years ni caps.
Operator: One moment for our next question. Our next question comes from the line of Vivek Arya from Bank of America. Your question, please. Thank you for taking my question. I was hoping if you could give us your view on how you see the WSE environment in 24. I think many of your competitors have suggested kind of a low to mid-single-digit growth, but within that, the move towards more leading edge and DRAM and less on the trailing edge, but just given how strongly applied it grows in some of your trailing edge and ICAPs, how does that position you in this new WSE environment? Because I think, Gary, you said that you only see a limited decline on the ICAP side, but when I look at the CAPEX of many of the auto industrials and analog companies in the U.S., they are cutting it quite sharply. So that's why I was curious why you think that it's only going to decline. So just broadly comment on WSE and the different parts, and then maybe China versus non-China kind of cutting of that. Thank you. Okay, thanks, Vivek.
Speaker Change: China related <unk> business, and so we won't see that enormous growth. This year. It may be a little bit smaller we think theres some digestion with that capacity, but we expect that market to grow over time, along with the underlying rates for the company. So.
Speaker Change: That's the shape of those end markets Hasnt changed in our outlook.
Speaker Change: Is that consistent with the low to mid single digit W. A feat that theres, not suggesting or do you have a different view.
Speaker Change: All we can do is tell you what we see from appliance perspective, when we when we commented on 'twenty three we said it was a strong year for applied.
Speaker Change: So the way you asked your question, we had strong <unk> caps, we had strong DRAM.
Speaker Change: We were strong and growth in packaging and so as we look toward 24. Those are the puts and takes we're not going to give.
Speaker Change: A precise number for 'twenty four.
Speaker Change: Thank you Brad.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please yes.
Speaker Change: Yes. Good afternoon, thanks for taking the question.
Speaker Change: I guess given the strong outperformance that you showed in 'twenty, three where youre silicon business actually grew where I think most people are thinking <unk> be down in the high single digits curious how youre thinking about 2024, you talked about clearly you're benefiting from share gains across leading edge foundry logic and DRAM, but also.
Vivek Arya: You know, no real change, I think, in our outlook for 2024 in terms of shaping how those end markets are evolving. So we do think DRAM will continue to be a strong market. We think NAND will improve from its low levels a little bit. We think leading logic will be larger as gait improves all around, and new investments, you know, start to ramp toward the back half of the year. And we do think there will be some digestion in ICAPS and in China, both. Just to be crystal clear, you know, we had enormous growth for two years in ICAPS and the China-related ICAPS business. And so we won't see that enormous growth this year. It may be a little bit smaller.
Speaker Change: <unk>.
Speaker Change: Our vision for ikat slowing so do you think it's another year of outperformance or is it a year of digestion.
Speaker Change: If you could kind of walk through that and just is there kind of a bonus question.
Speaker Change: With spy just a little over a week away would you care to give a preview of what well here, including a focus on sculptor. Thanks. So much.
Speaker Change: So I'll tackle the first part and then I know Gary wants to tackle the second part of the question. So on outperforming in 'twenty for C. J.
Gary E. Dickerson: We do expect because of our.
Gary E. Dickerson: Exposure to the fast growing markets and some of the inflection is growing quickly and 24, we do expect to outperform.
Brice A. Hill: We think there's some digestion with that capacity, but we expect that market, you know, to grow over time along with the underlying rates for the company. So the shape of those end markets hasn't changed in our outlook. Is that consistent with the low to mid single-digit WSE that others are suggesting, or do you have a different view?
Gary E. Dickerson: We're not making a call on the size of the market. It's like you said Theres a couple of markets that are growing.
Gary E. Dickerson: The <unk> market and the China piece, we think won't grow and so we're not making a call on which is the stronger trend in.
Gary E. Dickerson: I don't know if we know so well see how the year plays out from that perspective, and Gary on the on the show.
Brice A. Hill: Well, all we can do is tell you what we see from Applied's perspective. When we commented on 23, we said it was a strong year for Applied. And, you know, to the way you asked your question, we had strong ICAPs, we had strong DRAM, we had, we were strong in growth and packaging. And so as we look toward 24, those are the puts and takes; we're not going to give you, you know, a precise number for 24.
Gary E. Dickerson: Jay.
Gary E. Dickerson: Just let me start on the outperformance.
Gary E. Dickerson: I think the most important thing to think about is how we are positioned for major inflections. So if you think about foundry logic, leading edge gate all around backside power distribution those are incremental billion dollar opportunities for applied where we have an opportunity for more than 50%.
Gary E. Dickerson: Share, which is very accretive to our overall market share. So we're really well positioned there I caps, we form that group five years ago as I said earlier <unk>.
Gary E. Dickerson: Major new products have been introduced we have a strong pipeline of future <unk> products and so again there we are.
Operator: Thank you. One moment for our next question, and our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please. Yeah, good afternoon.
Gary E. Dickerson: Opportunities to grow in segments like etch and PDC, where we have a lot of momentum so I like our position in <unk> DRAM, we've gained more than 10 points of share over the last.
Christopher J. Muse: Thanks for taking the question. You know, given the strong outperformance that you showed in 23, where your Silicon Valley business actually grew, where, you know, I think most people are thinking WFP down in the high single digits, I'm curious, you know, what you're thinking about 2024. You've talked about clearly benefiting from share gains across leading edge, foundry logic, and DRAM, but also, you know, vision for ICAP slowing. So do you think it's another year of outperformance? Or is it a year of digestion?
Gary E. Dickerson: 10 years.
Gary E. Dickerson: And as I mentioned in the prepared remarks.
Gary E. Dickerson: Extremely well positioned for the major inflections in DRAM and packaging, we have the strongest and broadest portfolio and this is around $1 $5 billion.
Gary E. Dickerson: Revenue for us in 'twenty four.
Gary E. Dickerson: And an opportunity to double over the next few years. So all of those areas I think really set us up for continued outperformance and then on your question about Spi.
Gary E. Dickerson: One of the things, we'll be talking about their sculptor just reminding people. That's a breakthrough pattern shaping technology that provides a simpler faster and more cost effective alternative to EV double patterning.
Brice A. Hill: Would you kind of walk us through that? And just as a kind of bonus question, with SPI just a little over a week away, would you care to give a preview of what we'll hear, including a focus on Sculpta? Thanks so much. Okay, so I'll tackle the first part, and then I know Gary wants to tackle the second part of the question. So on outperforming in 24, CJ, you know, we do expect, because of our exposure to the fast-growing markets and some of the inflections growing quickly in 24, we do expect to outperform. We're not making a call on the size of the market.
Gary E. Dickerson: So we're engaged with all of the leading foundry logic customers and expanding sculptor steps for advanced patterning, including high <unk> and we're also working with customers on newest sculpt applications and we expect this business to grow to close to $200 million in 2024 and <unk>.
Gary E. Dickerson: Ramp to around $5 billion in annual revenue in the next few years also at Spi E for those of you that will attend.
Gary E. Dickerson: You'll hear about new etch and CVD technology for pattern patterning that will be very large growth drivers for the company and enable us to continue to outperform.
Gary E. Dickerson: It's like you said, there are a couple of markets that are growing. The ICAPS market in the China piece, we think it won't grow, and so we're not making a call on which is the stronger trend, and I don't know if we know. So we'll see how the year plays out from that perspective and Gary on the show. Hi, CJ.
Gary E. Dickerson: And just for reference in patterning, we've increased our served market from around $1 5 billion 10 years ago, two 8 billion now and our share from around 10% to 30%.
Gary E. Dickerson: So.
Gary E. Dickerson: Bryan said I was excited I am absolutely excited yes.
Gary E. Dickerson: These are some really really great technologies, with very strong customer pull and delivering meaningful growth for the company.
Gary E. Dickerson: Yes.
Speaker Change: Thank you one moment for our next question.
Gary E. Dickerson: Just let me start on outperformance. You know, I think the most important thing to think about is how we're positioned for major inflections. So if you think about FoundryLogic Leading Edge, Gate All Around, and Backside Power Distribution, you know, those are incremental billion-dollar opportunities for Applied where we have an opportunity for more than 50% share, which is very accretive to our overall market share. So we're really well positioned there. ICAPS, we formed that group five years ago, as I said earlier.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Our next question comes from the line of Chris Caso from Wolfe Research. Your question. Please.
Yes. Thank you good afternoon.
I guess question is.
Tim Arcuri: Kind of looking at the order rates.
Tim Arcuri: More importantly, what your customers are telling you as youre looking into calendar 'twenty five as you know.
Tim Arcuri: Some others in the industry with long lead times have started to see.
Tim Arcuri: Some of those green shoots coming into 'twenty five.
Tim Arcuri: No.
Tim Arcuri: We're balancing here between some of your customers burning off capacity and going through technology transitions whats the thought as we start to look into 'twenty five at these early days.
Gary E. Dickerson: Twenty major new products have been introduced. We have a strong pipeline of future ICAPS products. And so again, they're, and we have opportunities to grow in segments like Edge and PDC, where we have a lot of momentum. So, you know, I like our position in ICAPS. In DRAM, we've gained more than 10 points of share over the last 10 years.
Tim Arcuri: Hi, Chris Thanks for the question.
Tim Arcuri: When we when we look at the market currently we're seeing improvements in inventories and we're seeing improvements in utilization. So it's starting to pick up that's pretty much across that is across the entire market on the utilization side and then what we're hearing from customers is optimism generally speaking for 2002.
Gary E. Dickerson: And as I mentioned in the prepared remarks, extremely well-positioned for the major inflections in DRAM and packaging, we have the strongest and broadest portfolio, and this is around $1.5 billion of revenue for us in 24 and an opportunity to double over the next few years. So all of those areas, I think, really set us up for continued outperformance. And then on your question about SPIE, you know, one of the things we'll be talking about there is Sculpta. Just reminding people, that's a breakthrough pattern-shaping technology that provides a simpler, faster, and more cost-effective alternative to EUV double patterning.
Tim Arcuri: 25, we would echo comments, we've heard from others that.
Tim Arcuri: <unk>.
Tim Arcuri: The semiconductor end market for devices is expected to be growing and its investment cycle on a leading edge, we're expecting the memory markets to continue to improve so 25, we are optimistic about the direction for 25.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our.
Speaker Change: Our next question comes from the line of Krish Shankar from TD Cowen Your question. Please.
Krish Sankar: Yes, hi, Thanks for taking my question, Gary I had a question for you you have a broad based product portfolio you outperformed <unk> last two years.
Gary E. Dickerson: So we're engaged with all of the leading FoundryLogic customers and expanding Sculpt-to-Steps for advanced patterning, including high NA EUV. And we're also working with customers on new Sculpt-to-Applications. And we expect this business to grow to close to $200 million in 2024 and ramp to around a half billion in annual revenue over the next few years. Also, at SPIE, for those of you that will attend, you'll hear about new etch and CVD technology for patterning that will be very large growth drivers for the company and enable us to continue to outperform. And just for reference, in patterning, we've increased our service market from around $1.5 billion 10 years ago to $8 billion now, and our share from around 10% to 30%. So when Brice said I was excited, I am absolutely excited.
Kind of curious because some of these new application because its BM gate, all around and backside power delivery.
Krish Sankar: Customers looking at a one stop shop or more willing with best of breed solution and in other words, let's say forget all around it's a strengthened.
Krish Sankar: Actual A&D products.
Gary E. Dickerson: Yes, Chris one thing I would say that for all of these inflections.
Tim Arcuri: It's a tremendous advantage for us to have that broad portfolio.
Tim Arcuri: Again, when you think about.
Tim Arcuri: One of them.
Tim Arcuri: The examples I've used many times is your processor chip in your smartphone with 15 billion transistors.
Tim Arcuri: 60 miles of wiring, which is kind of mind boggling. When you think about how do we do that how do we create something like that.
Tim Arcuri: There are over 1500 steps in building that type of chip and when you're developing these new technologies like gate, all around lax backside power or.
Operator: These are some really, really great technologies with very strong customer pull and delivering meaningful growth for the company. Thank you. One moment for our next question. And our next question comes from the line of Chris Caso from Wolf Research. Your question, please. Yes, thank you. Good afternoon.
Tim Arcuri: New DRAM technologies or any of these packaging technologies the ability to combine and co optimize these steps is an enormous advantage enormous that 60 miles of wiring.
Tim Arcuri: We have one platform that combines seven technologies under vacuum too.
Tim Arcuri: I guess the question is, you know, kind of looking at the order rates and, you know, more importantly, what your customers are telling you as you're looking into calendar 25. As you know, some others in the industry with long lead times have started to see some of those green shoots coming into 25, you know, and know that, you know, we're balancing here between some of your customers burning off capacity and going through technology transitions. You know, what's the thought as we start to look into 25 in these early days?
Tim Arcuri: To enable that those 60 miles long very thin wires to move their data at Super high speed very low resistance and very low power. So it's completely unique and that's about one third of our portfolio are those integrated solutions. We also have clear leadership in <unk>.
Tim Arcuri: E beam technology, I talked about our coldfield emission electron optics.
Tim Arcuri: And that enables us to see those structures when Youre building gate, all around and you want to look at the width of those nano sheets again, we have unique technology that enables us to learn faster and then we can co optimize all of those technologies.
Brice A. Hill: Hi Chris, thanks for the question. You know, when we look at the market currently, we're seeing improvements in inventories, and we're seeing improvements in utilization. So it's starting to pick up, and that's pretty much across the entire market on the utilization side. And then what we're hearing from customers is optimism. Generally speaking, for 2025, we would echo comments we've heard from others that, you know, the semiconductor and market for devices is expected to be growing. And it's an investment cycle on the leading edge; we're expecting the memory markets to continue to improve. So, 25, you know; we are optimistic about the direction for 25. Thank you. Thank you.
Tim Arcuri: So as we're driving our innovation with customers.
Tim Arcuri: We're deeper where earlier, we can see for generations out relative to those technologies.
Tim Arcuri: So super Super Deep connectivity. That's why also I think epic is going to be a game changer in how we innovate the way we innovate we talked about the relationship with <unk> for innovation and edge computing and I cap.
Tim Arcuri: All of those things and then we have our advanced packaging lab in Singapore that is also a full flow lab, where customers are working on innovation and new architectures.
Tim Arcuri: So Chris I think that gives us a tremendous advantage we can see what's needed earlier and then the ability to co optimize all of that gives us a tremendous advantage.
Tim Arcuri: Thanks, Gary.
Speaker Change: Thank you one moment for our next question.
Operator: One moment for our next question. And our next question comes from the line of Krish Sankar from TD Cowen. Your question, please. Yeah, hi, thanks for taking my question. Gary, I have a question for you.
Speaker Change: Yeah.
Speaker Change: And our first our next question comes from the line of <unk> Malik from Citi. Your question. Please.
Malik: Hi, Thank you for taking my question I have a question for Greg Greg you talked about.
Malik: China mix normalizing, some 45% to 30%.
Atif Malik: Can you talk about the impact of the mix on the gross margin from the 47, 2% you're guiding to for the rest of the year.
Krish Sankar: You know, you have a broad-based product portfolio, and you outperformed WSC the last two years. I'm kind of curious about some of these new applications, whether it's HBM, gate all around, or even backside power delivery, are customers looking for a one-stop shop, or more going with best of breed solutions? In other words, let's say for gate all around, is your strength in EPI helping your HR ALD product? Yeah, Chris, one thing I would say is that for all of these inflections, it's a tremendous advantage for us to have that broad portfolio. Again, when you think about – one of the examples I've used many times is your processor chip in your smartphone with 15 billion transistors and 60 miles of wiring, which is kind of mind-boggling when you think about how we do that, how we create something like that.
Greg: Thanks, a lot Tim I appreciate the question. So yes, our gross margin reported in Q1 was 47, 9%, we think that we've modeled what it would be without the higher China mix.
Speaker Change: And our view is the underlying gross margin is approximately 46, 7% at this point so as we go through the course of the year, we expect that gross margin to come down from 47, 9% to a more normal amount at the same time, where we are underneath that to $46.
Speaker Change: And we will continue to improve slowly if.
Speaker Change: If that makes sense. So if you normalize Q1 immediately you'd be at $46 seven we expect that to improve through the course of the year and then we're not changing our goals our goals 48 to 48, 5%.
Speaker Change: For 2025, that's still where we're targeting as we work on pricing improvements and continue to work on our cost roadmap.
Gary E. Dickerson: There are over 1,500 steps in building that type of chip, and when you're developing these new technologies like gate all around, like backside power, new DRAM technologies, or any of these packaging technologies, the ability to combine and co-optimize these steps is an enormous advantage over 60 miles of wiring. We have one platform that combines seven technologies under a vacuum to enable those 60 miles long, very thin wires to move data at super high speeds. Very low resistance and very low power.
Speaker Change: Yes, I would just add that we have made progress.
Speaker Change: Pretty much across all customers on pricing improvements.
Speaker Change: I think we've talked before about cost headwinds that we encountered in the supply chain, we're making improvements there and as Brian said, we're committed to hit those goals.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of shrinking.
<unk> from.
Raymond James Your question please.
Shrinking: Thank you Hi, guys, Gary I have a question on your HBM comment I think you said HBM accounted for about 5% of industry output.
Gary E. Dickerson: So it's completely unique, and that's about one third of our portfolio are those integrated solutions. We also have clear leadership in E-beam technology. I talked about our cold field emission electron optics. And that enables us to see those structures when you're building gates all around, and you wanna look at the width of those nano sheets.
Shrinking: You can clarify if that's a wafer output.
Shrinking: But my question is as we look out to the next few years I think you were forecasting about 50% growth for this business. So.
It's a little tricky to understand for us as to how much of DRAM definitely a fee is going to HBM right now and how do you see that evolving I mean, if the market grows 50% should we expect I guess the equipment spending also to grow 50% or do you think it's going to grow faster than that.
Gary E. Dickerson: Again, we have unique technology that enables us to learn faster, and then we can co-optimize all of those technologies. So, as we're driving our innovation with customers, we're deeper, we're earlier, and we can see four generations out relative to those technologies. So, you know, super, super deep connectivity.
Shrinking: I'm just trying to sense.
Speaker Change: I've seen a lot of the modeling I'll just.
Speaker Change: Sure a couple of those data points. So on the first question. It's wafer starts when we think about the 5%. Its wafer starts I think it is difficult to <unk>.
Speaker Change: Estimate the equipment purchases at this point, because you probably understand that the DRAM business itself has been under loaded as most of the markets have so I think what many of the customers are doing is shifting some of their capacity to HBM.
Gary E. Dickerson: That's why I think Epic is going to be a game changer in how we innovate the way we innovate. We talked about the relationship with Leti for innovation in edge computing and iCAP, you know, all of those things. And then we have our advanced packaging lab in Singapore that is also a full flow lab where customers are working on innovation and new architectures. So, Chris, I think that gives us a tremendous advantage. We can see what's needed earlier, and then the ability to co-optimize all of that gives us a tremendous advantage. Thanks, Gary.
Speaker Change: To get this output Gary highlighted in his prepared remarks that the die sizes for the HBM are larger than the non <unk>. So it certainly will help drive up utilization, which will eventually increase equipment orders going forward and we do think the DRAM business. If you look at the past few years the level of <unk> for DRAM.
Speaker Change: We do think that it's been fairly strong and it will continue to be strong is our expectation and then the last piece of course is customers are having to expand.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Atif Malik from Citi. Your question, please? Hi, thank you for taking my question. I have a question for Brice.
Speaker Change: The HBM related steps of their DRAM process, Gary highlighted what that is for us and that's growing a lot faster than what you see on the general equipment side. So my understanding of the DRAM is about seven.
Atif Malik: Brice, you talked about the China mix normalizing from 45% to 30%. Can you talk about the impact of the mix on the gross margins from the 47.3% you're guiding to for the rest of the year? Thanks, Atif.
Speaker Change: 700 steps in.
Speaker Change: DRAM process and about 15 additional steps.
Speaker Change: Possibly 'twenty to do the HBM level of that so for sure Youll see customers growing the HBM packaging techniques and capabilities alongside the regular capacity and then we'll expect to see utilization increase as time goes on.
Brice A. Hill: Appreciate the question. So, yes, our gross margin reported in Q1 was 47.9%. We think that, you know, we've modeled what it would be without the higher China mix, and our view is that the underlying gross margin is approximately 46.7% at this point. So as we go through the course of the year, we expect that gross margin to come down from 47.9% to a more normal amount. But at the same time, where we are underneath that, 46.7 will continue to improve slowly, if that makes sense. So, you know, if you normalized Q1 immediately, you'd be at 46.7. We expect that to improve through the course of the year. And then we're not changing our goals.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line that's a sure Hari from Goldman Sachs. Your question. Please.
Hari: Hi, Thank you so much for taking the question I had a two part question. The first one is on the conventional DRAM.
Hari: Part of our business in the second part is on the NAND business.
Hari: The bullishness in terms of H b.
Hari: We understand I'm, hoping to better understand what your customers are doing what they're what they're telling me Gary in terms of their plans on the conventional DRAM side are things still very muted in our they are disciplined.
Gary E. Dickerson: Our goals, you know, 48 to 48.5% for 2025, that's still where we're targeting as we work on pricing improvements and continue to work on our cost roadmap. Yeah, I would just add that we have made progress pretty much across all customers on pricing improvements. I think we've talked before about cost headwinds that we encountered in the supply chain. We're making improvements there. And as Brice said, we're committed to hitting those goals. Thanks.
Hari: Apply perspective or are you seeing a pickup in your conventional DRAM business as well to the extent you have visibility there and.
Hari: And then I guess, a similar question on the NAND side, it's been it's been a soft market for everyone.
Hari: I guess there is hope that at least.
Hari: No transitions are layer count increases will resume this year are you starting to see early signs of a pick up or are things pretty soft there. Thank you.
Speaker Change: Yes, toshi its price I'll, just make a couple comments and maybe Gary will add to that so on the DRAM side and this is true for DRAM and NAND, but I'll start with DRAM, we do see utilization.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Srinivas Pajjuri, from Raymond James.
Gary E. Dickerson: Proving and we also see improvements in prices and we also see improvements in inventory inventory positions. So we do think thats consistent with <unk>.
Srinivas Reddy Pajjuri: Your question, please. Thank you. Hi guys.
Brice A. Hill: Gary, I have a question on your HBM comment. I think you said HBM accounted for about 5% of industry output. If you can clarify, if that's wafer output or if that's bits.
Gary E. Dickerson: The rising optimism.
Gary E. Dickerson: On the DRAM side, the Utilizations have been low enough that there's a ways to go before they have to start thinking about adding capacity. So our view on the market as its most mostly from <unk> perspective, the nodal upgrades and the HBM that we talked about and it would be similar for NAND, we're seeing improvements in inventory seeing improvements in <unk>.
Brice A. Hill: But my question is, as we look out to the next few years, I think you're forecasting about 50% growth for this business. So it's a little tricky to understand for us as to how much of DRAM WFE is going to HBM right now. And how do you see that evolving? I mean, if the market grows 50%, should we expect, I guess, equipment spending also to grow 50%? Or do you think it's going to grow faster than that? Hi, Srini. Since I've seen a lot of the modeling, I'll just share a couple of those data points.
Gary E. Dickerson: <unk> utilization is starting to pick up and our perspective would be the same as technology advances will be what drives the spending and we do have signals that as we suggested that the spending will pick up.
Gary E. Dickerson: Yes, so relative to applied and DRAM as I talked about earlier, we've gained more than 10 points of overall DRAM Wi Fi share over the last 10 years and then if you look at the technologies for DRAM going forward periphery, moving to higher speed Io enabled by our leadership.
Brice A. Hill: So, on the first question, it's a way for starts. When we think about the 5%, it's a way for starts. I think it is difficult to estimate the equipment purchases at this point because you probably understand that the DRAM business itself has been underloaded, as most of the markets have been. So, I think what many of the customers are doing is shifting some of their capacity to HBM to get this output. Gary highlighted in his prepared remarks that the die sizes for the HBM are larger than the non-HBM, so it certainly will help drive up utilization, which will eventually increase equipment orders going forward. And we do think the DRAM business, if you look at the past few years, the level of WFE for DRAM, we do think that it's been fairly strong and it will continue to be strong, is our expectation.
Gary E. Dickerson: Products capacitor scaling, we're achieving patterning share gains and I've talked about very strong position in advanced packaging, including high bandwidth memory, we're really well positioned there to continue our outperformance in DRAM and and as Bruce said or I said early also.
Gary E. Dickerson: We think that business is going to remain very healthy for us NAND for applied.
Gary E. Dickerson: See the revenue up a fair percentage and 24 versus 23, but the total amount is still far below 2022, so that's a little bit more color.
Speaker Change: Thank you so much.
Speaker Change: Thank you one moment for our next question.
Harlan Sur: And our next question comes from the line of Harlan sur from Jpmorgan. Your question. Please.
Harlan Sur: Well good afternoon. Thanks for taking my question one of your peers alluded to this on their last earnings call and talked about a push out on advanced foundry logic programs to potentially persistent delays in chips that funding.
Harlan Sur: I think the industry thought that after Congress and the President signed off on the chips Bill I think it was like 18 months ago that grant funding would be approved appropriated at least in 2023, but.
Brice A. Hill: And then the last piece, of course, is customers are having to expand the HBM-related steps of their DRAM process. Gary highlighted what that is for us, and that's growing a lot faster than what you see on the general equipment side. So, my understanding of the DRAM process is about 700 steps in the DRAM process, and about 15 additional steps, and possibly 20 to do the HBM level of that.
Harlan Sur: We are in February 24, and still no grass disbursements, obviously, all hope of fat programs will launch at some point, but maybe some near term movements on timing due to the absence of this grant funding is that what's driving some of the leading edge foundry logic program delays that you guys talked about in your opening remarks.
Speaker Change: Okay Harlan.
Harlan Sur: I'll make a comment there.
Harlan Sur: I do think those schedule changes that have been.
Harlan Sur: In the news.
Speaker Change: We're up to date on those so our outlook is consistent with any of those discussions and schedule changes that youre talking about.
Brice A. Hill: So, for sure, you'll see customers growing HBM packaging techniques and capabilities alongside their regular capacity, and we'll expect to see utilization increase as time goes on. Thank you.
Speaker Change: On the chips Act, we've recently seen news reports about the government.
Speaker Change: Beginning to accelerate that process, we're in the we're in the process ourselves.
Operator: One moment for our next question. And our next question comes to the line from Toshiya Hari from Goldman Sachs. Your question, please? Hi, thank you so much for taking the question. I had a two-part question.
Speaker Change: Preparing our application on the R&D side and expecting that to open soon so I think the answer to your question is yes. It is affecting schedules, but we don't expect it will change the ultimate.
Toshiya Hari: The first one is on the conventional DRAM part of your business. And then the second part is on your NAND business. So the bullishness in terms of HBM, we understand. I'm hoping to better understand what your customers are doing, what they're telling you, Gary, in terms of their plans on the conventional DRAM side. Are things still very muted?
Speaker Change: Destination of those projects.
Speaker Change: Great. Thank you.
Speaker Change: Yep.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Joe.
Joe: Keith from Wells Fargo. Your question. Please.
Joe: Yes. Thanks for taking the question I was wondering if you could help us quantify how much of your <unk> business career in calendar 'twenty three and then as you think about the foundry logic business for 2020 or do you think the recovery in leading edge can offset the declines in our accounts.
Brice A. Hill: And are they disciplined from a supply perspective? Or are you seeing a pickup in your conventional DRAM business as well, to the extent that you have visibility there? And then I guess a similar question on the NAND side. It's been a soft market for everyone. I guess there's hope that at least, you know, no transitions or layer count increases will resume this year. Are you starting to see early signs of a pickup? Or are things pretty soft there?
Speaker Change: Okay, Joe Thanks, So I think what we've highlighted.
<unk> grew approximately 40% in 'twenty, two and it grew faster than that in 'twenty, three and so we wouldn't change.
Speaker Change: <unk> that and be more specific but to your point it's been a.
Gary E. Dickerson: Thank you. Yeah, Toshiya, it's Brice. I'll just make a couple of comments, and maybe Gary will add to that. So on the DRAM side, and this is true for DRAM and NAND, but I'll start with DRAM, we do see utilization improving. And we also see improvements in prices. And we also see improvements in inventory and inventory position. So we do think that's consistent with, you know, the rising optimism on the DRAM side. However, the utilization rates have been low enough that there's a ways to go before they have to start thinking about adding capacity. So our view on the market is it's mostly from a WFE perspective, the nodal upgrade, and the HBM that we talked about. And it would be similar for NAND.
Joe: It's been our strongest market for us it's now the largest market for applied.
Joe: Gary highlighted that there's innovations across that market, it's very important to us from an investment perspective.
Joe: And so you'll see us continue to focus on serving that market and the growth and then the second part was the linearity across the quarters, we're not giving guidance across the quarters, but since we did highlight that we expect some digestion ni caps and we highlighted we expect.
Joe: Leading edge to accelerate.
Joe: We'll leave it to you to kind of think about what which is the stronger for us and how the next few quarters go forward, but.
Brice A. Hill: We're seeing improvements in inventory, and we're seeing improvements in pricing. Utilization is starting to pick up, and our perspective would be the same as that of technology advances will be what drives the spending. And we do have signals that, as we suggested, that spending will pick up.
Joe: Yeah.
Joe: That is the right shape of the of those two end markets, Yes, Joe just let me add.
Speaker Change: I think our perspective hasn't changed at all relative to how we see the market. So we still see semiconductors at a trillion dollars by 2030, and if you look at Theres some powerful drivers.
Gary E. Dickerson: Yeah, Toshiya, relative to applied in DRAM, as I talked about earlier, we've gained more than 10 points of overall DRAM WFE share over the last 10 years. And then if you look at the technologies for DRAM going forward, periphery moving to higher speed I.O., enabled by our leadership logic products, capacitor scaling, we're achieving patterning share gains, and I've talked about our very strong position in We're really well positioned there to continue our outperformance in DRAM. And as Brice said, or I said early also, we think that business is going to remain very healthy for us. NAND for applied, you know, we see revenue up a fair percentage in 24 versus 23, but the total amount is still far below 2022. So that's a little bit more color.
Joe: And the digital transformation of every industry.
Joe: I certainly theres a lot of focus there in AI server has eight times more foundry logic content and eight times more DRAM compute memory content.
Joe: So as Brian said earlier, and I think as you've heard from others.
Joe: There is a pretty positive perspective on 25, and I think longer term, we have a very positive perspective relative to semiconductor growth equipment growing as fast or faster than applied outgrowing the equipment market continuing to outgrow as we have for the last five years. So.
Joe: I think.
Joe: Quarter to quarter or half to half frankly, we don't focus as much on that as we do this secular growth that we see in this industry and the great opportunities applied has talked about relative to the major inflections. So anyway, that's the way we think about it.
Operator: Thank you so much. Thank you. One moment for our next question, and our next question comes from the line of Harlan Sur from J.P. Morgan. Your question, please. Good afternoon.
Speaker Change: Got it thank you.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Timothy Arcuri from UBS. Your question. Please.
Harlan Sur: Thanks for taking my question. You know, one of your peers alluded to this on their last earnings call and talked about a push out on advanced foundry logic programs due to potentially persistent delays in CHIPS Act funding. I mean, I think the industry thought that, you know, after Congress and the President signed off on the CHIPS bill, I think it was like 18 months ago that grant funding would be appropriated at least in 2023, but here we are in February 24 and still no grant disbursements. Obviously, all FAP programs will launch at some point, but maybe some near-term movements on timing due to the absence of this grant funding. Is that what's driving some of the leading-edge foundry logic program delays that you guys talked about in your opening remarks? Okay, Harlan. I'll make a comment there.
Timothy Michael Arcuri: Thanks, I had a clarification and a question so the clarification Bryce.
Timothy Michael Arcuri: Is the 2023 WSI baseline would you agree with something like $86 billion to $87 billion. So if you can clarify what your baseline is when you said that you gained share and then and then my question is on China Wip. So if I use your numbers. It implies WP from China is roughly $30 billion in 2023, maybe a little bit less.
Timothy Michael Arcuri: I know that customers are not stockpiling tools per se, but we know that SMIC and some of the other public companies. They have revenue to support what they spend but that seems like only about half of that amount. So so I guess the question is would you disagree with the idea that maybe half of what's coming from China.
Timothy Michael Arcuri: This company is just kind of getting off the ground and trying to displace what's being imported from the U S or Europe, and I guess Gary.
Timothy Michael Arcuri: Real crux of the question is that the China stuff not really a free lunch, it's sort of duplicative with.
Timothy Michael Arcuri: Spending happening elsewhere. So how do you handicap that when you're planning your business going forward. Thanks.
Speaker Change: Okay, Tim Thank you.
Speaker Change: So.
On the 2023 WMC, we've been careful not to engage in the discussion about that we just shared what our view of appliance performance in our view of that market and for US 2023 was a strong year, we talked about high caps strength, we talked about DRAM strength packaging strength et cetera, and so well.
Brice A. Hill: I do think, you know, those schedule changes that have been, you know, in the news, we're up to date on those. So our outlook is consistent with any of those discussions and schedule changes that you're talking about. On the CHIPS Act, you know, we've recently seen news reports about the government beginning to accelerate that process. We're in the process ourselves of preparing our application on the R&D side and expecting that to open soon. So I think the answer to your question is yes, it is affecting schedules, but we don't expect it will change the, you know, ultimate destination of those projects. Great, thank you.
Speaker Change: Just have to wait and see what the third parties say about the size of the market for US we saw a strong market on the China WMC.
Speaker Change: We agree we don't see stockpiling.
Speaker Change: There are a number of new customers. So I don't know if it's exactly the partition that you described in terms of leading in public companies versus not but we do think there are a large number of projects that are under investment where.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Joe Quattrocchi from Wells Fargo. Your question, please. Yeah, thanks for taking the question.
Speaker Change: Where we see over the next four years added wafer start capacity planned wafer start capacity that market will be a strong market for us across across the planning horizon.
Joe Moore: I was wondering if you could help us quantify how much your ICAPS business grew in calendar 23. And then, as we think about the FoundryLogic business for 2024, do you think the recovery and leading edge can offset the declines in ICAPS? Okay, Joe, thanks. So, I think what we've highlighted publicly on ICAPS is that it grew, you know, approximately 40% in 22, and it grew faster than that in 23. And so we wouldn't change that or be more specific.
Speaker Change: So I think it is a mix you've got real demand there when we look at the macro we compare the amount of capacity put in place to local China consumption, and we think theres still behind the amount of local China consumption. So we think the investments are rational and actually the utilizations look okay. There.
Speaker Change: Lower than.
Speaker Change: The rest of the world generally speaking, but they are improving and we expect yields to be improving also overtime and then I know Gary you are asking Gary about the free lunch, we think youre right from the perspective of.
Brice A. Hill: But to your point, it's been the strongest market for us; it's now the largest market for applied. Gary highlighted that there are innovations across that market; it's very important to us from an investment perspective. And so you'll see us continue to focus on serving that market and growing it. And then the second part was, you know, the linearity across the quarters; we're not giving guidance across the quarters.
No capacity, we're planning for all of the tools that we sell whether it's to China or whether it's to a government incentivize project. None of these things we think increase the amount of equipment installed.
Speaker Change: Abnormally such that it's not going to be used and not going to serve an end market. So we don't believe that China demand is in enlighten a free lunch. We don't believe the government incentives are a free lunch from that perspective, it's just affecting the location of needed equipment.
Brice A. Hill: But since we did highlight that we expect some digestion in ICAPS and highlighted that we expect, you know, leading edge to accelerate, you know, we'll leave it to you to kind of think about which is the stronger force and how the next few quarters go forward. But, but, you know, that is the right shape of those two end markets. Yeah, Joe, just let me add that I think our perspective hasn't changed at all relative to how we see the market. So we still see semiconductors at a trillion dollars by 2030. If you look at the powerful drivers in the digital transformation of every industry, AI, certainly, there's a lot of focus there. An AI server has eight times more foundry logic content and eight times more DRAM compute memory content. So, you know, as Bryce said earlier, and I think, as you've heard from others, I think there's a pretty positive perspective on 25.
Speaker Change: Thank you.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question. Please.
Joseph Moore: Yes, I wonder if you could give us.
Joseph Moore: Some clarity on the $500 million of <unk> related revenue that your forecast sure and actually I know that's a relatively small portion of your overall DRAM run rate at least.
Joseph Moore: And I guess I would've thought it would be even bigger can you talk about that and then.
Joseph Moore: There's more than just HBM when it comes to advanced packaging for AI DRAM people are doing stacks for other types of memory are you is that HCM kind of encompassing all of the events packaging or is there other opportunity above and beyond that.
Speaker Change: Okay. Thanks, Joe So so on the DRAM I think going back to that Q4, the first quarter, we saw elevated DRAM from the China demand that was approximation we used for the impact of that so you are right. It doesn't it's not going to exactly describe every single quarter, but I <unk>.
Gary E. Dickerson: And I think longer term, you know, we have a very positive perspective relative to semiconductor growth, equipment growth, as faster, faster, and applied outgrowing the equipment market, continuing to outgrow as we have for the last five years. So, you know, I think, quarter-to-quarter or half-to-half, you know, frankly, we don't focus as much on that as we do on this secular growth that we see in this industry and the great opportunities Applied has, as I've talked about, relative to the major inflections. So anyway, that's the way we think about it. I got it.
Joe: That's that was a good estimate of the incremental that we're seeing so we'll end up with three straight quarters of.
Joe: Incremental DRAM shipping to customers in China for those allowed technologies.
Joe: And.
Gary.
Joe: On the HB again, the HBM packaging is what we talked about increasing to almost a half a billion dollars.
Joe: 24, and our overall packaging overall advanced packaging is around $1 5 billion. So that's kind of how to think about it about half a billion dollars in HBM packaging and the total advanced packaging for us is around $1 5 billion.
Operator: Thank you. Thank you. One moment for our next question, and our next question comes from the line of Timothy Arcuri from UBS. Your question, please.
Speaker Change: Okay. That's helpful. Thank you.
Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Brian Chin from Stifel. Your question. Please.
Timothy Michael Arcuri: So the clarification, Brice, is the 2023 WFE baseline. Would you agree with something like 86 to 87 billion? So if you can clarify what your baseline is, when you say that you gain share, and then and then my question is about China WFE. So if I use your numbers, it implies WFE from China will be roughly 30 billion in 2023, maybe a little bit less. I know that customers are not stockpiling tools per se, but we know that SMIC and some of the other public companies have revenue to support what they spend. But that seems like only about half of that amount.
Brian Edward Chin: Hi, there good afternoon, and thanks for letting us ask a question here.
Brian Edward Chin: Just curious in route to apply doing better than the industry over the full year.
Brian Edward Chin: Terms of the handshake that occurs maybe around mid year, but between some digestion and caps and some pick up in advanced foundry logic with the current timing around this suggest maybe a bigger dip in revenue in the July quarter.
Priced: Hi, Brian it's priced so yes, we're not going to guide future quarters.
Brian Edward Chin: Beyond the outlook quarter. So we've given you the shape that we think the end markets will take and to your point.
Brice A. Hill: So I guess the question is, would you disagree with the idea that maybe half of what's coming from China is companies just kind of getting off the ground and trying to displace what's being imported from the US or Europe? And I guess, Gary, the real crux of the question is that the Chinese stuff is not really a free lunch; it's sort of duplicative with, you know, spending happening elsewhere. So how do you handicap that when you plan your business going forward? Thanks. Okay, Tim, thank you.
Brian Edward Chin: Hi.
Brian Edward Chin: It's hard to tell which for us will be stronger weather, leading growing leading edge or little digestion on the cap side. So we're not going to call that until we get to those quarters.
Speaker Change: Okay fair enough. Thanks.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Charles <unk> from Needham <unk> Company. Your question. Please.
Charles: Thanks for taking my question I have a long term question for leading edge foundry logic.
Brice A. Hill: So, on the 2023 WFE, you know, we've been careful not to engage in the discussion about that. We just shared our view of Applied's performance and our view of that market. And you know, for us, 2023 was a strong year. We talked about ICAP's strength, we talked about DRAM strength, packaging strength, etc. And so we'll just have to wait and see what the third parties say about the size of the market. But for us, we saw a strong market. On the China WFE... We agree; we don't see stockpiling.
Charles: So you guys talk a lot about the material engineering potentially driving outperformance if I look at the back in the last 10 years I mean, I think of the back half of the last decade, I mean between <unk> in 2019, because the manufacturers kind of slow to jump onto you read it with a lot more adoption.
Charles: Multi patterning actually led to outperformance.
Charles: The DAP in etch equipment suppliers like applied materials, but the last five years because of the UV adoption seems to be back then.
Charles: First a little bit, but looking out for the next five years I know the reason.
Charles: Recent discussions about maybe high end <unk> may not actually get adopted.
Brice A. Hill: There are a number of new customers, so I don't know if it's exactly the partition that you described in terms of leading in public companies versus not, but we do think there are a large number of projects that are under investment where we see, over the next four years, added capacity for start capacity, planned capacity for start capacity. That market will be a strong market for us across the planning horizon. And so I think it is a mix.
Charles: 30.
Charles: Does that.
Charles: I think that that may lead to more up the multi patterning UV again and that could actually drive up that material engineering intensity again, and any thoughts will be will be would be helpful. Thank you.
Speaker Change: Thanks for the question. So one thing I would point to.
Speaker Change: One of our largest customers they talked about what's driving their roadmap going forward they've talked about something called designing technology co optimization. So what they said basically was that much of the area scaling they were driving going forward is coming from new structures and new materials. So an example is <unk>.
Brice A. Hill: You've got real demand there. When we look at the macro, we compare the amount of capacity put in place to local, you know, Chinese consumption, and we think they're still behind the amount of local Chinese consumption. So we think the investments are rational, and actually, the utilization rates look okay. They're lower than, you know, the rest of the world, generally speaking, but they're improving, and we expect yields to be improving also over time. And then, you know, I know, Gary, you're asking Gary about the free lunch.
Speaker Change: <unk> power you'd be at 30% area of savings.
Speaker Change: Through that type of a structure with no change in feature size.
Speaker Change: So I think what certainly what we see and we're working with customers for technology nodes out past the end of the decade, we see the relative contribution of materials.
Brice A. Hill: We think you're right from the perspective of, you know, no capacity. We're planning for all of the tools that we sell, whether it's to China or whether it's to a government-incentivized project. None of these things, we think, increase the amount of equipment installed sort of abnormally, such that it's not going to be used and not going to serve an end market. So we don't believe that, you know, Chinese demand is an end line free lunch. We don't believe government incentives are a free lunch from that perspective.
Speaker Change: Innovations spending going higher the percentage of that going higher.
Speaker Change: Gate all around backside power there is FIFA technology Theres, many different innovations packaging technologies all of those areas, we have over 50% share opportunity in those inflections that are very accretive and again, we do see the relative contribution.
Speaker Change: From <unk>.
Speaker Change: Spending for those innovations to go higher over time I'll give you one more data point, so gate all around gate all around US is a new innovation in the transistor to process. The data faster, we see gate all around ramping to more than $1 5 billion for applied revenue and 24.
Operator: It's just affecting the location of needed equipment. Thank you. Thanks a lot.
Joseph Moore: Thank you. Please take a moment for our next question. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question, please. Yeah, I wonder if you could give us some clarity on the $500 million of HBM-related revenue that you're forecasting. I actually, you know, that's a relatively small portion of your overall DRAM run rate, at least, and I guess I would have thought it would be even bigger. Can you talk about that?
Speaker Change: And almost double that amount in calendar 'twenty five so again those are they're very powerful new architecture inflections, where applied is extremely well positioned.
Speaker Change: Okay. Thanks, Charles and operator, we're getting close to the end of the session. So if we have time for one more quick question. Please.
Speaker Change: Certainly one moment for our final question for today then.
Speaker Change: And.
Speaker Change: Our final question for today comes from the line of Thomas O'malley from Barclays. Your question. Please.
Brice A. Hill: And then, you know, there's more than just HBM when it comes to advanced packaging for AI DRAM. People are doing stacks for other types of memory. Is that HBM kind of encompassing all of the advanced packaging, or is there other opportunity above and beyond that? Okay. Thanks, Joe.
Thomas O'malley: Hey, guys. Thanks for sneaking me in.
Thomas O'malley: Another question on kind of the handoff from the first half to the second half clearly or Youre kind of talking about the <unk> business.
Thomas O'malley: Getting a little softer in the back half, but leading edge is really picking up.
Thomas O'malley: Slightly offsetting in terms of where youre seeing the strength in the leading edges is that greenfield new fab build outs or is that existing capacity additions.
Brice A. Hill: So on the DRAM, you know, I think going back to Q4, the first quarter, we saw elevated DRAM demand from China. That was the approximation we used for the impact of that. So you're right, it doesn't, you know, it's not going to exactly describe every single quarter, but I think that was a good estimate of the incremental that we're seeing. So we'll end up with three straight quarters of, you know, incremental DRAM shipping to customers in China for those allowed technologies, and Gary on the HBM. On the HBM, again, the HBM packaging is what we talked about increasing to almost a half a billion dollars in 24 and our overall packaging, overall advanced packaging is around 1.5 billion. So that's kind of how to think about it. About half a billion in HBM packaging, and the total advanced packaging for us is around 1.5 billion. Okay, that's helpful, thank you.
Thomas O'malley: Kind of help on where that strength is coming from in the second half would be helpful. Thank you.
Speaker Change: Sure sure Tom it's price typically it's greenfield.
Speaker Change: I think that when companies start.
Tom: The first part of the process, you're typically putting in greenfield and you'll shift some of your reuse equipment later, if youre able to do that so that.
Speaker Change: That would be my expectation.
Speaker Change: Thank you. Thank you.
Speaker Change: Okay, Thanks, Tom and.
Speaker Change: I appreciate that question price, how do you like to give us your closing thoughts for today sure Mike what stands out to me from a summary perspective is that we've anticipated the major market trends and.
Price: And we work closely with our customers to invest in the most important technology inflections I think will be a major beneficiary as AI and Iot spending grows over the next several years our number one positions in gate all around backside power and advanced packaging are higher than our corporate average, which gives me confidence that we'll continue to gain share.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Brian Chin from Stiefel. Your question, please. Hi there, good afternoon.
Price: Beyond our strong portfolio, we're also making operational progress, which makes me confident we can meet strong demand and make progress in gross margins.
Brian Edward Chin: Thanks for letting us ask a question here. Just curious, in terms of doing better than the industry over the full year, in terms of the handshake that occurs, maybe around mid-year, between some digestion and ICAPs and some pickup in advanced foundry logic, would the current timings around this suggest maybe a bigger dip in revenue in the July quarter? Hi, Brian, it's Brice.
Price: Finally, our services growth is accelerating to double digits and generating more than enough profit to fund our growing dividend.
Speaker Change: Also I hope to see many of you at the Morgan Stanley Conference on March 4th Mike. Thank you, let's close the call.
Mike: Hey, Thanks, Bryce and we'd like to thank everybody for joining us today, a replay of today's call. It is going to be available on the IR page of our website by five o'clock Pacific time, and we'd really like to thank you for your continued interest in applied materials.
Brice A. Hill: So yeah, we're not going to guide future quarters, you know, beyond the outlook quarter. So we've given you the shape that we think the end markets will take, and to your point, it's hard to tell which force will be stronger, whether leading the growing leading edge or, you know, a little digestion on the ICAP side. So we're not going to call that until we get to those quarters.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect. Good day good day.
Speaker Change: Yes.
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Operator: Okay, fair enough, thanks, www.verbalink.com. Thank you. One moment for our next question. And our next question comes from the line of Charles Shee from Needham & Company. Your question, please. Thanks for taking my question.
Speaker Change: Okay.
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Charles Shee: I have a long-term question for Leading Edge FoundryLogic. So you guys talk a lot about material engineering potentially driving outperformance. If I look back at the last 10 years, I mean, I think at the back half of the last decade, I mean between 2015 and 2019, because the manufacturers were kind of slow to jump onto UV, there was a lot more adoption of multi-pattern.
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Gary E. Dickerson: It actually led to like outperformance of the depth and edge equipment suppliers like applied materials. But the last five years, because of UV adoption, it seems that trend has reversed a little bit. But looking out for the next five years, I know there are recent discussions about maybe high-end UV may not actually get adopted before 2030. Does that apply? I think that may lead to more of the multi-patterning and UV again, and that could actually drive up the material engineering intensity again. Any thoughts would be helpful.
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Gary E. Dickerson: Yeah, thanks for the question. So one thing I would point to, you know, one of our largest customers. They talked about what's driving their roadmap going forward. They talked about something called design technology co-optimization. So, basically, what they said was that much of the area scaling they were driving going forward is coming from new structures and new materials. So an example is backside power; you can get 30% area savings through that type of structure with no change in feature size.
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Gary E. Dickerson: So, you know, I think what we're seeing, and we're working with customers for technology nodes out past the end of the decade, we see the relative contribution of materials, Innovation. Spending going higher, the percentage of that going higher. Gate All Around, Backside Power, there's CFAT technology, there's many different innovations, packaging technologies, all of those areas. We have over 50% share opportunity in those inflections that are very accretive. And again, we do see the relative contribution of spending for those innovations going higher over time. I'll give you one more data point. So Gate All Around.
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Gary E. Dickerson: So Gate All Around is a new innovation and a transistor to process the data faster. And we see Gate All Around ramping to more than $1.5 billion in revenue in 24, and almost double that amount in calendar 25. So again, those are very powerful new architecture inflections where Applied is extremely well positioned. Okay, thanks, Charles.
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Operator: And operator, we're getting close to the end of the session. So if we have time for, you know, one more quick question, please. Certainly. One moment for our final question for today comes from the line of Thomas O'Malley from Barclays. Your question, please. Hey, guys, thanks for sneaking me in.
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Thomas Robert Diffely: I had another question on kind of the handoff from the first half to the second half. Clearly, you're kind of talking about the ICAPS business, you know, getting a little softer in the back half, but leading edges really picking up, slightly offsetting. In terms of where you're seeing the strength in the leading edges, is that Greenfield, new fab build outs, or is that existing capacity additions? Any kind of help on where that strength's coming from in the second half would be helpful. Thank you. Sure, Tom, it's Brice. Typically, it's Greenfield.
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Brice A. Hill: So I think that when companies start, you know, the first part of a process, you're typically putting in Greenfield, and you'll shift some of your reuse equipment later, if you're able to do that. So that would be my expectation. Thank you. Okay, thanks, Tom, and I appreciate that question. Brice, how would you like to give us your closing thoughts for today? Sure, Mike.
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Brice A. Hill: What stands out to me from a summary perspective is that we've anticipated the major market trends, and we've worked closely with our customers to invest in the most important technological inflections. I think we'll be a major beneficiary as AI and IoT spending grow over the next several years. Our number one positions in gate all around backside power and advanced package are higher than our corporate average, which gives me confidence that we'll continue to gain share. Beyond our strong portfolio, we're also making operational progress, which makes me confident we can meet strong demand and make progress in gross margin. Finally, our services growth is accelerating to double digits and generating more than enough profit to fund our growing dividend. Also, I hope to see many of you at the Morgan Stanley Conference on March 4th. Mike, thank you. Let's close the call.
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Operator: Okay. Thanks, Brice. And we'd like to thank everybody for joining us today. A replay of today's call is going to be available on the IR page of our website at 5 o'clock Pacific time.
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Operator: And we'd really like to thank you for your continued interest in Applied Materials. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.
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Operator: Good day. Good day. Support the making of more such films.
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Operator: Become a Patron today! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Welcome to the Applied Materials Earnings Conference call. During the presentation, all participants will be in a listen-only mode.
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Michael Sullivan: Afterward, you will be invited to participate in a question-and-answer session. I would now like to turn the conference over to Michael Sullivan, Corporate Vice President. Please go ahead, sir.
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Michael Sullivan: Good afternoon, everyone, and thank you for joining Applied's first quarter of fiscal 2024 earnings call. Joining me are Gary Dickerson, our president and CEO, and Brice Hill, our chief financial officer. Before we begin, I'd like to remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause our actual results to differ. Information concerning these risks and uncertainties is contained in Applied's most recent Form 10-K filing with the SEC.
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Michael Sullivan: Today's call also includes non-GAAP financial measures. Reconciliations to Gap Measures are found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. Before we begin, I have a calendar announcement. On Monday evening, February 26, Applied will host a panel at the SPIE Advanced Lithography and Patterning Conference in San Jose.
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Michael Sullivan: Joining us will be leading experts from NVIDIA, Intel, IMEC, and Siemens EDA. We'll also have demo stations with several new products and technologies we'll be introducing at the event. There won't be a webcast, so we hope you'll join us in San Jose.
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Gary E. Dickerson: And with that introduction, I'd like to turn the call over to Gary Dickerson. Thank you, Mike. Applied Materials made a strong start to fiscal 2024 with first quarter revenue in the high end of our guidance and earnings that exceeded our guided range. Our inflection-focused innovation strategy is delivering results. We have outperformed our markets for five consecutive years and believe we are in a great position as customers transition major new chip innovations to high-volume production over the next several years. The breadth of our technology capabilities, combined with our deep customer relationships, allows us to see inflections early and accelerate key technological innovations that are critical to scaling AI, IoT, electric vehicles, and renewable energy. We have reshaped and expanded our portfolio of solutions that enable next-generation transistors, new interconnect schemes, including backside power delivery, high-performance DRAM, including high-bandwidth memory, and specialty applications in the ICAPS market.
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Speaker Change: Welcome to the applied materials earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session. I would now like to turn the conference over to Michael Sullivan Corporate Vice President. Please go ahead Sir.
Gary E. Dickerson: In my prepared remarks today, I'll provide some examples of how these inflections grow Applied's available market and are highly accretive to our share. I'll also talk about our long-term strategy to accelerate innovation and commercialization velocity through tighter collaboration with our customers and partners. But to begin, let me share our latest perspective on the market environment. In our discussions with customers, we hear that overall market dynamics are improving.
Michael Sullivan: Good afternoon, everyone and thank you for joining <unk> first quarter of fiscal 2024 earnings call. Joining me are Gary Dickerson, our president and CEO and Brice Hill, our Chief Financial Officer.
Speaker Change: Before we begin I'd like to remind you that today's call contains forward looking statements, which are subject to risks and uncertainties that could cause our actual results to differ information concerning the risks and uncertainties is contained in <unk>. Most recent Form 10-K filing with the SEC.
Gary E. Dickerson: There is a reacceleration of capital investment by cloud companies, fab utilization is increasing across all device types, and memory inventory levels are normalizing. In terms of applied business in 2024, we see leading-edge foundry logic being stronger year over year, even though some important projects are delayed. We're forecasting ICAP's demand to be slightly lower than in 2023, with weakness in some end markets being offset by strong regional investment.
Speaker Change: Today's call also includes non-GAAP financial measures.
Speaker Change: Reconciliations to GAAP measures are found in today's earnings press release and in our quarterly earnings materials, which are available on our website at IR dot applied materials Dot com.
Speaker Change: Before we begin I have a calendar announcement on Monday evening February 26th applied will host a panel at the SPE advanced lithography and patterning conference in San Jose joining us will be leading experts from Nvidia Intel imac and Siemens EBITDA will also have demonstrations with several new products in tech.
Gary E. Dickerson: We expect our NAND revenues to be up year-on-year, but NAND revenues to remain less than 10% of total wafer fab equipment spending. And we see continued strength in our DRAM business driven by customers ramping up the production of high bandwidth memory. High-bandwidth memory, where high-performance DRAM dyes are stacked and connected to logic dyes with advanced packaging, is a key enabler for the AI data center. However, the dies used in high-bandwidth memory are more than two times larger than standard DRAM, which means that more than twice the capacity is needed to produce the same volume of chips.
Speaker Change: <unk> will be introducing at the event there won't be a webcast. So we hope you'll join us in San Jose.
Speaker Change: And with that introduction I'd like to turn the call over to Gary Dickerson.
Gary E. Dickerson: Thank you Mike.
Gary E. Dickerson: Slide materials made a strong start to fiscal 2024 with first quarter revenue and the high end of our guidance and earnings that exceeded our guided range.
Gary E. Dickerson: Our inflection focused innovation strategy is delivering results, we have outperformed our markets for five consecutive years and believe we are in a great position as customers transition major new chip innovations to high volume production over the next several years.
Gary E. Dickerson: On top of this, the packaging steps needed for dye stacking further increase our total available market. High-bandwidth memory, or HBM, made up only about 5% of DRAM output in 2023 but is expected to grow at a 50% compound annual growth rate over the coming years. DRAM is a great example of how our inflection-focused innovation approach is working. By focusing on the critically enabling process and packaging steps for next-generation technologies, Applied has significantly increased its share of the DRAM market. In 2023, we estimate that our DRAM share will be more than 10 points higher than it was a decade earlier. And our DRAM revenues were larger than our two closest process equipment peers combined. We're also best positioned for future growth thanks to our leadership and logic technologies that have been implemented in DRAM peripheral circuitry applications to enable significantly increased I-O speeds, our strong position in DRAM patterning, our unique co-optimized hard mask solutions, which are critical for capacitor scaling, and advanced packaging, where we have strong leadership positions in micro bump and through silicon via that will enable multiple generations of high bandwidth memory. In fiscal 2024, we expect our HBM packaging revenues to be four times larger than last year, growing to almost half a billion dollars.
Gary E. Dickerson: The breadth of our technology capabilities combined with our deep customer relationships allows us to see inflections early and accelerate key technology innovations that are critical to scaling AI Iot electric vehicles and renewable energy.
We have reshaped and expanded our portfolio of solutions that enable next generation transistors, new interconnect schemes, including backside power delivery high performance DRAM, including high bandwidth memory and specialty applications in the <unk> market.
Speaker Change: In my prepared remarks today I'll provide some examples of how these inflections grow applied available market and are highly accretive to our share.
Speaker Change: Also talk about our long term strategy to accelerate innovation and commercialization velocity through tighter collaboration with our customers and partners, but to begin let me share our latest perspective on the market environment.
Speaker Change: And our discussions with customers we are hearing that overall market dynamics are improving.
Speaker Change: There is a reacceleration of capital investment by cloud companies Fab utilization is increasing across all device types in memory inventory levels are normalizing.
Speaker Change: In terms of applied business in 2024, we see leading edge foundry logic being stronger year over year, even though some important projects are delayed we're forecasting <unk> demand to be slightly lower than 2023 with weakness in some end markets.
Gary E. Dickerson: And across all device types, we expect revenue from our advanced packaging product portfolio to grow to approximately $1.5 billion. Looking further ahead, we see opportunities for this business to double again, as heterogeneous integration is more widely adopted, and we introduce new products that expand our served market. Another key inflection that will transition to high-volume production beginning this year is gate-all-around transistors in leading-edge foundry logic. These complex 3D structures can provide a more than 30% improvement in a chip's energy efficiency.
Speaker Change: Offset by strong regional investments.
Speaker Change: We expect our NAND revenues to be up year on year, but NAND to remain less than 10% of total wafer fab equipment spending.
Speaker Change: And we see continued strength in our DRAM business driven by customers ramping production of our high bandwidth memory.
Speaker Change: High bandwidth memory, where high performance DRAM dies are stacked and connected to logic dye with advanced packaging is a key enabler for the AI data center, the dyes used in high bandwidth memory or more than two times larger than standard DRAM, which means that more than twice the capacity is needed to produce.
Gary E. Dickerson: This is especially beneficial for high-performance AI data center applications. The shift from FinFET to Gate All Around grows Applied's available market by $1 billion for every 100,000 wafer starts per month of capacity, and we're on track to gain share and capture over 50% of the spending for the process equipment used in this new transistor module. Major advances in leading-edge foundry logic and DRAM are also driving the need for more and better metrology and inspection to be integrated into the manufacturing flow. We have developed industry-leading cold field emission e-beam technology that enables highly sensitive 2D and 3D imaging at up to 10 times higher speeds.
Speaker Change: <unk> the same volume of chips on top of this the packaging steps needed for die stacking further increase our total available market.
Speaker Change: High bandwidth memory or HBM made up only about 5% of DRAM output in 2023, but is expected to grow at a 50% compound annual growth rate over the coming years.
Speaker Change: DRAM is a great example of how our inflection focused innovation approach is working by focusing on the critically enabling process and packaging steps for next generation technologies applied has significantly increased our share of the DRAM market.
Speaker Change: In 2023, we estimate that our DRAM share was more than 10 points higher than it was a decade earlier in our DRAM revenues were larger than our two closest process equipment peers combined.
Gary E. Dickerson: We expect our CFE systems revenue to grow by a factor of four in 2024 and represent 50% of our total e-beam system sales. The incredible innovation we see in the industry today is not limited to the leading edge. In recent years, ICAP's customers have invested about 10% of their revenues, or about $30 billion annually, in research and development to accelerate the roadmap for IoT communications, automotive, power, and sensor technologies. ICAPS technology depends less on shrinking device features, and customer investments are heavily weighted toward new structures, new materials, and new integration approaches playing to the core strengths of Applied.
Speaker Change: We're also are best positioned for future growth.
Speaker Change: Two our leadership in logic technologies that have been implemented for DRAM peripheral circuitry applications to enable significantly increased iOS speed.
Speaker Change: Our strong position in DRAM patterning, our unique co optimized hard mask solutions, which are critical for our capacitor scaling and advanced packaging, where we have strong leadership positions and micro bump and through silicon via that will enable multiple generations of high bandwidth.
Memory.
Speaker Change: In fiscal 2024, we expect our HBM packaging revenues to be four times larger than last year growing to almost half a billion dollars and across all device types. We expect revenue from our advanced packaging product portfolio to grow to approximately.
Gary E. Dickerson: ICAPS is another area where we saw market inflections early, and five years ago, we formed a dedicated team to focus on the needs of these customers. Since then, we've released more than 20 new iCAPS products that target the highest value device innovations in these markets, and we have a robust development pipeline of unit process and integrated solutions. While major inflections such as AI and IoT, electric vehicles, and renewable energy are already driving semiconductor growth and innovation, it's important to recognize they are still in the early stages of adoption. For example, high-performance GPUs for AI data centers only represent 6% of leading-edge foundry logic wafer starts today. The full potential of technologies like AI cannot be unlocked without next-generation chips with better performance, power, and cost. The technology roadmap for semiconductors is rich with possibilities and opportunities, but also incredibly complex.
Speaker Change: One $5 billion.
Speaker Change: Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted and we introduced new products that expand our served market.
Another key inflection that will transition to high volume production beginning this year is gate, all around transistors, and leading edge foundry logic. These.
Speaker Change: These complex <unk> structures can provide a more than 30% improvement and of chips energy efficiency.
Speaker Change: This is especially enabling for high performance AI data center applications.
Speaker Change: The shift from Finfet gate, all around growth applies available market by $1 billion for every 100000 wafer starts per month of capacity and we're on track to gain share and capture over 50% of the spending for the process equipment used in this new transistor module.
Gary E. Dickerson: No company is better placed to address this complexity than Applied Materials. With the industry's broadest and deepest portfolio of capabilities and products, we have a unique ability to combine, co-optimize, and integrate our technologies to develop highly differentiated solutions for our customers. To bring these advances to market faster, we're also innovating the way we innovate, by driving earlier and deeper collaboration with our customers and partners. We are expanding our global innovation network that will connect to the Epic Center we're building in Silicon Valley.
Speaker Change: Major advances in leading edge foundry logic and DRAM are also driving the need for more and better metrology and inspection to be integrated into the manufacturing flow.
Speaker Change: We have developed industry, leading coldfield emission E beam technology that enables highly sensitive to D and three D imaging at up to 10 times higher speeds, we expect our cfe systems revenue to grow by a factor of four in 2024 and represent 50.
Gary E. Dickerson: During the quarter, we announced an expansion of our long-term partnership with LEDI, which is focused on accelerating ICAPS innovation, and we launched a new collaboration with MIT, which is centered around next-generation power electronics. As industry complexity rises, we're also delivering more value to customers with our advanced services that enable our customers to accelerate R&D, transfer new technology into volume manufacturing faster, and then optimize yield, output, and cost in AGS has delivered 18 consecutive quarters of year-on-year growth. Revenue for the first quarter was up 8% versus the same period last year, and the business is now at a $6 billion annual run rate. AGS has the opportunity for double-digit growth this year, and we believe we can sustain this growth rate into the future. A significant portion of AGS revenue is generated from subscriptions.
Speaker Change: 8% of our total E beam system sales.
Speaker Change: The incredible innovation, we see in the industry today is not limited to the leading edge and.
Speaker Change: In recent years <unk> customers have invested at about 10% of their revenues or about $30 billion annually in research and development to accelerate the roadmap for Iot communications automotive power and sensor technologies.
Speaker Change: <unk> technology depends last on shrinking device features and customer investments are heavily weighted towards new structures, new materials, and new integration approaches playing to the core strengths of applied.
Speaker Change: <unk> is another area, where we saw market inflections early and five years ago, we formed a dedicated team to focus on the needs of these customers.
Since then we have released more than 20, new <unk> products that target the highest value device innovations in these markets and we have a robust development pipeline of unit process and integrated solutions.
Gary E. Dickerson: We have almost 17,000 tools under service agreements, up 8% year-on-year, and these agreements have a very high renewal rate of over 90%. Before I pass the call over to Brice, I will quickly summarize. Applied Materials outperformed our markets in 2023 for the fifth consecutive year, and we delivered strong results in the first quarter of 2024. The positions we've established at key industry inflections will support continued outperformance as customers ramp next-generation chip technologies into high-volume production. We're strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity, improvements in mutual success rates, and R&D investment efficiencies. And we see growing demand for our advanced services that are helping customers manage increasing complexity in their business as the industry scales. Now I'll hand it over to Brice.
Speaker Change: While major end market inflections, such as AI, and Iot electric vehicles, and renewable energy are already driving semiconductor growth and innovation. It's important to recognize they are still in the early stages of adoption.
Speaker Change: For example high performance Gpus for AI data centers, only represent 6% of leading edge foundry logic wafer starts today.
Speaker Change: The full potential of technologies like AI cannot be unlocked without next generation chips with better performance power and cost the technology Road map for semiconductors is rich with possibilities and opportunities, but also incredibly complex.
Speaker Change: No company is better placed to address this complexity then applied materials with.
Speaker Change: With the industry's broadest and deepest portfolio of capabilities and products, we have a unique ability to combine co optimize and integrate our technologies to develop highly differentiated solutions for our customers to.
Brice A. Hill: Thank you, Gary. And I'd like to thank our teams for delivering strong revenue and margins this quarter and making further improvements in our operating performance. On today's call, I'll discuss our value creation strategy and the results it is producing. Then I'll summarize our growth thesis and why we believe we will outperform our markets in the years ahead. Finally, I'll summarize our Q1 results and provide our guidance for Q2. I will begin by discussing how our assets and strategy create value for shareholders. Applied has the broadest and deepest process equipment portfolio and expertise in the industry. We are highly invested in collaborating with our customers, allocating $3 billion in annual R&D to invent new solutions to the most critical semiconductor manufacturing challenges. Increasingly, the only way to solve these challenges is by co-optimizing and integrating our chamber technologies in new ways.
Speaker Change: To bring these advances to market faster. We're also innovating the way, we innovate by driving earlier and deeper collaboration with our customers and partners. We are expanding our global innovation network that will connect into the Epic Center, we're building in Silicon Valley.
Speaker Change: During the quarter, we announced an expansion of our long term partnership with <unk>, which is focused on accelerating <unk> innovation and we launched a new collaboration with M. I T, which is centered around next generation power electronics.
Speaker Change: As industry complexity rises we're also delivering more value to customers with our advanced services that enable our customers to accelerate R&D transfer of new technology into volume manufacturing faster and then optimize yield output and cost in their factories.
Speaker Change: <unk> has delivered 18 consecutive quarters of year on year growth revenue for the first quarter was up 8% versus the same period last year and the business is now at a $6 billion annual run rate.
Brice A. Hill: In addition, identifying new materials and processes early and collaborating closely with customers leads to faster results, a higher probability of success, greater efficiency, and a stronger financial return. The benefits of our value creation strategy are being demonstrated in our financial results. We generated record equipment sales of $20.7 billion in calendar 23, including legacy equipment reported in AGS.
Speaker Change: Ags has the opportunity for double digit growth this year and we believe we can sustain this growth rate into the future.
Speaker Change: Never got portion of Ags revenue is generated from subscriptions.
Speaker Change: We have almost 17000 tools under service agreements up 8% year on year and these agreements have a very high renewal rate over 90%.
Brice A. Hill: And we extended our strong position in DRAM with record calendar year sales of over $4.3 billion. In fact, over the past 10 years, the company has gained over 10 points of DRAM share and multiple points of overall share. This has contributed to Applied delivering a fifth straight year of overall WFE share gains and one of the best share outcomes of the past 20 years. Additionally, over the same 10 fiscal years, we've grown company revenue at a compound rate of over 13 percent, non-GAAP EPS at nearly 30 percent, free cash flow at 33 percent, and dividends per share at nearly 12 percent. Also, over this period, we increased return on invested capital from 8% to 35% and reduced net shares outstanding by over 30%.
Before I pass the call over to Bryce I will quickly summarize.
Speaker Change: Applied materials outperformed our markets in 2023 for the fifth consecutive year and we delivered strong results in the first quarter of 2024.
Bryce: The positions we've established a key industry inflections will support continued outperformance as customers ramp next generation chip technologies into high volume production.
Bryce: Our strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity improvements and mutual success rate and R&D investment efficiencies.
And we see growing demand for our advanced services that are helping customers manage increasing complexity in their business as the industry scales now I'll hand over to Bryce. Thank you Gary.
Brice A. Hill: Next, I'll summarize our growth thesis. As we look out over the planning horizon, we expect semiconductors to grow significantly faster than GDP. Second, we expect the equipment market to grow as fast or faster than semiconductors over time, driven by increasing technical complexity.
Bryce: I'd like to thank our teams for delivering strong revenue and margins this quarter and making further improvements in our operating performance.
Bryce: On today's call I'll discuss our value creation strategy and the results. It is producing then I'll summarize our growth thesis and why we believe we will outperform our markets in the years ahead.
Bryce: Finally, I'll summarize our Q1 results and provide our guidance for Q2.
Brice A. Hill: Third, we expect Applied's equipment business to outgrow the market. And fourth, we expect our services business to grow as fast or faster than our equipment business. I'll take a moment to support the third pillar of our thesis, that the applied equipment business will outgrow the market. The reason is that our technologies enable the key semiconductor advances needed to drive growth in AI, IoT, and renewable energy. Looking ahead to the semiconductor process inflections that will play out over the next several years, the company is extremely well positioned in data center AI. We are number one in process equipment for advanced logic and compute memory, both standard DRAM and high bandwidth memory. We also have line-of-sight to share 50% or more in gate all-around transistors, backside power delivery, and advanced packages. We are equally strong in Edge AI and IoT with the number one position in iCAP silicon, which is used to sense and convert analog information and transmit it to the cloud. We are also innovating rapidly in ICAPS technology for the global energy transformation, including through new agreements with partners like Letty and MIT, as Gary described.
Bryce: I'll begin by discussing how our assets and strategy create value for shareholders.
Bryce: Applied has the broadest and deepest process equipment portfolio and expertise in the industry. We are highly invested in collaborating with our customers allocating $3 billion in annual R&D to invent new solutions to the most critical semiconductor manufacturing challenges.
Bryce: Increasingly the only way to solve these challenges by co optimizing and integrating our chamber technologies in new ways in.
In addition, identify new materials and processes early and collaborating closely with customers leads to faster results a higher probability of success greater efficiency and stronger financial returns.
Bryce: The benefits of our value creation strategy are being demonstrated in our financial results, we generated record equipment sales $27 billion in calendar 'twenty three.
Bryce: Including legacy equipment reported in Ags.
Bryce: And we extended our strong position in DRAM with record calendar year sales of over $4 3 billion.
Bryce: In fact over the past 10 years. The company has gained over 10 points of DRAM share in multiple points of overall share.
Bryce: This has contributed to apply delivering a fifth straight year of overall WSI share gains and one of the best share outcomes over the past 20 years.
Bryce: Over the same 10 fiscal years, we've grown company revenue at a compound rate of over 13% non-GAAP EPS at nearly 30% free cash flow at 33% in dividends per share at nearly 12%.
Brice A. Hill: In summary, we feel confident that our unique assets and collaboration strategy position us to continue to outpace our markets and deliver strong shareholder returns as these major inflections play out over the next several years. Now I'll summarize our Q1 results. On a year-over-year basis, net sales declined slightly to $6.7 billion.
Bryce: So over this period, we increased return on invested capital from 8% to 35% and reduced net shares outstanding by over 30%.
Bryce: Next I'll summarize our growth thesis as we look out over the planning horizon, we expect semiconductors to grow significantly faster than GDP second we expect the equipment market to grow as fast or faster than semiconductors overtime, driven by increasing technical complexity.
Brice A. Hill: Non-GAAP gross margin grew 110 basis points to 47.9%, and non-GAAP OPEX grew 5.6% to $1.23 billion. And non-GAAP EPS grew nearly 5% to $2.13. Turning to our segment results, semiconductor systems revenue was strong at $4.91 billion and included record DRAM and etch system sales. The Segment Non-Gap Operating Margin was 35.7%. While our operating expenses are primarily focused on R&D programs for emerging technology inflections, we are also investing to expand and diversify our manufacturing logistics and supply chain to efficiently serve future growth. Applied Global Services delivered record revenue in its 18th consecutive quarter of year-over-year growth. AGS revenue increased approximately 8% year-over-year to nearly $1.48 billion, and the segment non-gap operating margin was 28.3%. Our installed base surpassed 49,000 tools during the quarter and grew to nearly 200,000 chambers.
Third we expect applied equipment business to outgrow the market and fourth we expect our services business to grow as fast or faster than our equipment business.
Bryce: A moment to support the third pillar of our thesis that applies equipment business will outgrow the market.
Bryce: The reason is that our technologies enable the key semiconductor advances needed to drive growth in AI, Iot and renewable energy looking.
Looking ahead to the semiconductor process inflections that will play out over the next several years. The company is extremely well positioned in data center AI. We are number one in process equipment for advanced logic, and compute memory, both standard DRAM and high bandwidth memory.
Bryce: We also have line of sight to share of 50% or more and gate all around transistors backside power delivery and advanced packaging.
Bryce: We are equally strong and edge AI and Iot with the number one position in cap silicon, which is used to sense and convert analog information and transmitted to the cloud.
Brice A. Hill: Around two-thirds of AGS's recurring services and parts revenue was delivered as subscription agreements. Finally, AGS continued to produce more than enough operating profit to fund Applied's growing dividend. Moving to display, Q1 revenue was $244 million, and segment non-GAP operating profit was 10.2%. We continue to look forward to our opportunity in the upcoming OLED IT growth inflection. Turning to cash flows, in Q1, we generated $2.3 billion in operating cash flow and $2.1 billion in free cash flow. We distributed $966 million to shareholders, including $266 million in dividends and $700 million in buybacks. We repurchased nearly 5 million shares at an average price of $152.60.
Bryce: We are also innovating rapidly and <unk> technology for the global energy transformation, including through new agreements with partners like <unk> and <unk>, which Gary described in summary, we feel confident that our unique assets and collaboration strategy position applied to continue to outpace our markets and deliver strong shareholder returns as.
Bryce: These major inflections play out over the next several years.
Bryce: Now I'll summarize our Q1 results on a year over year basis, net sales declined slightly to $6 7 billion.
Bryce: non-GAAP gross margin grew 110 basis points to 47, 9% non-GAAP Opex grew five 6% to $1 3 billion and non-GAAP EPS grew nearly 5% to $2 13.
Bryce: Turning to our segment results semiconductor systems revenue was strong at $4 91 billion and included record DRAM in etch system sales segment non-GAAP operating margin was 35, 7%.
Brice A. Hill: Please note that our Q1 results include the following. First, as we discussed in our recent 10K report, we increased the estimated useful lives of our plant equipment, and this increased non-GAP EPS by three sets. Also, effective in Q1, we refine the way we allocate stock-based compensation, moving the majority of the expenses from corporate unallocated to the operating segments, which gives managers greater visibility over cost. However, the change has no impact on company operating profit or EPS. It reduces segment operating profit and corporate unallocated costs proportionally. To help you with your segment models, our quarterly earnings presentation includes a table showing what operating profits would have been in fiscal 2022 and in each quarter of fiscal 2023 on a like basis. Finally, the reduction in depreciation and share-based compensation in the cost of sales increased gross margin by approximately 40 basis points.
Bryce: While our operating expenses are primarily focused on R&D programs for emerging technology inflections. We are also investing to expand and diversify our manufacturing logistics and supply chain to efficiently serve feature growth.
Bryce: Applied global services delivered record revenue and its 18th consecutive quarter of year over year growth.
Bryce: <unk> revenue increased approximately 8% year over year to nearly 1.48 billion.
And segment non-GAAP operating margin was 28, 3%.
Bryce: Our installed base surpassed 49000 tools during the quarter and grew to nearly 200000 chambers.
Bryce: Around two thirds of Ags recurring services and parts revenue was delivered as subscription agreements.
Bryce: Finally, <unk> continued to produce more than enough operating profit to fund applied growing dividend.
Bryce: Moving to display Q1 revenue was $244 million and segment non-GAAP operating profit was 10, 2%. We continue to look forward to our opportunity in the upcoming OLED IP growth inflection.
Bryce: Turning to cash flows in Q1, we generated $2 3 billion in operating cash flow and $2 1 billion and free cash flow, we distributed $966 million to shareholders, including $266 million in dividends and $700 million of buybacks, we repurchased nearly 5 million shares at an average price of one.
Brice A. Hill: Now I'll share our guidance for Q2. We expect revenue to be $6.5 billion plus or minus $400 million, and we expect non-GAAP EPS of $1.97 plus or minus $0.18. Within this outlook, we expect semi-systems revenue of around $4.8 billion, AGS revenue of about $1.5 billion, and display revenue of around $150 million. We expect non-GAAP gross margin to be approximately 47.3 percent, and non-GAAP operating expenses to be around $1.235 billion. We are modeling a tax rate of 12.5 percent.
Bryce: $152 60.
Bryce: Please note that our Q1 results include the following first as we discussed in our recent 10-K report we increased the estimated useful lives of our plant and equipment and this increased non-GAAP EPS by <unk> <unk>.
Bryce: Also effective Q1, we refine the way, we allocate stock based compensation and moving the majority of the expenses from corporate unallocated to the operating segments, which gives managers greater visibility over costs will the change has no impact on company operating profit or EPS. It reduces segment operating profit and Corp.
Michael Sullivan: Thank you. And now, Mike, let's begin the Q&A. Thanks, Brice.
Bryce: Unallocated costs proportionately to.
To help you with your segment models, our quarterly earnings presentation includes a table showing what operating profits would have been in fiscal 2022 and in each quarter of fiscal 2023 on a like basis.
Our goal is to help as many of our analysts as possible. With that in mind, please ask just one question on today's call. If you have another question, please raise it and we'll do our best to come back to you later in the session. Operator, let's please begin. Certainly. And as a reminder, if you have a question, please press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again.
Bryce: Finally, the reduction in depreciation and share based compensation in cost of sales increased gross margin by approximately 40 basis points.
Speaker Change: Now I'll share our guidance for Q2.
Speaker Change: We expect revenue to be $6 5 billion.
Speaker Change: Plus or minus $400 million, and we expect non-GAAP EPS of $1 97, plus or minus 18.
Speaker Change: Within this outlook, we expect semi systems revenue of around $4 8 billion.
Speaker Change: Ags revenue of about $1 $5 billion and display revenue of around $150 million, we expect non-GAAP gross margin to be approximately 47, 3% and non-GAAP operating expenses to be around 123 5 billion.
Our first question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please. Hi guys.
Thanks for taking my question. I wanted to ask about DRAM and China. So DRAM was very strong, was supposed to be strong, but it was quite a bit stronger than I think we thought it was going to be. I guess, can you tell us how much of that was China versus non-China?
Speaker Change: We are modeling a tax rate of 12, 5%.
Speaker Change: Thank you and now Mike let's begin the Q&A.
Speaker Change: Our goal is to help as many of our analysts as possible with that in mind. Please ask just one question on today's call. If you have another question. Please re queue and we will do our best to come back to you later in the session operator, let's please begin.
Speaker Change: Certainly and then as a reminder, if you have a question. Please press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star. One again. Our first question comes from the line of Stacy Raskin from Bernstein Research. Your question. Please.
And going forward, last quarter, you talked about the expectations for the China piece of that that had been pulled forward due to the sanctions to roll off as we went through the rest of the year. What are your thoughts on that China trajectory as we go into the April quarter and into the new year? Hi, Stacy.
Hi, guys. Thanks for taking my question.
Stacy Aaron Rasgon: I wanted to ask about DRAM in China. So DRAM was very strong was supposed to be strong, but it was quite a bit stronger than I think we had thought it was going to be.
Stacy Aaron Rasgon: Can you tell us how much of that was China versus non China and going forward last quarter, you had talked about the expectations for the China piece of that.
Thanks for your question. In the quarter we just closed, we did see high shipments of Chinese DRAM, and it was approximately the same in terms of the higher quantity as we saw in Q4. And just to be clear, we'll expect another quarter in Q2, in our outlook quarter, that it should remain elevated. I think for Q4, we had said it was approximately $500 million increase on the DRAM side. That's probably a good estimate for all of those quarters, and then.. Second part of the question, you know, as we look through the rest of the year, we'll expect that our China mix should normalize from the levels it's at right now to something that's more typical of our average. Which is what? What's the typical?
Stacy Aaron Rasgon: That had been pull forward due to the sanctions to roll off as we went through the rest of the year. What are your thoughts on that China trajectory as we go into April quarter and into the second half.
Speaker Change: Hi, Stacy Thanks for your question so.
Speaker Change: In.
Speaker Change: In the current in the quarter. We just closed we did see high shipments of China, DRAM and we.
Speaker Change: It was approximately the same in terms of the higher quantity as we saw in Q4 and just to be clear, we will expect another quarter in Q2.
Speaker Change: In our outlook quarter that it should remain elevated I think for the Q4, we had said it was approximately $500 million increase on the DRAM side.
Well, I would say from a long-term, you know, from a many-year perspective, we average approximately 30%. So if we're at 45% right now, we'll decline across the year to somewhere around that level.
Speaker Change: That's probably a good estimate for all of those quarters.
Speaker Change: And then.
Speaker Change: The second part of the question as we look through the rest of the year, we will expect that to normalize our China mix should normalize from the levels. It's at right now to something that's more typical with our average.
That's helpful, guys. Thank you. Thank you. Thank you.
Speaker Change: Which is what is that what's the typical I would say from a long term from a many year perspective, we average approximately 30%. So if we're at 45% right now will decline across the year somewhere around that level.
One moment for our next question, and our next question comes from the line of Vivek Arya from Bank of America. Your question, please. Thank you for taking my question.
Speaker Change: Got it that's helpful guys. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our.
I was hoping if you could give us your view on how you see the WSE environment in 24. I think many of your competitors have suggested kind of a low to mid-single-digit growth, but within that, the move towards more leading edge and DRAM and less on the trailing edge. But just given how strongly Applied grew in some of your trailing edge and ICAP, how does that position you in this new WSE environment? Because I think, Gary, you said that you only see a limited decline on the ICAP side. But when I look at the CAPEX of many of the auto industrials and analog companies in the U.S., they are cutting it quite sharply.
Speaker Change: Our next question comes from the line of Vivek Arya from Bank of America. Your question. Please.
Vivek Arya: Alright, Thank you for taking my question.
Vivek Arya: Was hoping if you could give us your view on how you see the <unk> environment in 'twenty four I think many of your competitors have suggested kind of a low to mid single digit growth, but within that the move towards more leading edge and DRAM and less on the trailing edge, but just given how.
Vivek Arya: Strongly applied grew in some of your trailing edge and <unk>.
Vivek Arya: How does that position you in this new WMC environment, because I think you said that you'll only see only limited decline on the <unk> side, but when I look at the Capex of many of the auto industrial and analog companies.
So, that's why I was curious why you think that it's only going to decline. So, just broadly comment on WSE and the different parts, and then maybe China versus non-China kind of cutting of that. Thank you. Okay, thanks, Vivek.
Vivek Arya: In the U S. They are cutting it quite sharply.
Vivek Arya: I was curious why you think that it's only going to decline. So just broadly comment on WMC and the different piece parts, and then maybe China versus non China kind of cutting off that thank you.
Speaker Change: Thanks Vivek.
You know, no real change, I think, in our outlook for 2024 in terms of shaping how those end markets are evolving. So we do think DRAM will continue to be a strong market. We think NAND will improve from its low levels a little bit. We think leading logic will be larger as gait improves all around, and new investments, you know, start to ramp toward the back half of the year. And we do think there will be some digestion in ICAPS and in China, both. Just to be crystal clear, you know, we had enormous growth for two years in ICAPS and the China-related ICAPS business. And so we won't see that enormous growth this year. It may be a little bit smaller.
Speaker Change: No real change I think in our outlook for 'twenty four in terms of shaping how those end markets are evolving. So we do think DRAM will continue to be a strong market. We think NAND will improve from its low levels, a little bit we think leading logic will be larger as gate, all around and new investments.
Speaker Change: <unk> to ramp towards the back half of the year and we do think there will be some digestion and <unk> in China, both just to be Crystal clear, we had enormous growth for two years ni caps.
Speaker Change: China related <unk> business, and so we won't see that enormous growth. This year. It may be a little bit smaller we think theres some digestion with that capacity, but we expect that market to grow over time, along with the underlying rates for the company. So.
We think there's some digestion with that capacity, but we expect that market, you know, to grow over time along with the underlying rates for the company. So the shape of those end markets hasn't changed in our outlook. Is that consistent with the low to mid single-digit WSE that others are suggesting, or do you have a different one?
Speaker Change: That's the shape of those end markets hasn't changed in our outlook.
Speaker Change: So is that consistent with the low to mid single digit WMC that theres, not suggesting or do you have a different view.
Well, all we can do is tell you what we see from Applied's perspective. When we commented on 23, we said it was a strong year for Applied. And, you know, to the way you asked your question, we had strong ICAPs, we had strong DRAM, we had, we were strong in growth and packaging. And so as we look toward 24, those are the puts and takes; we're not going to give you, you know, a precise number for 24.
Speaker Change #100: Well all we can do is tell you what we see from appliance perspective.
Speaker Change #100: When we commented on 'twenty three we said it was a strong year for applied.
Speaker Change #100: So the way you asked your question, we had strong caps, we had strong DRAM.
Speaker Change #100: We were strong and growth in packaging and so as we look toward 24. Those are the puts and takes we're not going to give.
Speaker Change #100: A precise number for 'twenty four.
Thank you. Thank you. One moment for our next question, and our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please. Yeah, good afternoon.
Speaker Change #101: Thank you Brad.
Speaker Change #102: Thank you one moment for our next question.
Speaker Change #103: And our next question comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.
Thanks for taking the question. You know, given the strong outperformance that you showed in 23, where your silicon business actually grew, where, you know, I think most people are thinking WFP down to the high single digits, I'm curious, you know, what you're thinking about 2024. You've talked about clearly benefiting from share gains across leading-edge Foundry Logic and DRAM, but also, you know, the vision for ICAP slowing. So do you think it's another year of outperformance? Or is it a year of digestion?
Speaker Change #104: Yes. Good afternoon, thanks for taking the question.
I guess given the strong outperformance that you showed in 'twenty, three where youre silicon business actually grew where I think most people are thinking <unk>.
Speaker Change #105: High single digits curious, how youre thinking about 2020 core you've talked about clearly you're benefiting from share gains across leading edge foundry logic and DRAM, but also.
Speaker Change #105: Our vision for <unk> slowing so do you think it's another year of outperformance or is it a year of digestion.
Would you kind of walk us through that? And just as a kind of bonus question, with SPI just a little over a week away, would you care to give a preview of what we'll hear, including a focus on Sculpta? Thanks so much. Okay, so I'll tackle the first part, and then I know Gary wants to tackle the second part of the question. So on outperforming in 24, CJ, you know, we do expect, because of our exposure to the fast-growing markets and some of the inflections growing quickly in 24, we do expect to outperform. We're not making a call on the size of the market.
Speaker Change #105: If you could kind of walk through that and just as a kind of a bonus question.
Speaker Change #106: With spy just a little over a week away would you care to give a preview of what well here, including a focus on sculptor. Thanks. So much.
Speaker Change #107: So I'll tackle the first part and then I know Gary wants to tackle the second part of the question. So on outperforming in 'twenty four C. J, we do expect because of our.
Gary E. Dickerson: Exposure to the fast growing markets and some of the inflection is growing quickly and 24, we do expect to outperform we're not making a call on the size of the market. It's like you said Theres a couple of markets that are growing.
It's like you said, there are a couple of markets that are growing. The ICAPS market and the China piece, we think they won't grow, and so we're not making a call on which is the stronger trend, and I don't know if we know. So we'll see how the year plays out from that perspective and Gary on the show. Hi, CJ.
Gary E. Dickerson: The <unk> market and the China piece, we think won't grow and so we're not making a call on which is the stronger trend in.
Gary E. Dickerson: I don't know if we know so we will see how the year plays out from that perspective, and Gary on the on the show.
Just let me start on outperformance. I think the most important thing to think about is how we're positioned for major inflections. So if you think about FoundryLogic Leading Edge, Gate All Around, and Backside Power Distribution, you know, those are incremental billion-dollar opportunities for Applied where we have an opportunity for more than 50% share, which is very accretive to our overall market share. So we're really well positioned there. ICAPS, we formed that group five years ago, as I said earlier.
Gary E. Dickerson: Hey.
Gary E. Dickerson: Just let me start on the outperformance.
Gary E. Dickerson: I think the most important thing to think about is how we are positioned for major inflections. So if you think about foundry logic, leading edge gate all around backside power distribution.
Gary E. Dickerson: Those are incremental billion dollars opportunities for applied where we have an opportunity for more than 50% share which is very accretive to our overall market share. So we're really well positioned there I caps, we form that group five years ago as I said earlier <unk>.
Twenty major new products have been introduced. We have a strong pipeline of future ICAPS products. And so again, they're, and we have opportunities to grow in segments like Edge and PDC, where we have a lot of momentum. So, you know, I like our position in ICAPS. In DRAM, we've gained more than 10 points of share over the last 10 years.
Gary E. Dickerson: A major new products have been introduced we have a strong pipeline of future <unk> products and so again, there and we have opportunities to grow in segments like etch and PTC, where we have a lot of momentum so I like our position in <unk> DRAM, we've gained more than 10 points of share over the last.
Gary E. Dickerson: 10 years.
And as I mentioned in the prepared remarks, we are extremely well-positioned for the major inflections in DRAM, and in packaging, we have the strongest and broadest portfolio, and this is around $1.5 billion of revenue for us in 24 and an opportunity to double over the next few years. So all of those areas, I think, really set us up for continued outperformance. And then on your question about SPIE, you know, one of the things we'll be talking about there is Sculpta, just reminding people, that's a breakthrough pattern-shaping technology that provides a simpler, faster, and more cost-effective alternative to EUV double patterning. So we're engaged with all of the leading FoundryLogic customers and expanding Sculpt-to-Steps for advanced patterning, including high NA EUV
And as I mentioned in the prepared remarks.
Gary E. Dickerson: Australia, well positioned for the major inflections in DRAM and packaging, we have the strongest and broadest portfolio and this is around $1 $5 billion of <unk>.
Gary E. Dickerson: Revenue for us in 'twenty four.
Gary E. Dickerson: And an opportunity to double over the next few years. So all of those areas I think really set us up for continued outperformance and then on your question about Spi.
Gary E. Dickerson: One of the things, we'll be talking about their sculptor just reminding people. That's a breakthrough pattern shaping technology that provides a simpler faster and more cost effective alternative to EV double patterning.
Gary E. Dickerson: So we're engaged with all of the leading foundry logic customers and expanding sculptor steps for advanced patterning, including high <unk> and we're also working with customers on newest golf to applications and we expect this business to grow to close to $200 million in 2024 and <unk>.
And we're also working with customers on new Sculpt-to-Applications, and we expect this business to grow to close to $200 million in 2024 and ramp to around a half billion in annual revenue over the next few years. Also at SPIE, for those of you that will attend, you'll hear about new etch and CBD technology for patterning that will be very large growth drivers for the company and enable us to continue to outperform. And just for reference, in patterning, we've increased our serve market from around $1.5 billion 10 years ago to $8 billion now, and our share from around 10% to 30%. So when Brice said I was excited, I was absolutely excited.
Gary E. Dickerson: Ramp to around a half billion in annual revenue in the next few years also at Spi E for those of you that will attend.
Gary E. Dickerson: You'll hear about new etch and CVD technology for pattern patterning that will be very large growth drivers for the company and enable us to continue to outperform.
Gary E. Dickerson: And just for reference in patterning, we've increased our served market from around $1 $5 billion 10 years ago, two 8 billion now and our share from around 10% to 30%.
Gary E. Dickerson: So.
Speaker Change #108: When Brian said I was excited I am absolutely excited.
You know, these are some really, really great technologies with very strong customer pull and delivering meaningful growth for the company. Thank you. One moment for our next question. And our next question comes from the line of Chris Caso from Wolf Research. Your question, please. Yes, thank you. Good afternoon.
Speaker Change #108: These are some really really great technologies with very strong customer, Paul and delivering meaningful growth for the company.
Speaker Change #108: Yes.
Speaker Change #109: Thank you one moment for our next question.
Speaker Change #109: Okay.
Speaker Change #109: And our next question comes from the line of Chris Caso from Wolfe Research. Your question. Please.
Tim Arcuri: Yes. Thank you good afternoon.
I guess the question is, you know, kind of looking at the order rates and, you know, more importantly, what your customers are telling you as you're looking into calendar 25, as you know, some others in the industry with long lead times have started to see some of those green shoots coming into 25, you know, and know that, you know, we're balancing here between some of your customers burning off capacity and going through technology transitions. You know, what's the thought as we start to look into 25 in these early days? Hi Chris, thanks for the question. You know, when we look at the market currently, we're seeing improvements in inventories, and we're seeing improvements in utilization. So it's starting to pick up, and that's pretty much across the entire market on the utilization side.
Tim Arcuri: I guess question is.
Tim Arcuri: Kind of looking at the order rates.
Tim Arcuri: More importantly, what your customers are telling you as youre looking into calendar 'twenty five as you know.
Tim Arcuri: Some others in the industry with long lead times have started to see.
Tim Arcuri: Some of those green shoots coming into 'twenty five.
Tim Arcuri: No that we're balancing here between some of your customers burning off capacity and going through technology transitions.
Tim Arcuri: What's the thought as we start to look into 'twenty five at these early days.
Tim Arcuri: Hi, Chris Thanks for the question.
Speaker Change #110: When we when we look at the market currently we're seeing improvements in inventories and we're seeing improvements in utilization. So it's starting to pick up that's pretty much across that is across the entire market on the utilization side and then what we're hearing from customers is optimism generally speaking for 2010.
And then what we're hearing from customers is optimism, generally speaking, for 2025. We would echo comments we've heard from others that, you know, the semiconductor and market for devices is expected to be growing. And it's an investment cycle on the leading edge; we're expecting the memory markets to continue to improve. So, you know, we are optimistic about the direction for 25. Thank you. Thank you. One moment for our next question, and the next question comes from the line of Krish Sankar from TD Cowen. Your question, please. Yeah, hi, thanks for taking my question. Gary, I have a question for you. You know, you have a broad-based product portfolio, and you outperformed WSC the last two years. I'm kind of curious about some of these new applications, whether it's HBM, gate all around, or even backside power delivery. What are customers looking at?
25, we would echo comments, we've heard from others that.
<unk>.
Speaker Change #110: The semiconductor end market for devices is expected to be growing and its investment cycle on a leading edge, we're expecting the memory markets to continue to improve so 25, we are optimistic about the direction for 25.
Speaker Change #111: Thank you.
Speaker Change #112: Thank you one moment for our next question.
Speaker Change #113: And our.
Speaker Change #113: Our next question comes from the line of Krish Shankar from TD Cowen Your question. Please.
Krish Sankar: Yes, hi, Thanks for taking my question, Gary I had a question for you you have a broad based product portfolio you outperformed <unk> last two years.
Krish Sankar: Kind of curious because some of these new applications of <unk> gate, all around bauxite power delivery.
Krish Sankar: Customers.