Q2 2024 Applied Materials Inc Earnings Call

May 16, 2024

Okay.

Operator: Welcome to the Applied Materials Earnings Conference call. During the presentation, all participants will be in a listen-only mode.

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.

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.

Yeah.

Michael Sullivan: Good afternoon, everyone, and thank you for joining Applied's second 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-Q filing with the SEC.

Michael Sullivan: Good afternoon, everyone and thank you for joining applied second quarter of fiscal 2024 earnings call.

Speaker Change: Turning me or Gary Dickerson, 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, 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-Q 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 Tuesday morning, July 9th, from 7:30 to 9 a.m., Applied will host a technology breakfast event at Semicon West in San Francisco

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 Tuesday morning July 9th from $7 30 to nine a M applied will host a technology breakfast event at Semicon West in San Francisco, joining us will be Dr. Probably Russia President of applied semiconductor products group, along with Mark <unk>, who is senior Vice president of.

Michael Sullivan: Joining us will be Dr. Prabhu Raja, President of Applied Semiconductor Products Group, along with Mark Fusile, who is Senior Vice President of Technology and Product Engineering at AMD. After Mark shares AMD's AI computing technology vision, Applied's experts will share our advanced materials engineering roadmap for making future AI chips. We'll outline device architecture inflections in logic, including transistors, front-side wiring, and back-side power, along with DRAM, high-bandwidth memory, and other forms of advanced packaging. We hope you'll join us. And with that introduction, I'd like to turn the call over to Gary Dickerson.

Speaker Change: Technology and product engineering at AMD after Mark shares Amd's AI computing technology vision applies experts, who will share our advanced materials engineering roadmap for making future AI chips will outline device architecture inflections in logic, including transistors front side wiring and backside power along with <unk>.

Speaker Change: <unk> high bandwidth memory and other forms of advanced packaging, we hope you'll join us and with that introduction I'd like to turn the call over to Gary Dickerson.

Gary E. Dickerson: Thank you, Mike. With second-quarter revenue and earnings toward the high end of our guided range, Applied Materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term. Semiconductors are the foundation of huge technological trends reshaping the global economy. These trends are driving demand for more chip manufacturing capacity, as well as better chips with higher performance and improved energy efficiency.

Mike: Thank you Mike with.

Gary E. Dickerson: With second quarter revenue and earnings toward the high end of our guided range applied materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term.

Gary E. Dickerson: Semiconductors are the foundation of huge technology trends reshaping the global economy. These trends are driving demand for more chip manufacturing capacity as well as better chips with higher performance and improved energy efficiency.

Gary E. Dickerson: Key inflections that underpin the Semiconductor Roadmap are enabled by Applied Materials and will support our ongoing outperformance as next-generation chip technologies move into high-volume production. In addition, the complexity of implementing the industry's roadmap and bringing new semiconductor technologies to market is driving earlier, deeper, and broader collaboration with customers, as well as supporting double-digit growth for our service business. In my prepared remarks today, I'll provide some examples of how Applied Innovations is helping to enable multi-trillion dollar technological innovations, including AI.

Gary E. Dickerson: Key inflections that underpin the semiconductor roadmap are enabled by applied materials and will support our ongoing outperformance as next generation chip technologies move into high volume production.

Gary E. Dickerson: In addition, the complexity of implementing the industry's roadmap and bringing new semiconductor technologies to market is driving earlier deeper and broader collaboration with customers as well as supporting double digit growth for our service business.

In my prepared remarks today I'll provide some examples about how applies innovations are helping to enable multi trillion dollar technology inflections, including AI.

Gary E. Dickerson: Explain how this translates to our performance in the near term and our future growth potential I'll also describe how we're working with our customers and partners to accelerate major semiconductor inflections, all the way from research and development to high volume manufacturing and by doing this.

How we are capturing more value in our service business.

Gary E. Dickerson: I'll explain how this translates to our performance in the near term and our future growth potential. I'll also describe how we're working with our customers and partners to accelerate major semiconductor inflections all the way from research and development to high volume manufacturing, and by doing this, how we are capturing more value in our service business. I'll start with a big picture perspective. Tectonic shifts in technology, including AI, IoT, and automation, electric and autonomous vehicles, and clean energy, will transform virtually every aspect of the economy over the next several decades. And they all have one thing in common; they are built upon semiconductors.

Gary E. Dickerson: I'll start with a big picture perspective.

Tonic shift in technology, including AI, Iot and automation electric and autonomous vehicles and clean energy will transform virtually every area of the economy over the next several decades and they all have one thing in common they are built upon.

Conductors.

Gary E. Dickerson: As these new technologies are deployed, they are driving growth and innovation across the semiconductor ecosystem. In terms of impact and scale, I believe AI will be the biggest technological inflection of our lifetimes, and at the heart of AI are some of the world's most sophisticated chips. In simple terms, the advanced chips that power AI data centers are enabled by four key semiconductor technologies: leading-edge logic, compute memory, or high-performance DRAM, DRAM stacking technology, referred to as high-bandwidth memory or HBM, and advanced packaging to connect the logic and memory chips together to create a system in a package.

Gary E. Dickerson: These new technologies are deployed they are driving growth and innovation across the semiconductor ecosystem in.

Gary E. Dickerson: In terms of impact on scale I believe AI will be the biggest technology inflection of our lifetimes and at the heart of AI or some of the worlds most sophisticated chips.

Gary E. Dickerson: In simple terms the advanced chips that power AI data centers are enabled by four key semiconductor technologies, leading edge logic compute memory or high performance DRAM DRAM stacking technology referred to as high bandwidth memory or <unk>.

H B M and advanced packaging to connect the logic and memory chips together and create a system in a package.

Gary E. Dickerson: Applied has process technology leadership and all four of these areas and we have made significant investments in next generation solutions to make possible. The key device architecture inflections that are essential for our customers future roadmaps.

Gary E. Dickerson: And advanced logic applied has long standing leadership in the materials engineering processes for both transistors and Interconnects.

Gary E. Dickerson: The first knows that used gate all around transistors are now transitioning to high volume manufacturing. These new transistor process flows are considerably more complex and the shift from Finfet gate all around growth applies available market for the transistor module.

Gary E. Dickerson: These new transistor process flows are considerably more complex, and the shift from FinFET to gate-all-around growth applies the available market for the transistor module from around $6 billion to approximately $7 billion for every 100,000 wafer starts per month of capacity. With the gate-all-around transition, we are also gaining share, and we're on track to capture over 50% of the process equipment spending for transistor sets. We also have a very strong market share in interconnect, or the wiring used to transmit data at high speed and low power.

Bob: Bob from around $6 billion to approximately $7 billion for every 100000 wafer starts per month of capacity.

Bob: With the gate all around transition, we're also gaining share and we're on track to capture over 50% of the process equipment spending for transistor steps.

Bob: We also have very strong market share in interconnect or the wiring used to transmit data at high speed and low power.

Gary E. Dickerson: Our available market for the wiring steps is approximately $6 billion for each 100,000 wafer starts per month, and we expect it to grow by $1 billion when backside power delivery is introduced into volume manufacturing. Overall, we expect to generate more than $2.5 billion of revenue from Gate All Around nodes this year, and potentially more than double that in 2025. In DRAM, one of the key approaches that memory makers are using to improve performance and power consumption is to implement logic technologies in the peripheral circuitry.

Bob: Our available market for the wiring steps is approximately $6 billion for each 100000 wafer starts per month, and we expect it to grow by $1 billion went back side power delivery is introduced into volume manufacturing.

Bob: Overall, we expect to generate more than $2.5 billion of revenue from gate all around nodes this year and potentially more than double that in 2025.

Bob: And DRAM one of the key approaches that memory makers are using to improve performance and power consumption is to implement logic technologies in the peripheral circuitry.

Gary E. Dickerson: Our deep capabilities and logic, combined with our strong position in DRAM patterning and our unique co-optimized hard mask solutions for capacitor scaling, make us the clear leader in process equipment for DRAM today and best positioned for future growth. In the critical die stacking technologies used in high bandwidth memory, we also have strong leadership positions, including in micro bump and through silicon via. Last quarter, we said that we expected our HBM packaging revenue to be four times larger in 2024 than in 2023.

Bob: Our deep capabilities in logic combined with our strong position in DRAM patterning, and our unique co optimized hard mask solutions for capacitor scaling makes us the clear leader in process equipment for DRAM today, and best positioned for future growth.

Bob: And the critical di stacking technology is used in high bandwidth memory.

We also have strong leadership positions, including in micro bump and through silicon via.

Bob: Last quarter, we said that we expected our HBM packaging revenue to be four times larger in 2024, then in 2023.

Gary E. Dickerson: As we have recently seen customers accelerate their capacity plans for HBM, we now believe that our revenue could be six times higher this year, growing to more than $600 million. Across all device types, we now expect revenue from our advanced packaging product portfolio to grow to approximately $1.7 billion this year. Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted beyond the AI data center, and we introduce new products that expand our served markets.

Bob: As we have recently seen customers accelerate their capacity plans for H b.

Bob: We now believe that our revenue could be six times higher this year growing to more than $600 million.

Bob: Across all device types, we now expect revenue from our advanced packaging product portfolio to grow to approximately $1 $7 billion. This year.

Bob: Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted beyond the AI data center, and we introduced new products that expand our served market.

Gary E. Dickerson: AI Data Center is just one example that illustrates how the major inflections that underpin the next generation of semiconductors are enabled by applied materials. Materials science and materials engineering are increasingly important to the industry's roadmap. Applied has invested early to develop a broad, unique, and connected portfolio of materials engineering solutions that are critical to enable major semiconductor inflections from AI high-performance computing to ICAPS edge computing.

Bob: AI data Center is just one example that illustrates how the major inflections that underpin. The next generation of semiconductors are enabled by applied materials.

Bob: <unk> science in materials engineering are increasingly important to the industry's roadmap applied has invested early to develop a broad unique and connected portfolio of materials engineering solutions.

Bob: That are critical to enable a major semiconductor inflections from AI high performance computing to eye caps edge computing.

Gary E. Dickerson: We are translating those investments into consistent outperformance. Recent Tech Insights data confirms that in 2023, Applied grew faster than the wafer fab equipment market for the fifth year in a row. We accomplished this despite headwinds created by trade rules that we estimate restricted us from more than 10% of the Chinese market during that period.

Bob: We are translating those investments into consistent outperformance recent tech insights data confirms that in 2023 applied grew faster than the wafer fab equipment market for the fifth year in a row.

Bob: We accomplished this despite headwinds created by trade rules that we estimate restricted us for more than 10% of the China market during that period, while we have gained share overall, we are growing share within our served market. Even faster. This is important because there's logic devices become more three dimensional.

Gary E. Dickerson: While we have gained share overall, we are growing share within our served market even faster. This is important because as logic devices become more three-dimensional, future generations of DRAM come to market, and advanced packaging becomes more prevalent, we expect materials engineering to become an even larger portion of overall wafer fab equipment. Another key component of our applied strategy is to address the increasing complexity faced by the industry.

Bob: Future generations of DRAM come to market and advanced packaging becomes more prevalent we expect materials engineering to become an even larger portion of overall wafer fab equipment.

Bob: Another key component of applied strategy is to address the increasing complexity faced by the industry.

Gary E. Dickerson: First, we are driving earlier, deeper, and broader collaboration with customers and partners. We are changing the industry's innovation model with the goal to accelerate mutual success rates and increase investment efficiencies. Our global EPIC platform, which we will build out over the next several years, is specifically designed to support high-velocity innovation and commercialization of next-generation technologies. Second, we are able to provide more complete and connected solutions that accelerate major device inflection.

Bob: First we are driving earlier deeper and broader collaboration with customers and partners. We are changing the industry's innovation model with a goal to accelerate mutual success rates and increase investment efficiencies.

Bob: Our global epic platform that we will build out over the next several years is specifically designed to support high velocity innovation and commercialization of next generation technologies.

Bob: Second we are able to provide more complete and connected solutions that accelerate major device inflections.

Gary E. Dickerson: The portion of our revenue generated by integrated solutions has grown from approximately 20% in 2019 to 30% today. We expect demand for these fab-in-a-fab type solutions to continue growing, both at the leading edge and from our ICAPS customers who are serving specialty IoT, communications, auto, power, and sensor applications. And third, we are helping customers transfer new technology into high volume manufacturing faster and then optimize performance, yield, output, and cost in their factory operations. This is supporting double-digit growth in our service business. AGS delivered a new record for revenue this quarter, $1.5 billion, with a significant portion of this coming from subscriptions in the form of long-term service agreements.

Bob: Portion of our revenue generated by integrated solutions has grown from approximately 20% in 2019% to 30% today.

Bob: We expect demand for these fabs or fab type solutions to continue growing both at the leading edge and from our <unk> customers, who are serving specialty Iot communication auto power and sensor applications.

Bob: And third we are helping customers transfer new technology into high volume manufacturing faster and then optimize performance yield output and cost in their factory operations.

Bob: This is supporting double digit growth of our service business.

Ags delivered a new record for revenue this quarter $1.5 billion.

Bob: With a significant portion of this coming from subscriptions in the form of long term service agreements.

Gary E. Dickerson: Before I hand over to Brice, I will quickly summarize. Applied Materials continues to deliver strong performance in 2024, and we are in a great position to benefit from secular growth trends over the longer term. Tectonic shifts in technology, including AI, IoT, EVs, and clean energy that are reshaping the global economy are built on semiconductors, driving demand for more chips and new chips with higher performance and better energy efficiency. Key device architecture inflections that underpin the semiconductor roadmap are enabled by applied materials.

Speaker Change: Before I hand over to Bryce I will quickly summarize applied materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term.

Bryce: Tectonic shifts in technology, including AI, Iot Evs and clean energy that are reshaping. The global economy are built on semiconductors, driving demand for more chips, and new chips with higher performance and better energy efficiency.

Key device architecture inflections that underpin the semiconductor roadmap are enabled by applied materials. We expect this to support our ongoing outperformance as next generation chip technologies, including gate, all around logic nodes high performance, DRAM and H B M and advanced packaging.

Gary E. Dickerson: We expect this to support our ongoing outperformance as next-generation chip technologies, including gate-all-around logic nodes, high-performance DRAM and HBM, and advanced packaging, move into high-volume production. And finally, the increasingly complex industry roadmap is driving earlier, deeper, and broader collaboration between applied materials and our customers and partners, accelerating demand for our most advanced, co-optimized, and integrated solutions, and supporting double-digit growth in our service Now I'll hand it over to Brice.

Bryce: Move into high volume production and finally, the increasingly complex industry roadmap is driving earlier deeper and broader collaboration between applied materials, and our customers and partners accelerating demand for our most advanced co optimized and integrated so.

Bryce: Lucian and supporting double digit growth in our service business now I'll hand over to Bryce. Thank you, Gary and I'd like to thank our teams for their focus and execution, which resulted in another strong quarter for revenue and gross margin.

Brice A. Hill: Thank you, Gary. And I'd like to thank our teams for their focus and execution, which resulted in another strong quarter for revenue and gross margins. Today, I'll discuss our overall business environment and share insights into our ICAPS business, which serves the IoT, communications, auto, power, and sensor market. I will describe our capital allocation strategy and operating model, demonstrating how we are driving profitable growth and attractive shareholder return. I'll also summarize our Q2 results and provide our guidance for Q3.

Bryce: Today, I'll discuss our overall business environment and share insights into our <unk> business.

Bryce: Which serves the Iot communications auto power and sensor markets.

Bryce: I'll describe our capital allocation strategy and operating model demonstrating.

Bryce: Demonstrating how we are driving profitable growth and attractive shareholder returns.

Bryce: I will also summarize our Q2 results and provide our guidance for Q3.

Brice A. Hill: In calendar Q1, the global market for semiconductors grew 15% year over year, and we are optimistic that the data center trends Gary outlined will help drive solid growth for the semiconductor industry. During the quarter, cloud service providers announced strong capital spending plans, which is good news for our customers.

Speaker Change: In calendar Q1, the global market for semiconductors grew 15% year over year, and we are optimistic that the data center trends, Gary outlined will help drive solid growth for the semiconductor industry.

Speaker Change: During the quarter cloud service providers, and our strong capital spending plans, which is good news for our customers.

Brice A. Hill: In the market briefing we issued earlier this month, we forecast that the data center market will eventually become the number one driver of leading-edge FoundryLogic wafer starts, surpassing PCs and then smartphones in the coming years. Within our business, we had a strong quarter in fiscal Q2 across DRAM, advanced packaging, ICAPS, and services. In February, we projected that factory utilization would increase across all device types, and it did.

And the market briefing, we issued earlier this month.

Speaker Change: We forecast that the datacenter market will eventually become the number one driver of leading edge foundry logic wafer starts surpassing pc's and then smartphones in the coming years.

Speaker Change: Within our business, we had a strong quarter in fiscal Q2 across DRAM advanced packaging I caps and services.

Speaker Change: In February we projected that factory utilization would increase across all device types and it did.

Brice A. Hill: Gary discussed how the Data Center AI megatrend is driving strong demand for our technologies used in leading-edge logic, DRAM, high-bandwidth memory, and other forms of advanced packaging. Our ICAPS business is driven by three additional megatrends, notably IoT and edge computing, electric and autonomous vehicles, and renewable energy. Across our ICAPS business, one of the largest demand drivers for this year is edge computing, especially at the 28 nanometer node needed by smartphone companies and makers of IoT devices for industrial and home automation applications.

Speaker Change: Gary discussed how the data center AI Mega trend is driving strong demand for our technology is used in leading edge logic DRAM high bandwidth memory and other forms of advanced packaging.

Speaker Change: Our <unk> business is driven by three additional mega trends, notably Iot and edge computing electric and autonomous vehicles and renewable energy.

Speaker Change: Cross our <unk> business one of the largest demand drivers. This year is edge computing, especially at the 28 nanometer node needed by smartphone companies and makers of Iot devices for industrial and home automation applications.

Brice A. Hill: A second large demand driver is power chips for electric vehicles, where industry leaders are now establishing supply chains to support their long-term growth plans. A third driver is power chips used to capture renewable solar and wind energy, which are needed to achieve net-zero goals in the decades ahead.

Speaker Change: Our second largest demand driver is power chips for electric vehicles, where industry leaders are now establishing supply chain to support their long term growth plans.

Speaker Change: A third driver is the power chips used to capture renewables solar and wind energy, which are needed to achieve net zero goals in the decades ahead.

Brice A. Hill: We believe our ICAPS business will remain a large portion of our overall FoundryLogic business for several reasons. First, the megatrends we described will continue to increase unit demand for iCAPS chips. Two, we are innovating at the device level, which creates better chips, stimulates new system sales, and extends Applied's position as the highest value partner for our customers. And finally, we are introducing iCAPS products in additional market segments, which will help us broaden our reach and gain share. Next, I'll summarize our capital allocation strategy and the results it enables. Our efficient business model generates healthy, free cash flow.

Speaker Change: We believe our <unk> business will remain a large portion of our overall foundry logic business for several reasons one the Mega trends. We described we will continue to increase unit demand for <unk> chips too.

Speaker Change: We are innovating at the device level, which creates better chips stimulates new system sales and extends apply its position as the highest value partner for our customers and finally, we are introducing <unk> products and additional market segments, which will help us broaden our reach and gained share.

Speaker Change: Next I'll summarize our capital allocation strategy and the results it enables.

Speaker Change: Our efficient business model generates healthy free cash flow. Our first priority is investing in R&D and capital infrastructure to enable profitable growth.

Brice A. Hill: Our first priority is investing in R&D and capital infrastructure to enable profitable growth, and our second priority is growing our dividend per share and using our buyback program to distribute excess free cash flow to shareholders. Specifically, over the past 10 fiscal years, we have reinvested more than $20 billion in R&D and over $5 billion in capital additions and distributed more than 90% of free cash flow to shareholders.

Speaker Change: And our second priority is growing our dividend per share and using our buyback program to distribute excess free cash flow to shareholders specifically.

Speaker Change: Specifically over the past 10 fiscal years, we have reinvested more than $20 billion in R&D and over $5 billion in capital additions and distributed more than 90% of free cash flow to shareholders.

Brice A. Hill: Our capital allocation strategy supports our operating model, which I'll summarize. First, we invest over $3 billion in R&D each year, collaborating closely with our customers to invent new semiconductor technologies that are critical to their competitive positions in the global megatrends we've described. Second, we design high volume manufacturing systems that enable our customers to deploy these new chip and advanced packaging technologies at a global scale. Third, we manage a global factory and supply chain network to manufacture these systems.

Speaker Change: Our capital allocation strategy supports our operating model, which I'll summarize first we invest over $3 billion in R&D each year collaborating closely with our customers to invent new semiconductor technologies that are critical to their competitive positions and the global Mega trends. We've described.

Brice A. Hill: Fourth, we service our systems, which have decades of useful life, helping customers maximize their return on investment by accelerating ramps and optimizing output, yield, and cost. Finally, we reinvest a high percentage of the profits from this activity back into R&D to develop more new technologies and solutions.

Speaker Change: Second we designed high volume manufacturing systems that enable our customers to deploy these new chip and advanced packaging technologies at global scale.

Speaker Change: Third we manage a global factory and supply chain network to manufacture these systems.

Speaker Change: Fourth we service our systems, which have decades of useful life, helping customers maximize the return on investment by accelerating ramps and optimizing output yield and cost.

Speaker Change: Fifth we reinvest a high percentage of the profits from this activity back into R&D to develop more new technologies and solutions and.

Speaker Change: And finally, we distribute excess cash to shareholders.

Brice A. Hill: An important point is that every tool we manufacture and ship grows our installed base and our service opportunity, which leads to consistent and stable growth for applied global services. In fact, AGS has delivered 19 consecutive quarters of year-over-year growth, spanning two memory down cycles. Over 80% of AGS revenue comes from recurring services and part sales, about two-thirds of which is delivered under long-term service agreements that have a 90% renewal rate.

Speaker Change: An important point is that every tool, we manufacture and ship grows our installed base and our service opportunity, which leads to consistent and stable growth for applied global services.

Speaker Change: In fact, Ags has delivered 19 consecutive quarters of year over year growth spanning two memory down cycles.

Speaker Change: Over 80% of Ags revenue comes from recurring services and parts sales about two thirds of which has delivered under long term service agreements that have a 90% renewal rate.

Brice A. Hill: Connecting this to our capital allocation strategy, AGS has continued to produce more than enough operating profit to fully fund our growing dividend. In March 2023, we announced a 23% increase in our dividend per share. And in March of this year, we announced a 25% increase. In summary, over the past 10 fiscal years, our operating model has increased 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 have reduced net shares outstanding by over 30 percent.

Speaker Change: Connecting this to our capital allocation strategy Ags has continued to produce more than enough operating profit to fully fund our growing dividend.

Speaker Change: In March 2023, we announced a 23% increase in our dividend per share and in March of this year, we announced a 25% increase in summary over the past 10 fiscal years.

Our operating model has increased company revenue at a compound rate of over 13%.

Speaker Change: non-GAAP EPS at nearly 30% free cash flow at 33% in dividends per share at nearly 12%.

Speaker Change: Also over this period, we reduced net shares outstanding by over 30%.

Brice A. Hill: Now, I'll summarize our key two results. On a year-over-year basis, net sales grew slightly to nearly $6.65 billion, non-GAAP gross margin grew 70 basis points to 47.5%, non-GAAP OPEX grew 5% to $1.23 billion, and non-GAAP EPS grew 4.5% to $2.09. Turning to segment results, semiconductor systems revenue remained strong at $4.9 billion and included record ion implant sales. Segment Non-Gap Operating Margin was 34.9%.

Speaker Change: Now I'll summarize our Q2 results on.

Speaker Change: On a year over year basis, net sales grew slightly to nearly 665 billion non.

Speaker Change: non-GAAP gross margin grew 70 basis points to 47, 5% non-GAAP Opex grew 5% to 123 billion and non-GAAP EPS grew four 5% to $2 <unk>.

Speaker Change: Turning to segment results semiconductor systems revenue remained strong at $4 9 billion.

Speaker Change: And included record ion implant sales.

Speaker Change: non-GAAP operating margin was 34, 9%.

Brice A. Hill: Applied Global Services revenue increased 7% year-over-year to $1.53 billion, and the segment non-gap operating margin was 28.5%. Our tools under subscription agreements increased by 8% year-over-year, and our installed basic chambers surpassed 200,000 for the first time. Moving to display, Q2 revenue was $179 million, and the segment non-gap operating margin was 2.8%. We are becoming more confident that the OLED technology found in smartphones will be adopted in notebook PCs and tablets, whose larger screen sizes would spur an increase in capital investment.

Speaker Change: Applied global services revenue increased 7% year over year to $1 3 billion and segment non-GAAP operating margin was 28, 5%.

Speaker Change: Our tools under subscription agreement increased by 8% year over year, and our installed base of chambers surpassed 200000 for the first time.

Speaker Change: Moving to display Q2 revenue was $179 million and segment non-GAAP operating margin was two 8% we are becoming more confident that the OLED technology found in smartphones will be adopted in notebook Pcs and tablets was larger screen sizes would spur an increase in capital investments.

Brice A. Hill: Turning to cash flows, in Q2, we generated nearly $1.4 billion in operating cash flow and nearly $1.14 billion in free cash flow. We distributed nearly $1.1 billion to shareholders, including $266 million in dividends and $820 million in buyback. We repurchased 4.1 million shares at an average price of $197.77.

Speaker Change: Turning to cash flows in Q2, we generated nearly $1 4 billion in operating cash flow and nearly $1. One 4 billion and free cash flow, we distributed nearly $1 $1 billion to shareholders, including $266 million in dividends and $820 million of buybacks.

Speaker Change: We repurchased $4 1 million shares at an average price of $197 77.

Brice A. Hill: Now, I'll share our guidance for Q3. We expect revenue of $6.65 billion, plus or minus $400 million, and non-GAAP EPS of $2.01, plus or minus $0.18. Within this outlook, we expect semi-systems revenue of around $4.8 billion, AGS revenue of about 1.57 billion dollars, and display revenue of around $245 million. We expect non-GAAP gross margin to be approximately 47% and non-GAAP operating expenses to be around $1.26 billion. Finally, we are modeling a tax rate of 12.3 percent.

Speaker Change: Now I'll share our guidance for Q3.

Speaker Change: We expect revenue of $6 65 billion.

Speaker Change: Plus or minus $400 million and non-GAAP EPS of $2.01 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 dollars 7 billion.

Speaker Change: And display revenue of around $245 million.

Speaker Change: We expect non-GAAP gross margin to be approximately 47% and non-GAAP operating expenses to be around $1 6 billion.

Speaker Change: Finally, we are modeling a tax rate of 12, 3%.

Brice A. Hill: Thank you. And now, Mike, let's begin the Q&A. Thanks, Brice.

Speaker Change: Thank you and now Mike let's begin the Q&A. Thanks.

Bryce: Thanks, Bryce to help us reach as many people as we can 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.

Michael Sullivan: To help us reach as many people as we can, please ask just one question on today's call. If you have another question, please recur and we'll do our best to come back to you later in the session. Operator, let's please begin. Certainly, and our first question comes from the line of CJ Muse from Cancer Fitzgerald.

Speaker Change: Certainly and our first question comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.

Christopher James Muse: Your question, please. Yeah, thank you for taking the question. I guess we'd love for you to talk about your visibility today and how your ongoing conversations are going with your large customers as it relates, both to your outlook for kind of the second half versus first half on a calendar basis, as well as, you know, building that potential backlog into calendar 25. Thank you. Okay, great. Hi, CJ.

Yes, Thank you for taking the question.

Speaker Change: I guess would love for you to talk about your visibility today and how your ongoing conversations are going with.

Speaker Change: With your large customers as it pertains both to your outlook for kind of second half versus first half on a calendar basis as well as.

Speaker Change: Building.

Speaker Change: That potential backlog into calendar 'twenty five thank you.

Speaker Change: Okay, Great Hi, C. J. Thanks for the question so when we look at our business.

Brice A. Hill: Thanks for the question. So, you know, when we look at our business and think about the largest customers, as we look at Q3 and our guidance for Q3, we know that the DRAM shipments that we had for China that we called out that were fairly high in Q1 and Q2 are falling off in the second half. And what we've been expecting is that ICAP strength and leading logic strength would backfill that drop off in DRAM.

Speaker Change: Think about largest customers as we look at Q3 and our guidance for Q3, we know that the.

Speaker Change: DRAM shipments that we've had for China that we called out that were fairly high in Q1, and Q2 are falling off in the second half and what we've been expecting as that I kept strengths and leading logic strength would backfill.

Speaker Change: That drop off in DRAM, and that's exactly what we see happening in Q3.

Brice A. Hill: And that's exactly what we see happening in Q3. And that's consistent on the leading logic side with the advent of gate all around process technology and equipment, you know, beginning to ship earnestly in earnest for the HVM ramp that will be coming. And I think that's a good indication of, you know, what we're expecting in the second half.

Speaker Change: And that's consistent on the leading logic side with the advent of gate all around process technology and equipment.

Speaker Change: Beginning to ship Ernest in earnest for the HBM ramp that will be upcoming.

Speaker Change: And I think that's a good indication of what we're expecting in the second half we talked about weather.

Brice A. Hill: We talked about whether leading logic and ICAPs would be able to fill in for the drop off in Chinese DRAM, and that's exactly what we see in Q3. And then we will look ahead to 25, and we'll point to the same, you know, fundamental ramp for leading logic. That'll be gate all around.

Speaker Change: Leading logic and <unk> would be able to fill in for that drop off in China, DRAM and that's exactly what we see in Q3 and then we will look ahead to 'twenty five a point to the same fundamental.

Gary E. Dickerson: Ramp for leading logic that'll be gate, all around Gary highlighted in his remarks that we expected.

Gary E. Dickerson: $2 $5 billion of business related to get around gate all around shipments in 'twenty, four and we expect to be able to grow that significantly in 'twenty five is that.

Gary E. Dickerson: Is that a process technology ramps towards HBM high value manufacturing.

Gary E. Dickerson: Yeah.

Yes.

Gary E. Dickerson: Yes.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: And our next question comes the line of Stacy you're asking from.

Stacy Aaron Rasgon: Your question, please. Hi guys, thanks for taking my question. Um, Brice, and Gary, I wanted to follow up on that sort of qualitative 2025 outlook. So I guess I probably heard you right.

Speaker Change: Bernstein Research your question please.

Brice A. Hill: You said two and a half billion this year, doubling next year or more. So two and a half billion of incremental year over year growth from GATE all around. It sounds like you said the events packaging had the opportunity to double again over time, so that should be growing. HBM and, theoretically, should be growing. ICAPS, I know, has been a little weaker than it was. Feels like it's bottoming out just getting what we're seeing.

Speaker Change: Hey, guys. Thanks for taking my question.

Speaker Change: Bruce I wanted to and Gary I wanted to follow up on that sort of qualitative 2025.

Speaker Change: Outlook, So I guess I guess I heard you right you said $2 5 billion hit all of them. This year doubling next year or more so $2 5 billion of incremental year over year growth from gate all around it sounds like you said the events packaging had the opportunity to double again over time, so that should be growing HBM theoretically should be growing.

Stacy Aaron Rasgon: That ought to grow. And I mean, NAND flash for your guys is pretty close to zero right now as well. So that ought to grow.

Speaker Change: I know, it's been a little weaker than it was it feels like it's bottomed just given what we're seeing that ought to grow in Harbin.

Speaker Change: NAND Flash is for you guys is pretty close to zero right now as well so I mean I don't agree.

Brice A. Hill: How do I think about, you've talked about overdelivering versus the market, like, let's say the WFP market was flat next year. Given those drivers, how would I think about how you guys could grow relative to a market like that? Yeah, thanks, Stacy, for the question. So the way our perspective, you know, we start with the longer-term view.

Speaker Change: How do I think about like you've talked about over delivering versus the market like let's say the WP market was flat next year given those drivers how would I think about how you guys could grow relative to a market like that given those drivers.

Speaker Change: Yeah. Thanks, Stacy for the question so the way our perspective, we start with a longer term view.

Brice A. Hill: And as Gary described, we're investing in the key inflections for the fastest growing markets. And so our perspective, you know, if you stand back and think over many quarters or the next several years, is that the leading logic technologies like 8 all around and backside power, the advanced packaging, HBM memory, our services business, we think all of those will grow faster than the average market and will help us gain share. So it's harder to call any particular quarter, you know, or short time period in the near future, but that would be our perspective.

Gary E. Dickerson: And as Gary described we are investing in the key inflections for the fastest growing markets.

Speaker Change: So our perspective, if you stand back and think over many quarters or the next several years is that the leading logic technologies like gate, all around and backside power of the advanced packaging HBM memory. Our services business. We think all of those will grow faster than the average market and will help us gain share.

Speaker Change: And so it's harder to call any particular quarter are short time period in the near future, but that would be our perspective.

Brice A. Hill: And I think, you know, from an ICAPS perspective, you called out Gate All Around and ICAPS and DRAM and NAND, I think, thinking about all of them. We've talked about our DRAM share, you know, having improved over 10 percentage points over the last 10 years, and we expect that technology to have great tailwinds. We talked about how HBM and utilization and DRAM are improving, so that's a positive.

Speaker Change: And I think.

From a <unk> perspective, you called out gate, all around and I caps, and DRAM and NAND I think thinking about all of them, we've talked about our DRAM share having improved over 10 percentage points over the last 10 years.

Speaker Change: And we expect that technology has great tailwind as we talked about how HBM and utilization in DRAM is improving so that's that's a positive.

Brice A. Hill: And if we think about ICAPs, ICAPs, the market, you know, we have three quarters here that you can see, our first two that are closed, and our Q3 guidance, and ICAPS is very strong in those quarters and grows in Q3 to fill in some of that Chinese DRAM business that drops off. And then finally, Gate All Around, the $2.5 billion that Gary highlighted, that's not just the incremental; that's our shipments for the entire business that are associated with Gate All Around that are shipping this year. And we do expect that number to grow next year. Stacy, this is Gary.

Speaker Change: Think about high caps I caps the market.

Speaker Change: Three quarters here that you can see our first two that are closed and our Q3 guidance and <unk> is very strong in those quarters and grows in Q3 to fill in some of that.

Gary E. Dickerson: China DRAM business that drops off and then finally gate all around the $2 $5 billion that Gary highlighted that's.

Gary E. Dickerson: That's not just the incremental that's our shipments for the entire business that are associated with gate all around that are shipping this year and we do expect that to grow next year.

Gary E. Dickerson: You know, really the big focus for us is... Enabling and winning major device architecture inflections. So, you know, when you break out all of these different device segments, certainly Foundry Logic Leading Edge, the opportunity there for us to grow is significant because we have a very high share of those big inflections. The gate all around, backside power delivery, and wiring is a real strength for us.

Gary E. Dickerson: Stacy This is Gary really the big focus for us is.

Gary E. Dickerson: Enabling in winning major device architecture inflections. So when you break out all of these different device segments, certainly foundry logic, leading edge the opportunity there for us to grow is significant because we have a very high share.

Gary E. Dickerson: Those big inflections the gate all around backside power delivery wiring is a real strength for us.

Gary E. Dickerson: As Brice mentioned, in DRAM, we gained 10 points of overall DRAM share over the last 10 years. And if I look forward to the architecture inflections in DRAM, we're even better positioned. Those will be much more materials-intensive, materials engineering enabled, and, you know, that's going to be a really good position for us. We also talked about packaging.

Gary E. Dickerson: Price mentioned in DRAM, we gained 10 points of overall DRAM share over the last 10 years and if I look forward at the architecture inflections in DRAM, we're even better positioned those will be much more materials intensive materials engineering enabled.

Gary E. Dickerson: And that's going to be a really good position for us we also talked about packaging.

Gary E. Dickerson: We've increased our view of packaging in 24 to $1.7 billion, but, you know, as I mentioned and Brice reiterated, we have an opportunity to double advanced packaging, our advanced packaging business. And HBM, you know, we increased that growth from 4X to 6X this year. And the last one... is our services business, 19 consecutive quarters of year over year where we've seen growth. And with these highly complex architecture inflections, it gives us a really great opportunity to add more value with our services business, as people are moving into new locations where they don't have an experienced workforce. We've talked about double-digit growth in services. Right now, that's a $6 billion run rate, but that's adding significant growth as we go forward. So there's just a few other thoughts.

We've increased our view of packaging.

<unk> 24 to $1 $7 billion, but.

Gary E. Dickerson: As I mentioned in price reiterated we have an opportunity to double our advanced packaging.

Gary E. Dickerson: Advanced packaging business and H B M <unk>.

Gary E. Dickerson: We've increased that gross from Forex to six X this year and the last one.

As our services business 19th consecutive quarters year over year.

Gary E. Dickerson: Where we've seen growth and with these highly complex architecture inflections. It gives us a really great opportunity to add more value with our services business also as people are moving into new locations.

Gary E. Dickerson: They don't have an experienced workforce that we've talked about double digit growth in.

Gary E. Dickerson: Services right now.

Gary E. Dickerson: That's a $6 billion run rate, but that's adding significant growth as we go forward. So theres just a few other thoughts for you.

Stacy Aaron Rasgon: But you said $2.5 billion this year from GATE all around and more than double that in 20... Did I hear that wrong? Does that suggest $5 billion in GATE all around in 2025? Yeah, that's... Or did I misunderstand what you said? No, I think that the math is correct. Yeah, that's right, Stacy.

Gary E. Dickerson: $2 5 billion this year from gate, all around and more than double that.

Speaker Change: Did I hear that wrong does that suggest $5 billion in gate all around in 2025, yes.

Misunderstand, what I said, no I think that math is correct yes.

Brice A. Hill: So that's not just the increment; that's the entire equipment sales that we'll have for that technology. So $2.5 billion for this year and the opportunity to double that next year. Got it.

Stacy: Stacy so that's not just the increment that's the entire.

Stacy: Equipment sales that we'll have for that technology, So $2 5 billion for this year and.

Stacy: Opportunity to double that next year.

Speaker Change: Got it thank you guys.

Stacy: Yes.

Mark John Lipacis: Thank you, guys. Thank you. One moment for our next question. And our next question comes from the line of Mark Lipacis, from Evercore ISI. Your question, please? Hi, thanks for taking my question. Maybe a question for Gary.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line.

Upmarket lipolysis.

Speaker Change: From Evercore ISI your question please.

Gary E. Dickerson: Gary, when you talk about investing more in materials engineering, it seems like you're kind of climbing up the value chain to the place where, you know, it used to be your customer's domain. And a lot of times, when you see companies moving up the value chain and adding more value, you know, ultimately, you see that reflected in, you know, improving margins. So, I appreciate that you engage in partnerships, and that's the spirit.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: Maybe a question for Gary Gary when you when you talk about like investing more in materials engineering. It seems like you're kind of climbing up the value chain to the place where you are.

Speaker Change: It used to be a customer's domain.

Speaker Change: And a lot of times when you when you see companies moving up the value chain and adding more value.

Speaker Change: Ultimately you see that reflected in <unk>.

Speaker Change: Improving margins so.

Gary E. Dickerson: But, like, if you're adding more value, it seems like that, ultimately, at the end of the day, should come back to you in higher profitability. I'm wondering if you could just talk, you know, philosophically, about that.

Speaker Change: Appreciate that you engage in partnerships and thats the spirit, but like if you're adding more value. It seems like that ultimately at the end of the day.

Speaker Change: Should come back to you and higher profitability I'm wondering if you could just talk.

Mark John Lipacis: Like, how, you know, is that something you would expect to see happen, or does that manifest in other ways? Thank you. Yeah, thanks for the question, Mark. So, you know, if you look at the industry overall, all our customers are racing to be first to market to deliver those major device architecture inflections that determine their competitive position. So, you know, gate all around, backside power, those new DRAM architectures and packaging are becoming more and more important to power performance and cost. So that is really what shapes the competitive landscape in the industry. And it's very, very clear.

Speaker Change: Philosophically about that like how is that something.

Speaker Change: You would expect to see happen or does that manifest in other way. Thank you.

Mark: Thanks for the question Mark So if you look at the industry overall all of our customers are racing to be first to market to deliver those major device architecture inflections that determine their competitive position so gate.

Speaker Change: <unk> all around backside power.

Speaker Change: New DRAM architectures, and packaging is becoming more and more important to power performance and cost so that.

Speaker Change: That is really what shapes the competitive landscape.

Speaker Change: And the industry in.

Speaker Change: It's very very clear, we're working with our customers.

Gary E. Dickerson: We're working with our customers for Technology Generations out into the future, so we have very high visibility, and this broad and connected portfolio that we have gives us an opportunity to engage with customers in those early and very deep relationships at those architecture inflections. And as we look forward, we do see materials engineering as a percentage of spend and the relative contribution increasing, and Applied has clear leadership, especially with this broad connected portfolio.

Speaker Change: For technology generations out into the future. So we have very high visibility in this broad and connected portfolio that we have gives us an opportunity to engage with customers in those early and very deep relationships on those architecture inflections and.

As we look forward, we do see materials engineering as a percentage of spend and the relative contribution increasing and apply it has clear leadership, especially with this broad connected portfolio, we've built integration capability inside apply that.

Gary E. Dickerson: We've built integration capability inside Applied that is really tremendous and really co-innovating with our customers as they're driving those architecture inflections. So I do believe for sure that we will be creating more value in those relationships with our customers. And that certainly is valuable for them, and our focus is to capture more value as we're delivering more value with them. So your basic question, I agree with your thoughts. Thanks. Very helpful.

Speaker Change: It is really tremendous and really co innovating with our customers as they're driving those architecture.

Speaker Change: Inflections.

Speaker Change: So.

Speaker Change: I do believe for sure that we will be creating more value in those relationships with our customers.

Speaker Change: That certainly is valuable for them in.

Speaker Change: Sure.

Speaker Change: Our focus is to capture more value and as we're delivering more value with them. So your basic question I agree with your thoughts.

Speaker Change: Thanks very helpful.

Vivek Arya: Thank you. One moment for our next question. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please. Thanks for taking my question. Um, Gary, maybe back to the gate all around.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line Vivek Arya from Bank of America Securities. Your question. Please.

Brice A. Hill: So you're raising the forecast there by a billion dollars, I think, on, I think, HPM, you're raising it by another, you know, 100 million or so. Is that all going to show up in July and October? So does it mean that conceptually, the second half of the year is, you know, over a billion dollars higher than you thought before? And then, gate all around, what is driving such a significant growth versus what you thought before?

Vivek Arya: Thanks for taking my question.

Vivek Arya: Got it maybe back to the gate all around so you're raising the forecast there by $1 billion I think on.

Speaker Change: I think HBM, you're raising it by another 100 million or so is that all going to show up in July and October. So does it mean that conceptually the second half of the year is over $1 billion higher than what you thought.

Speaker Change: Before and then on gate all around what is driving.

Speaker Change: That's a significant growth versus what you talked before 1 billion increase over <unk> 5 billion based on a very very strong number. So I'm just curious what are the kind of the qualitative factors and then just also quantitatively does it mean that second half the $1 billion higher.

Brice A. Hill: You know, a billion increase over one and a half billion is a very, you know, very strong number. So I'm just curious, what are the qualitative factors? And then, also quantitatively, does it mean that the second half is, you know, billion dollars higher, you know, billion point one higher than what you thought before? Hi Vivek, it's Brice.

Speaker Change: <unk>, one higher and what you are talking before.

Brice A. Hill: I'll just do a clarification here. This quarter, we decided last quarter when we talked about the incremental revenue for gate all around, that it was a little bit confusing. So we changed, and this quarter, we're talking about all of our revenue that's associated with the gate all around transistor and wiring. And so that's not just the increment. So the $2.5 billion that we're talking about this quarter is not supposed to be interpreted as an increase relative to the $1 billion we talked about last quarter. We're just changing the base.

Vivek Arya: Hi, Vivek, it's price I'll, just do a clarification here.

Speaker Change: This quarter, we decided last quarter when we talked about the incremental revenue for gate all around that it was a little bit confusing. So we changed in this quarter, we're talking about all of our revenue that's associated with the gate all around.

Speaker Change: Transistor and wiring and so that's not just the increment. So the $2 5 billion that we're talking about this quarter is not an issue.

Speaker Change: It's not supposed to be interpreted as an increase relative to the $1 billion, we talked about last quarter. We're just changing the basis now we're just quoting all of the business that's associated with.

Brice A. Hill: Now we're just quoting all of the business that's associated with the Gate All-Around product. So, hopefully, that helps. So as far as answering the question about what's driving the increase, I don't think our perspective has changed very much. It's $2.5 billion for this year. What I would say is you do see some of that in our Q3 guide, so as you know, we took down or are dropping off the incremental Chinese DRAM shipments that we had, and in the second half, we're filling that in with ICAP strength and growing leading logic shipments that are driven by Gate All Around, relative to kind of what drives the incremental spending. These technologies where you're improving device performance, the drive current, leakage, power, and consumption, all of those things are incredibly difficult.

Speaker Change: The gate all around product so hopefully that helps so as far as answering the question about what's driving the increase I don't think our perspective has changed very much its $2 5 billion for this year. It can grow significantly next year as the technology ramps and then.

Speaker Change: What I would say is you do see some of that in our Q3 guide. So as you know we took down.

Speaker Change: Dropping off the incremental China DRAM shipments that we had and in the second half, we're filling that in with <unk> strength and growing leading logic shipments that are driven by gate all around.

Speaker Change: Right.

Speaker Change: Relative to kind of what drives the incremental spending.

Speaker Change: These technologies, where you are.

Speaker Change: Improving device performance to drive current leakage power consumption and all of those things are incredibly difficult.

Brice A. Hill: And so the customers, and it's really all about this materials magic that we're able to provide with that broad portfolio of different types of technologies. So step counts are increasing at every one of those different technology nodes as they are driving those roadmaps for performance, power, to meet the demand, especially for high-performance computing, and AI computing demand type of applications. So again, those are very, very, very, very, very, difficult technologies, whether it's 100 billion transistors in a GPU or 100 kilometers of wiring in an application processor. Those are really amazing, amazing technological accomplishments with materials. That's what drives that incremental spending. Thank you.

Speaker Change: And so the.

Speaker Change: Customers and it's really all about materials magic that we're able to provide.

Speaker Change: With that broad portfolio of different types of technologies, so step counts are increasing.

Speaker Change: At every one of those different technology nodes as they are driving those roadmaps for performance power.

To meet that.

Speaker Change: For high performance computing AI computing.

Speaker Change: Demand type of applications. So again those are very very very very difficult technologies, whether it's a 100 billion transistors and a GPU or a 100 kilometers of wiring and an applications processor. Those are really amazing amazing technology to accomplish accomplishments with material.

Speaker Change: That's what drives that incremental spending.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Christopher Caso: 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 evening.

Speaker Change: And our next question comes from the line of Chris Caso from Wolfe Research. Your question. Please.

Christopher Caso: The question is on advanced packaging, and you were pretty specific with what you're expecting this year. You spoke about the opportunity to double that again, but you didn't provide a timeframe for that.

Christopher Caso: Yes. Thank you. Good evening. My question is on advanced packaging and you were pretty specific.

Speaker Change: With what you're expecting this year you spoke about the opportunity to double that again, you didn't provide a timeframe on that so if you could help us with some of the timeframe on.

Christopher Caso: So, if you could help us with some of the timeframe on when you expect to double that, and just in terms of what's driving that, we know there's advanced packaging in Logic and HBM. What's the mix of that in terms of what's driving the expectation time? Hi Chris, this is Gary.

Speaker Change: When do you expect to double that and just in terms of whats driving that we know there is advanced packaging in logic and HBM.

Whats the mix of that in terms of what's driving the expectations higher.

Gary E. Dickerson: So this whole focus on advanced packaging, heterogeneous integration, is really a major driver across the entire industry. When you look at AI servers or, you know, any of these different kinds of applications, you see tremendous innovation. In high bandwidth memory, you see tremendous innovation and how you're connecting together all of those high-performance logic chips and memory chips. And we really see the growth there being very, very significant because it's so important to the industry's roadmap as kind of classics. Moore's Law has slowed down significantly.

Gary E. Dickerson: Hi, Chris This is Gary so.

Gary E. Dickerson: Our whole focus around advanced packaging heterogeneous integration is really a major drive across the entire.

Gary E. Dickerson: Tire industry.

Gary E. Dickerson: When you look at AI servers or.

Gary E. Dickerson: Any of these different kinds of applications, you see tremendous innovation and the high bandwidth memory, you see tremendous innovation in how you are connecting together.

Gary E. Dickerson: This is another major driver of how the industry will innovate going forward. And with Applied, we have the broadest portfolio of technologies, you know, PVD, CVD, CMP, plating, etch, we've added hybrid bonding, digital lithography, ebeam test. We have a very broad portfolio.

Gary E. Dickerson: All of those high performance logic chips and memory chips.

Gary E. Dickerson: And we really see the growth there being very very significant because its so important to the industry's roadmap is kind of classic Moore's law.

Gary E. Dickerson: It has slowed down significantly. This is another major driver of how the industry will innovate going forward and with applied we have the broadest portfolio of technologies Pvt, CVD CMP plating etch, we've added hybrid bonding digital lithography E beam test, we have a very broad.

Gary E. Dickerson: And as we see those roadmaps, and this is where I come back to architecture inflections, are really what drives your incremental business going forward. So we can see the roadmaps for our Foundry Logic customers, for memory customers; all of them are investing very heavily in these types of technologies. And some of these areas, also new innovations from Applied, will help us drive that business two times higher. And I think that, you know, the compound annual growth rate keeps going up from there.

Gary E. Dickerson: Portfolio and as we see those roadmaps and that's where I come back to architecture inflections are really what drives your incremental business going forward. So we can see the roadmaps.

Gary E. Dickerson: For our foundry logic customers for our memory customers all of them are investing very heavily in these types of technologies.

Gary E. Dickerson: The other advantage that we have besides this broad portfolio and the deep multi-generational connection that we have with all of our customers is our full-flow packaging lab in Singapore. We're working with leading customers on those next-generation innovations, Chris.

Gary E. Dickerson: Some of these areas also that our new innovations from applied will help us drive that business two times higher than I think.

Gary E. Dickerson: Compound annual growth rate keeps going up from there. The other advantage that we have besides this broad portfolio and a deep multi generation connection that we have with all of our customers.

Speaker Change: It is our full flow packaging lab in Singapore, we're working with leading customers on those next generation innovations, Chris So we have.

Gary E. Dickerson: Pretty good line of sight to what those inflections look like, the architecture inflections will look like, and a very strong position to grow our share as those inflections come to market. We're not given a specific time frame on the doubling, you know; it'll happen over a number of years, but very, very optimistic about our opportunities in packaging. Thank you.

Speaker Change: Good line of sight to what those inflections will look like the architecture inflections will look like and a very strong position to grow our share as those inflections come to market, we're not giving a specific time frame on the doubling yes. It will happen over a number of years, but very very.

Speaker Change: Optimistic about our opportunities in packaging.

Speaker Change: Thanks.

Srinivas Reddy Pajjuri: One moment for our next question. And our next question comes from the line of Srinivas Pajjuri from Raymond James. Your question, please. Thank you, Brice. I have a question about China.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question comes from the line of <unk> from Raymond James Your question. Please.

Brice A. Hill: I think last quarter you said you expected China to normalize to about 30% or so by the end of this year. So my question is, is that still the expectation? And then it looks like ICAPS is still holding up pretty well.

Brian: Thank you Brian I have a question on China, I think last quarter you said.

Brian Edward Chin: You expect China to normalize to about 30% or so by the end of this year. So my question is is that still the expectation and then it looks like <unk> is still holding up pretty well. So is the decline primarily DRAM going forward.

Speaker Change: And I'm just curious as to given what we are hearing about what we're seeing in the end markets. If I caps I mean, it looks like the broader analog is still relatively weak and auto is kind of mixed I'm just curious as to what's driving the.

Brice A. Hill: So is the decline primarily DRAM going forward? And I'm just curious as to given what we are hearing about what we're seeing in the end markets of ICAPS. I mean, it looks like the broader analog is still relatively weak, and auto is kind of mixed. I'm just curious as to what's driving the strength in ICAPS.

Speaker Change: Strengthen recaps thank you.

Brice A. Hill: Okay, thanks, Trini. Yes, first of all, our mix as we move to the second half of the year will normalize with respect to China as a percent of our total revenue, so it'll be closer to 30%, as expected, and that's the dynamic that you highlighted. We had some catch-up DRAM shipments to particular customers in China for the last three quarters, but those will fall off as we go through Q3 and Q4, and that really will bring our, you know, our percentage of Chinese revenue back down to closer to what's been, you know, average over the last few years, which we'll call about 30%.

Jenny: Okay. Thanks, Jenny, Yes first of all our mix as we move to the second half of the year will normalized with respect to China as a percent of our total revenue so it'll be closer to 30% as expected and it's the dynamic that you highlighted we had some catch up DRAM shipments to.

Jenny: <unk> customers in China for the last three quarters those will fall off as we go through Q3, and Q4 and that really will bring our our percentage of China revenue back down to closer to what's average over the last few years, which will call about 30%.

Brice A. Hill: And then with respect to the mix of business, so as that DRAM business falls off, our ICAPS business, you know, and our leading-edge logic business does increase to fill that in, and so that's consistent with, you know, continued strength in ICAPS, which the rest of the market for us in China would be ICAPS-related. And I think you described it well.

And then with respect to the mix of business so as that.

Jenny: DRAM business falls off our <unk> business.

Jenny: And our leading edge logic business does increase to fill that in and so thats consistent with continued strength in <unk>, which the rest of the market for us and China would be <unk> related and I think you described it well the end markets are mixed so industrial and auto have been weaker.

Brice A. Hill: The end markets are mixed, you know, so industrial and auto have been weaker. Smartphones, and PC-related products, you know, have been slow but are gaining some strength recently. And then, as we've talked about, image sensors, power chips, microcontrollers, a lot of those markets have been stronger. So, you know, it's been mixed end markets, but customers are investing, you know, for forward-looking demand and to get capacity in place for forward-looking demand.

Jenny: Smartphone PC related products have been.

Jenny: Slow, but gaining some strength recently and then as we've talked about image sensors power chips Microcontrollers a lot of those markets have been stronger.

Jenny: So it's been mixed end markets, but the customers are investing for forward looking <unk>.

Jenny: Demand in to get capacity in place for forward looking demand and when we see utilization in those markets. We've seen it improve so I think.

Brice A. Hill: And when we see utilization in those markets, we've seen it improve. So I think, you know, when people ask us for guidance, hopefully, the best thing we can tell them is Q1 and Q2 are very strong in ICAPS, and Q3 will be another strong quarter in the ICAPS market. Thanks for the question. Thanks, Bryce.

Jenny: When people ask us for guidance hopefully the best thing. We can tell you is Q1 and Q2 are very strong and I caps in Q3 will be another strong quarter in the <unk> market. Thanks for the question.

Speaker Change: Thanks Raj.

Atif Malik: Thank you. One moment for our next question. And our next question comes from the line of Atif Malik from Citi. Your question, please. Thank you for my question. I have a question on Gator all around as well.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of <unk> Malik from Citi. Your question. Please.

Speaker Change: Thank you for taking my question I have a question on the gate all around as well very strong outlook, the $2 5 billion doubling next year.

Atif Malik: Very strong outlook, two and a half billion doubling to next year. Is the customer funnel for this demand pretty broad across the four foundries? And also, if you can rank order for us in the two and a half billion FB, ALD, patenting, like what it is now, what's driving the most demand? Thank you. I think I'll take the first part.

Speaker Change: The customer funnel for this demand pretty broad across the board boundaries and also if you can rank order for us.

Speaker Change: $5 billion.

Speaker Change: In the back.

What's driving the most demand thank you.

I think I'll take the first part I think that.

Brice A. Hill: I think that demand is across our customer base, so it's not one single customer, but we won't share any details about the relative balance between customers. And then, you know, from a device mix perspective, Gary, or, sorry, an equipment mix, I don't know if there's anything you would highlight there. Yeah, I think, you know, again, one of the advantages that we have is this broad portfolio of technologies, along with integrated tools and also our integration engineering, where we're working with customers to really co-innovate on these different technology inflections.

Speaker Change: That demand is across our customer base. So it's not one single customer, but we won't share any details about the relative balance between.

Speaker Change: Customers and then from a device mix perspective, Gary or I'm, sorry in equipment mix I don't know if theres anything you would highlight there yeah I think.

Speaker Change: Again, one of the advantages that we have is this broad portfolio of technologies along with.

Speaker Change: Integrated tools and also our integration engineering, where we're working with customers, who really co innovating on on these different technology inflections. So if you look at gate all around we have at the <unk> the selective removal etch thermal processing implant CMP in E beam. So it's a very broad.

Brice A. Hill: So, if you look at the gate all around, we have EPI, PVD, ALD, selective removal, etch, thermal processing, implant, CMP, and E-beam. So, it's a very broad portfolio, and, you know, I'm not going to break out all of those different pieces, but what I would say is our ability to connect that portfolio together is really a tremendous strength, and our ability to co-optimize as you think about, and we've done this back in FinFET also, where we were able to co-optimize and innovate in how you build those structures so that you can Does that answer your question? Yes, thank you.

Speaker Change: Our broad portfolio.

Speaker Change: And you know I'm.

Speaker Change: I'm not going to break out all of those different pieces, but what I would say is our ability to connect that portfolio together is really a tremendous strength and our ability to co optimize as you're thinking about and we've done. This back in Finfet also where we were able to co optimize.

Speaker Change: And innovate and how you're building those structures. So that you can improve power and performance. So we're doing the same thing with gate all around.

Speaker Change: Does that answer your question.

Speaker Change: Yes. Thank you. Thank you one moment for our next question.

Speaker Change: Okay.

Gary E. Dickerson: Thank you. Please take a moment for our next question. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please. Hi, good afternoon. Thank you so much for taking the time to answer the question. I had two quick ones, one on HBM and the other one on NAND. So in HBM, your customers would tell us that they're sold out, certainly for 24 hours. For the most part, they're sold out for 25 dollars as well.

Speaker Change: And our next question comes from the line of <unk> from Goldman Sachs. Your question. Please.

Toshiya Hari: So my guess is you've got pretty good visibility into next year. Gary, you talked about overall advanced packaging doubling over the medium to long term. But when you zoom into HBM, could that business for you multiply again in 25 on a year-over-year basis? And then on the NAND side, the business continues to be pretty depressed. Your customers, their profitability is improving, cash flow is improving, or becoming less bad. Are you starting to see purchase orders from your customers coming back? Or what do they need to see for them to spend money on WFE again? Thank you. Okay, Toshiya, it's Brice. I'll start, and then Gary may add something to the HBM.

Speaker Change: Hi, good afternoon. Thank you so much for taking the question I had two quick ones one on <unk> and the other one on NAND.

So in HBM your customers would tell us that they're sold out certainly for 'twenty four for the most part they are sold out for 25 as well. So my guess is you've got pretty good visibility into into next year.

Speaker Change: Gary you talked about overall advanced packaging doubling over the medium to long term, but when you zoom into HBM could that business for you multiply again in 25 on a year over year basis.

Speaker Change: And then on the NAND side.

Speaker Change: The business continues to be pretty depressed your customers their profitability is improving cash flows improving are becoming less bad.

Speaker Change: Are you starting to see purchase orders from your customers come back or what do they need to see for them to to.

Speaker Change: Spend on W. If you again thank you.

Okay Associates price I'll start and then Gary May add something on the H B M. So.

Brice A. Hill: So, you know, on the sold-out comment, what we do, we have seen utilization improve across the DRAM wafer starts. We've seen the allocation to HBM from a wafer start perspective increase from 5% to probably something closer to 20%. That said, it's not 100% utilized, so, you know, you could speculate what the supply is if there's, you know, some restraint.

Speaker Change: On the on the sold out comment what we do we have seen utilizations improve across the DRAM wave.

Speaker Change: Wafer starts we've seen the allocation to HBM from a wafer start perspective increase from 5% to probably something closer to 20% that said, it's not 100% utilized so.

Speaker Change: You can speculate what the.

If there is.

Speaker Change: Some restraint it could be in the packaging side and we have seen orders for HBM going up. So we will have to let you think about that.

Brice A. Hill: It could be on the packaging side, and we have seen orders for HBM going up, so we'll have to let you think about that, you know, and talk to those vendors from that perspective. On the NAND side, our perspective on NAND is that, you know, Moore's Law is still very much alive in NAND. The bit density is increasing, you know, with each generation of NAND fairly aggressively, and it's meeting the demand function for increased bits, and what that really means is that, you know, the business we see in NAND is for technology upgrades. You know, more technology upgrades, not really a new way to start.

Speaker Change: Talk to those vendors from that perspective on the NAND.

Speaker Change: <unk> side.

Speaker Change: Our perspective on NAND is that it.

Speaker Change: Moore's law is still very much alive in NAND bit density is increasing with each generation of NAND fairly aggressively and it's meeting the demand function for four increased bits and what that really means is that the business. We see in NAND is for technology upgrades.

Speaker Change: <unk>.

Speaker Change: More technology upgrades, not really new wafer starts.

Brice A. Hill: So that's what we expect to see as we move forward. And overall, we expect NAND to grow at the speed of semiconductors. It's obviously storage has a very important part to play, and several of the vendors have called out how important storage is even for AI and that it will grow. So I think for us, it's been slow, but we expect it to grow over time and memory in total to be about a third of our sales for WFE. And then Gary, back to you, whether there is anything specific on- Yeah, really, hi Toshiya.

That's what we expect to see as we move forward and overall, we expect NAND to grow at the speed of semiconductors. It's obviously storage is a very important part in several of our vendors called out how important storage is even for AI and then it will grow so I think for us.

Speaker Change: It's been slow, but we expect it to grow over time in memory in total to be about a third of our RC.

Speaker Change: Our sales.

Speaker Change: For Wi Fi and then Gary back to you whether anything specific on really.

Gary E. Dickerson: There is really not too much more beyond what Brice was talking about, and we have seen the demand for HBM. Thank you.

Gary E. Dickerson: Yes, nothing really too much more beyond what Brian was talking about and we have seen the demand for H B M. <unk>.

Speaker Change: Strengthening we went from about Forex increased to six <unk> increase.

From the last time that we saw.

Speaker Change: Talk to you guys and I would say that we still are seeing incremental demand.

Speaker Change: Going forward, so that Paul is still there from customers, we're not giving any point estimate for next year, but we do continue to see.

Speaker Change: Stronger demand in that segment.

Speaker Change: Thank you.

Krish Sankar: Thank you one moment for our next question. And our next question comes from the line of Krish Sankar from TD Coward. Your question, please? Yeah, hi, thanks for taking my question. Gary, I had a question about backside power delivery. You know, it seems that the industry has two approaches to it. One is the backside wiring with direct contact with the transistors. Another one is the nano-TSB approach. I'm kind of curious

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Krish <unk> from TD Cowen Your question. Please.

Speaker Change: Yeah, Hi, Thanks for taking my question I'll get to your other question on basketball delivery.

Speaker Change: It seems that the industry has two approaches to it one is the backside riding with direct contact with the plans with the Netherlands, the nano DSP approach.

Speaker Change: I'm kind of curious we've spoken about the incremental $1 billion from 400000 basis got the month, how does the split between those two approaches and also.

Gary E. Dickerson: We've spoken about the $100, incremental $1 billion SAM for 100,000 data starts a month. How does this compare with those two approaches? And also, can you quantify what kind of revenues you expect this year and next year for applied and backside power delivery? Thank you. Oh, I question that. Yeah, I don't want to talk too much about the, you know, specific architectures that customers are using. It's confidential, you know, for all all of those different customers.

Speaker Change: Can you quantify what kind of revenues you expect this year and next year for applied and Buckhead Bob Dudley. Thank you.

Gary E. Dickerson: I would say that going forward, that, you know, direct connect to the backside is the path that everybody is focused on. So, you know, I think over time, that's a fairly significant amount. Well, both of those approaches will grow by a fairly significant amount, and we're deeply engaged with customers on that inflection. Leading and wiring overall, we have a very, very high share of wiring. And so wiring going to the backside, we've said that that gives us an opportunity for 50% of that spend when that inflection happens.

Christopher Caso: Oh, Hi, Chris Yeah, I don't want to talk too much about the specific architectures that customers are using <unk>.

Speaker Change: Confidential.

Speaker Change: For all of those different customers.

Speaker Change: I would say that going forward that.

Speaker Change: Direct connect to the back side is the path that everybody is focused on so I think over time that that will grow.

Speaker Change: A fairly significant amount well both of those approaches will grow a fairly significant amount.

Speaker Change: And we're deeply engaged with customers on that inflection where it.

Speaker Change: Leading in wiring overall, we have a very very high share of wiring.

Speaker Change: And so wiring going to the back side, we've said that that gives us an opportunity of 50%.

Speaker Change: That spend.

Speaker Change: When that inflection happens.

Gary E. Dickerson: So we're supporting both of those different types of approaches for the backside. But I don't want to get too specific in terms of, you know, which one we see bigger, you know, over time. But I think that it could move to the direct connect. But you know, that timing, I don't want to give specifically because that's going to be each one of the different customer roadmaps relative to timing for revenue. It's pretty small for us right now. In 2024, it will grow by 25. But the ramp.

Speaker Change: So we're supporting both of those different.

Speaker Change: Types of approaches for the back side, but I don't want to get too specific in terms of.

Speaker Change: Which one do we see bigger.

Speaker Change: Over time.

Speaker Change: I think that it could move to the to the direct connect but you know that.

Timing I don't want to give specifically because that's going to be.

Speaker Change: Each one of the different customers' roadmaps relative to timing for revenue, it's pretty small for us right now.

Speaker Change: In 2024, it will grow in 'twenty, five, but the ramp significant ramp for backside power is.

Speaker Change: It is still.

Speaker Change: Out.

Speaker Change: Beyond 'twenty five in revenue.

Speaker Change: Okay. Thank you.

Gary E. Dickerson: Significant ramp-up for backside power is still, you know, out, beyond 25 in revenue. Thank you, Gary. Thank you. Thank you. One moment for our next question. And our next question comes from the line of Timothy Arcuri from UBS Securities. Your question, please. Thanks a lot.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

And our next question.

Speaker Change #100: Comes from the line of Timothy Arcuri from UBS Securities. Your question. Please.

Timothy Michael Arcuri: Brice, I had a two-part question on China DRAM. And the first part is that you talked about it coming down to $500 million. Is that stepping all the way down in fiscal Q3? So what's the assumed step down in China DRAM for fiscal Q3? And then more broadly, of the $1.6 billion worth of DRAM business, I'm wondering if you can kind of help us figure out how much of that is China. If I look at Korea, and I look at how much that is, it looks like about a billion dollars of the $1.6 billion in DRAM revenue is from China. Can you confirm whether that's in the right ballpark?

Timothy Michael Arcuri: Thanks, a lot I had a two part question on China.

Speaker Change #102: Ran in the first part is you talked about it coming down $500 million is that stepping all the way down in fiscal Q3, so what's the assumed stepped out in China.

China DRAM for.

Speaker Change #102: Fiscal Q3, and then and then more broadly of the $1 $6 billion with DRAM business. I'm wondering if you can kind of help us figure out how much of that is China. If I look at Korea, and I look at how much that it looks like about a $1 billion of 1 billion. Six grant revenue is is that China can you can you confirm whether that's in.

Speaker Change #103: Right ballpark thanks.

Brice A. Hill: Hi Tim, thanks for the question. The only quantification that I gave in prior quarters was that our DRAM business, as a whole, was up more than $500 million in the quarters where we had that incremental. So I think I'll just leave it at that and say it was more than $500 million in each of the last three quarters. And as we look into the second half, it doesn't drop completely to zero in Q3, but it drops significantly. And then it's pretty close to zero in Q4.

Tim: Hi, Tim Thanks for the question the only quantification that I gave in prior quarters was that our our DRAM as a whole was up more than $500 million.

Speaker Change #105: In the quarters, where we had that incremental so I think I'll just leave it at that and say, it's more than $500 million in each of the last three quarters.

And as we look into the second half.

Speaker Change #105: It doesn't drop completely to zero in Q3, but it drops significantly and then it's pretty close to zero in Q4, and our mix to China revenue for the company as I highlighted to an earlier question will be about.

Brice A. Hill: In our mix to China revenue for the company, as I highlighted in an earlier question, will be about in the range of 30%, which is normal for us. So I think that's as close as I can get on that. Thanks for the question. I'm sure, Brice, thank you.

Speaker Change #105: In the range of 30%, which is normal for us.

Speaker Change #105: So I think thats as close as I can get on that thanks for the question.

Brian Edward Chin: Sure Brian Thank you.

Joseph Michael Quatrochi: Thank you. One moment for our next question, and our next question comes from the line of Joe Quatrochi. Joe from Wells Fargo.

Speaker Change #106: Thank you one moment for our next question.

Speaker Change #107: And our next question comes from the line of Joe <unk>.

Speaker Change #108: At Troche from Wells Fargo. Your question. Please.

Joseph Michael Quatrochi: Your question, please. Yeah, thanks for taking the time to ask it. I wanted to kind of try to understand just the trends that you're seeing in ICAPs. Can you help us understand the difference in the growth you're seeing from China versus non-China? Because it sounds like as we look at, you know, Chinese revenue normalizing, and the DRAM falling off, you know, obviously, the rest of that's mostly just ICAPs. So can you help us just kind of understand the trends between China and non-China?

Speaker Change #109: Yes, thanks for taking the question.

Joseph Michael Quatrochi: Wanted to kind of try to understand the trends that youre seeing in I guess can you help us just understand the difference in the growth that youre seeing from China versus non China, because it sounds like.

Speaker Change #111: As we look at China revenue normalizing the DRAM falling off obviously the rest of that is mostly just iPad. So can you help us just kind of understand the trends between China and non China.

Brice A. Hill: Hi Joe, thanks for the question. Yeah, for China, what I would say is the last three quarters have been very strong. So, you know, if we're speculating about a slowdown or, you know, a digestion period, one of the reasons I didn't reemphasize that is, You know, we're kind of going by what we're seeing.

Speaker Change #112: Hi, Joe Thanks for the question Yeah for for China, What I would say is the last three quarters have been very strong so.

Speaker Change #113: If we're speculating about a slowdown or a digestion period, one of the reasons I didnt reemphasize that as well.

Speaker Change #113: Kind of going by what we're seeing so we had two strong quarters Q1, Q2 or Q3 guide again has.

Brice A. Hill: So we had two strong quarters, Q1, Q2. Our Q3 guide, again, has, you know, strength and ICAPs and a strong quarter for China. When we think about the world right now, I think we have three regions growing and the rest of the regions not growing. So that corresponds with the end markets, you know, sort of being mixed at this point. Our view of China overall.

Speaker Change #113: Strength in <unk>, and a strong fourth quarter for China, when we think about the world right now I think we have three regions growing in the.

Speaker Change #113: The rest of the regions.

Speaker Change #113: Not growing so that corresponds with the end markets sort of being mixed at this point our view of China overall.

Speaker Change #114: The team showed a pie chart.

Of.

Speaker Change #114: The different device.

Speaker Change #114: Elements of <unk> last year I caps was about 40% of Wi Fi by that Pie chart on may 2nd that was put out.

Brice A. Hill: You know, the team showed a pie chart of, you know, the different devices and elements of WFE last year. ICAPS was about 40% of WFE by that pie chart on May 2nd that was put out. You know, China's our largest market for ICAPS. And, you know, we monitor that carefully.

Speaker Change #114: <unk> is our largest market and I caps and we monitor that carefully we've got about we've got a large number of customers. We're tracking about 30 different more than 30 factory projects that are in ramp process in other words, they have capacity, they're adding capacity, they're ramping we're tracking.

Brice A. Hill: We've got about, we've got a large number of customers, and we're tracking about 30 different, more than 30 factory projects that are in the ramp process. In other words, they have capacity, they're adding capacity, they're ramping up. We're tracking utilization, and utilization is improving. We understand yields are improving. So we think that the Chinese market will be a very large and important market for us going forward. We said we didn't see a cliff for that market. And I think we'd stick by, you know, all those remarks at this point.

Speaker Change #114: Utilizations utilizations are improving.

Speaker Change #114: We understand yields are improving so we think that the China market will be.

Speaker Change #114: Very large and important market for us going forward. We've said, we don't see a cliff for that market and I think we'd stick by all those remarks at this point.

Speaker Change #115: Thank you.

Brice A. Hill: Thank you. 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 #116: Thank you one moment for our next question.

Speaker Change #117: And our next question comes from the line of Harlan sur from Jpmorgan. Your question. Please.

Harlan Sur: Thanks for taking my question. You know, as we transition from a more mature specialty ICAPS driven growth profile to a leading-edge sort of advanced foundry logic memory spending profile this year and going forward, you know, this typically tends to be a strong tailwind for your process control and diagnostics portfolio, which leans very heavily on your most advanced tools and solutions, right, because feature sizes get smaller, so better resolution is required, but also new and more defect and yield challenges, right

Speaker Change #118: Good afternoon. Thanks for taking my question you know as we transition from our more mature specialty <unk> driven growth profile to a leading edge sort of advance foundry logic memory spending profile this year and going forward.

Speaker Change #119: Typically tends to be a strong tailwind care plus control and diagnostics portfolio, which means very heavily on your most advanced tools and solutions right because you guys.

Speaker Change #119: Sizes get smaller so better resolution required but also new.

Speaker Change #119: More defect and yield challenges right. So it's probably a driver of your leading edge Cfd driven E beam portfolio. Here are you guys still seeing that portfolio grow like Forex this year end.

Speaker Change #120: How does the pipeline look for next year, and maybe mid to longer term like given the significant manufacture ability challenges does the applied team see process control and diagnostics intensity right.

Speaker Change #121: <unk> faster than overall WMC intensity over the next few years.

Harlan Sur: So it's probably a driver of your leading-edge CFD-driven E-beam portfolio this year. Are you guys still seeing that portfolio grow 4X this year? And how does the pipeline look for next year? And maybe, mid to longer term, like given the significant manufacturability challenges, does the applied team see process control and diagnostics intensity rising faster than overall WSC intensity over the next year? Thanks, Harlan. This is Gary.

Gary E. Dickerson: Oh, Thanks, Harlan this is Gary so.

Gary E. Dickerson: I would say that for sure.

Gary E. Dickerson: So I would say that, for sure. The connection that we have with our e-beam technology and these major architecture inflections is a real advantage for us because, again, it's a race to see who gets there first relative to those major architecture inflections, and learning rate, how fast you learn, is one of the determining factors. So having this unique capability is a real advantage for Applied. I mean, obviously, it's a good growth driver for us from a revenue perspective, but that synergy with the rest of our broad portfolio, our connected portfolio, is a real advantage. Cold field emission, which is really one of the key technologies in electron optics, gives us the highest resolution at up to 10 times higher imaging speeds.

Gary E. Dickerson: The connection that we have with our E beam technology and these major architecture inflections is a real advantage for us because again, it's a race on who gets there first relative to those major architectural inflections and learning right how fast you'll learn.

Gary E. Dickerson: It's one of the determining factors so having this unique capability.

Speaker Change #122: Is it a real advantage for applied I mean, obviously so.

Speaker Change #122: Good growth driver for us from a revenue perspective, but that synergy with the rest of our broad portfolio of connected portfolio is it rail advantage on coldfield emission, which.

Speaker Change #122: Is really one of the key technologies in the electron optics. It gives us the highest resolution add up to 10 times higher imaging speeds. So it really is highly differentiated and we are still on track this year to grow our cfe systems revenue.

Gary E. Dickerson: So it really is highly differentiated, and we are still on track this year to grow our CFE systems revenue by around 4x and 24, and that would represent about 50% of our total e-beam system sales. And then when I look forward, again, I see PDC as a really great growth driver for Applied. We've had the strongest pipeline of new products than we've ever had, and the synergy with the rest of our process equipment business, all of that materials magic, materials innovation, is increasing. So, again, very, very optimistic about the shape of that business. Thank you, Gary.

Speaker Change #122: Around four acts in 'twenty, four and that would represent about 50% of our total E beam system sales and then when I look forward again.

Speaker Change #122: C P.

Speaker Change #122: PDC is it really great growth driver for applied we have the strongest pipeline of new products that than we've ever had and the synergy with the rest of our process equipment business all of that materials magic materials innovation.

Speaker Change #122: Is increasing so again very very optimistic about the shape of that business.

Gary E. Dickerson: Yeah, thanks, Harlan. And operator, we have time for just one more quick question, please. Certainly. One moment for our final question. And our final question for today comes from the line of Mehdi Hosseini from Chesquihana.

Speaker Change #123: Thank you Gary.

Speaker Change #124: Yes, Thanks, Harlan and operator, we have time for just one more quick question. Please certainly one moment for our final question.

Speaker Change #125: And our final question for today comes from the line of Mehdi Hosseini from <unk>. Your question. Please.

Mehdi Hosseini: Your question, please. Yes, thanks for letting me ask the question. Gary, you were talking about this infection point technology, leading-edge logic, HBM, DITM, and that packaging. But would it be fair to say that what is not in your backlog is the additional wafer capacity, especially for a gate all around and memory? And that that would be something that would be coming in. The POs will be placed later this year for shipping in 2025. Yeah, hi Mehdi, it's Brice. I guess I'll take that one.

Speaker Change #126: Yes, Thanks for letting me ask the question Gaye you were talking about this.

Mehdi Hosseini: Infection point technology, leading edge logic, etch being get them advanced packaging, but would it be fair to say that what is not in your backlog is the additional wage per capacity, especially for.

Speaker Change #128: All around in memory.

Speaker Change #128: And that that would be something that would be coming in.

Speaker Change #129: Appeals be placed later DCF for shipment in 2025.

Price: Yes, hi, Matt its price I guess I'll take that one we do expect.

Brice A. Hill: We do expect, you know, I can't tell if it's a Greenfield question or not, but we do expect increased wafer starts across, you know, definitely ICAPs, definitely leading logic, a smaller amount in DRAM, and probably the place where we don't really expect increased wafer starts is in NAND, but that will still be upgrades. So most of the memory technologies are upgrades, but it'll be a combination of Okay, thanks Mehdi for your question, and now, Brice, would you like to give us your closing thoughts? Thanks, Mike.

Speaker Change #131: I cant tell if its a greenfield question or not but we do expect increased wafer starts.

Speaker Change #131: Cross death.

Speaker Change #131: Definitely I caps definitely leading logic.

Speaker Change #131: Smaller amount in DRAM and probably the place where we don't really expect increased wafer starts is in NAND, but that will still be upgrades. So most of the memory technologies are upgrades, but it'll be a combination of new technologies, and new new plant and equipment across the board.

Speaker Change #132: Thank you.

Speaker Change #133: Okay. Thanks, Matt for your question and now Brian would you like to give us your closing thoughts. Thanks.

Brice A. Hill: I think we've done a good job anticipating the roadmap inflections in data center AI. We can see the pull for our solutions in gated all-around chips, from transistors to front-side wiring and back-side wiring, and in advanced packaging. Same goes for DRAM, where we're number one in materials engineering and especially strong in HBM stacking. In future calls, we'll have a lot more to say about our positions in edge AI and IoT, plus automotive and clean energy, which are very big and long-term drivers of our iCaps.

Mike: Thanks, Mike I think we've done a good job anticipating the roadmap inflections in data center AI, we can see the pull for our solutions and gate all around chips from transistors to front side wiring and backside wiring and in advanced packaging same goes for DRAM, where we're number one in materials engineering, and especially strong in HBM stacking in future calls, we'll have a lot more of it.

Mike: Say about our positions in edge, AI, and Iot automotive and clean energy, which are very big and long term drivers of our <unk> business the momentum in our systems business fuels, our service business, which is driving very stable subscription like growth and helping us increase the dividend at an accelerated rate.

Brice A. Hill: The momentum in our systems business fuels our service business, which is driving very stable subscription-like growth and helping us increase the dividend at an accelerated rate. Gary will be at the Bernstein Conference in New York on May 30th, and I hope to see many of you at the B of A Conference in San Francisco on June 6th. Thank you, Mike. Let's close the call.

Michael Sullivan: Gary will be at the Bernstein Conference in New York on May 30th and I Hope to see many of you at the Bofa conference in San Francisco on June 6th. Thank you, Mike, Let's close the call. Okay. Thanks, Bryce 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 by five P. M Pacific time today and we'd like to thank you for your continued interest in applied materials.

Michael Sullivan: 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 by 5 p.m. Pacific time today.

Speaker Change #134: 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.

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Michael Sullivan: Yeah.

Michael Sullivan: [music].

Operator: And we'd 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.

Speaker Change #135: 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: Good day. Good day. ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Welcome to the Applied Materials Earnings Conference Call. During the presentation, all participants will be in a listen-only mode.

Speaker Change #136: Good afternoon, everyone and thank you for joining applied second quarter of fiscal 2024 earnings call. Joining me are Gary Dickerson, 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, which are subject to risks and uncertainties that could cause our actual results to differ.

Speaker Change #136: Information concerning the risks and uncertainties is contained and apply its most recent Form 10-Q filing with the SEC. Today's call also includes non-GAAP financial measures.

Speaker Change #136: Conciliations 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 #137: Before we begin I have a calendar announcement on Tuesday morning July 9th from 730 to nine a M applied will host the technology breakfast event at Semicon West in San Francisco, joining us will be Dr. Probably Russia President of applied semiconductor products group, along with Mark <unk>, who is senior Vice president of.

Speaker Change #137: Technology and product engineering at AMD after Mark shares Amd's AI computing technology vision applies experts, who will share our advanced materials engineering roadmap for making future AI chips will outline device architecture inflections in logic, including transistors front side wiring and backside power along with <unk>.

<unk> high bandwidth memory and other forms of advanced packaging, we hope you'll join us and with that introduction I'd like to turn the call over to Gary Dickerson.

Michael Sullivan: Good afternoon, everyone, and thank you for joining Applied's second 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, which 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-Q filing with the SEC.

Mike: Thank you Mike with.

With second quarter revenue and earnings toward the high end of our guided range applied materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term.

Gary E. Dickerson: In addition, the complexity of implementing the industry road map and bringing new semiconductor technologies to market is driving earlier deeper and broader collaboration with customers as well as supporting double digit growth for our service business.

Gary E. Dickerson: In my prepared remarks today I'll provide some examples about how applies innovations are helping to enable multi trillion dollar technology inflections, including AI.

Gary E. Dickerson: How we are capturing more value in our service business.

Gary E. Dickerson: I'll start with a big picture perspective.

Gary E. Dickerson: Tonic shift in technology, including AI, Iot and automation electric and autonomous vehicles and clean energy will transform virtually every area of the economy over the next several decades and they all have one thing in common they are built upon.

Gary E. Dickerson: Emigh conductors.

Gary E. Dickerson: These new technologies are deployed they are driving growth and innovation across the semiconductor ecosystem.

Gary E. Dickerson: In terms of impact on scale I believe AI will be the biggest technology inflection of our lifetimes and at the heart of AI or some of the worlds most sophisticated chips.

Gary E. Dickerson: H B M and advanced packaging to connect the logic and memory chips together and create a system in a package.

Gary E. Dickerson: Applied has processed technology leadership in all four of these areas, and we have made significant investments in next-generation solutions to make possible the key device architecture inflections that are essential for our customers' future roadmaps. In advanced logic, Applied has long-standing leadership in the materials engineering processes for both transistors and interconnects. The first nodes that use gate-all-around transistors are now transitioning to high-volume manufacturing. These new transistor process flows are considerably more complex, and the shift from FinFET to gate-all-around grows Applied's available market for the transistor module from around $6 billion to approximately $7 billion for every 100,000 wafer starts per month of capacity.

Speaker Change #138: Applied has process technology leadership and all four of these areas and we have made significant investments in next generation solutions to make possible. The key device architecture inflections that are essential for our customers future roadmaps.

Speaker Change #138: Dance logic applied has long standing leadership in the materials engineering processes for both transistors and Interconnects.

Speaker Change #138: The first knows that use gate all around transistors are now transitioning to high volume manufacturing. These new transistor process flows are considerably more complex and the shift from Finfet gate all around growth applies available market for the transistor module.

Bob from around $6 billion to approximately $7 billion for every 100000 wafer starts per month of capacity.

Gary E. Dickerson: With the gate-all-around transition, we are also gaining share, and we're on track to capture over 50% of the process equipment spending for transistor steps. We also have a very strong market share in interconnect, or the wiring used to transmit data at high speed and low power.

Speaker Change #138: With the gate all around transition, we're also gaining share and we're on track to capture over 50% of the process equipment spending for transistor steps.

Speaker Change #138: We also have very strong market share in interconnect or the wiring used to transmit data at high speed and low power.

Speaker Change #138: Our available market for the wiring steps is approximately $6 billion for each 100000 wafer starts per month, and we expect it to grow by $1 billion when backside power delivery is introduced into volume manufacturing.

Speaker Change #138: Overall, we expect to generate more than $2.5 billion of revenue from gate all around nodes this year and potentially more than double that in 2025.

Speaker Change #138: And DRAM one of the key approaches that memory makers are using to improve performance and power consumption is to implement logic technologies in the peripheral circuitry.

Gary E. Dickerson: Our deep capabilities in logic, combined with our strong position in DRAM patterning and our unique co-optimized hard mask solutions for capacitor scaling, make us the clear leader in process equipment for DRAM today and best positioned for future growth. In the critical die-stacking technologies used in high-bandwidth memory, we also have strong leadership positions, including in MicroBump and through Silicon VIA. Last quarter, we said that we expected our HBM packaging revenue to be four times larger in 2024 than in 2023.

Speaker Change #138: Our deep capabilities in logic combined with our strong position in DRAM patterning, and our unique co optimized hard mask solutions for capacitor scaling makes us the clear leader in process equipment for DRAM today, and best positioned for future growth.

Speaker Change #138: And the critical di stacking technologies used in high bandwidth memory.

Speaker Change #138: We also have strong leadership positions, including in micro bump and through silicon via.

Speaker Change #138: Last quarter, we said that we expected our HBM packaging revenue to be four times larger in 2024, then in 2023.

Speaker Change #138: As we have recently seen customers accelerate their capacity plans for H b.

Speaker Change #138: We now believe that our revenue could be six times higher this year growing to more than $600 million.

Speaker Change #138: Across all device types, we now expect revenue from our advanced packaging product portfolio to grow to approximately $1 $7 billion. This year.

Speaker Change #138: Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted beyond the AI data center, and we introduce new products that expand our served market.

Gary E. Dickerson: The AI Data Center is just one example that illustrates how the major inflections that underpin the next generation of semiconductors are enabled by applied materials. Materials Science and Materials Engineering are increasingly important to the industry's road map. Applied has invested early to develop a broad, unique, and connected portfolio of materials engineering solutions that are critical to enable major semiconductor inflections from AI high-performance computing to ICAPS edge computing.

Speaker Change #138: AI data Center is just one example that illustrates how the major inflections that underpin. The next generation of semiconductors are enabled by applied materials.

Speaker Change #138: Material science in materials engineering are increasingly important to the industry's roadmap applied has invested early to develop a broad unique and connected portfolio of materials engineering solutions.

Speaker Change #138: That are critical to enable a major semiconductor inflections from AI high performance computing to eye caps edge computing.

Speaker Change #138: We are translating those investments into consistent outperformance recent tech insights data confirms that in 2023 applied grew faster than the wafer fab equipment market for the fifth year in a row.

Speaker Change #138: We accomplished this despite headwinds created by trade rules that we estimate restricted us for more than 10% of the China market during that period.

Speaker Change #138: While we have gained share overall, we are growing share within our served market. Even faster. This is important because there's logic devices become more three dimensional future generations of DRAM come to market and advanced packaging becomes more prevalent we expect materials engineering to become an even larger.

Speaker Change #138: Your portion of overall wafer fab equipment.

Speaker Change #138: Another key component of applied strategy is to address the increasing complexity faced by the industry first we are driving earlier deeper and broader collaboration with customers and partners. We are changing the industry's innovation model with a goal to accelerate mutual success rates.

Speaker Change #138: <unk> and increased investment efficiencies.

Speaker Change #138: Our global epic platform that we will build out over the next several years is specifically designed to support high velocity innovation and commercialization of next generation technologies.

Speaker Change #138: We are able to provide more complete and connected solutions that accelerate major device inflections.

The portion of our revenue generated by integrated solutions has grown from approximately 20% in 2019% to 30% today.

Speaker Change #138: We expect demand for these fab in a fab type solutions to continue growing both at the leading edge and from our <unk> customers, who are serving specialty Iot communication auto power and sensor applications.

Speaker Change #138: And third we are helping customers transfer new technology into high volume manufacturing faster and then optimize performance yield output and cost in their factory operations.

This is supporting double digit growth of our service business.

Speaker Change #138: Ags delivered a new record for revenue this quarter $1.5 billion.

Speaker Change #138: With a significant portion of this coming from subscriptions in the form of long term service agreements.

Speaker Change #139: Before I hand over to Bryce I will quickly summarize applied materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term.

Bryce: Tectonic shifts in technology, including AI, Iot Evs and clean energy that are reshaping the global economy, our belt on semiconductors, driving demand for more chips, and new chips with higher performance and better energy efficiency.

Bryce: Key device architecture inflections that underpin the semiconductor roadmap are enabled by applied materials. We expect this to support our ongoing outperformance as next generation chip technologies, including gate, all around logic nodes high performance, DRAM and H B M and advanced packaging.

Gary E. Dickerson: We expect this to support our ongoing outperformance as next-generation chip technologies, including gate-all-around logic nodes, high-performance DRAM and HBM, and advanced packaging, move into high-volume production. And finally, the increasingly complex industry roadmap is driving earlier, deeper, and broader collaboration between Applied Materials and our customers and partners, accelerating demand for our most advanced, co-optimized, and integrated solutions, and supporting double-digit growth in our Now I'll hand it over to Brice.

Bryce: Solutions and supporting double digit growth in our service business now I'll hand over to Bryce. Thank you, Gary and I'd like to thank our teams for their focus and execution, which resulted in another strong quarter for revenue and gross margin.

Brice A. Hill: Thank you, Gary. And I'd like to thank our teams for their focus and execution, which resulted in another strong quarter for revenue and gross margins. Today, I'll discuss our overall business environment and share insights into our ICAPS business, which serves the IoT, communications, auto, power, and sensor market. I will describe our capital allocation strategy and operating model, demonstrating how we are driving profitable growth and attractive shareholder returns. I'll also summarize our Q2 results and provide our guidance for Q3.

Today, I'll discuss our overall business environment and share insights into our <unk> business.

Bryce: Which serves the Iot communications auto power and sensor markets.

Bryce: Describe our capital allocation strategy and operating model demonstrating.

Bryce: Demonstrating how we are driving profitable growth and attractive shareholder returns.

Bryce: I will also summarize our Q2 results and provide our guidance for Q3.

In calendar Q1, the global market for semiconductors grew 15% year over year, and we are optimistic that the data center trends, Gary outlined will help drive solid growth for the semiconductor industry.

Bryce: During the quarter cloud service providers, and our strong capital spending plans, which is good news for our customers.

Brice A. Hill: In the market briefing we issued earlier this month, we forecast that the data center market will eventually become the number one driver of leading-edge FoundryLogic wafer starts, surpassing PCs and then smartphones in the coming years. Within our business, we had a strong quarter in fiscal Q2 across DRAM, advanced packaging, ICAPs, and services. In February, we projected that factory utilization would increase across all device types, and it did.

Bryce: And the market briefing, we issued earlier this month, we forecast that the datacenter market will eventually become the number one driver of leading edge foundry logic wafer starts surpassing pc's and then smartphones in the coming years.

Bryce: Within our business, we had a strong quarter in fiscal Q2 across DRAM advanced packaging I caps and services.

Bryce: In February we projected that factory utilization would increase across all device types and it did.

Bryce: Gary discussed how the data center AI megatrend is driving strong demand for our technologies used in leading edge logic DRAM high bandwidth memory and other forms of advanced packaging.

Speaker Change #140: Our <unk> business is driven by three additional mega trends, notably Iot and edge computing electric and autonomous vehicles and renewable energy.

Speaker Change #140: <unk> business one of the largest demand drivers. This year is edge computing, especially at the 28 nanometer node needed by smartphone companies and makers of Iot devices for industrial and home automation applications.

Speaker Change #140: Our second largest demand driver is power chips for electric vehicles, where industry leaders are now establishing supply chain to support their long term growth plans.

Speaker Change #140: A third driver is the power chips used to capture renewable solar and wind energy, which are needed to achieve net zero goals in the decades ahead.

Brice A. Hill: We believe our ICAPS business will remain a large portion of our overall FoundryLogic business for several reasons. First, the megatrends we described will continue to increase unit demand for ICAPS chips. Two, we are innovating at the device level, which creates better chips, stimulates new system sales, and extends Applied's position as the highest value partner for our customers. And finally, we are introducing ICAPS products in additional market segments, which will help us broaden our reach and gain share. Next, I'll summarize our capital allocation strategy and the results it enables. Our efficient business model generates healthy free cash flow.

Speaker Change #140: We believe our <unk> business will remain a large portion of our overall foundry logic business for several reasons one the Mega trends. We described we will continue to increase unit demand for <unk> chips too.

Speaker Change #140: We are innovating at the device level, which creates better chips stimulates new system sales and extends apply its position as the highest value partner for our customers and finally, we are introducing <unk> products and additional market segments, which will help us broaden our reach and gain share.

Speaker Change #140: Next I'll summarize our capital allocation strategy and the results it enables.

Speaker Change #140: Our efficient business model generates healthy free cash flow. Our first priority is investing in R&D and capital infrastructure to enable profitable growth.

Brice A. Hill: Our first priority is investing in R&D and capital infrastructure to enable profitable growth, and our second priority is growing our dividend per share and using our buyback program to distribute excess free cashflow to shareholders. Specifically, over the past 10 fiscal years, we have reinvested more than $20 billion in R&D and over $5 billion in capital additions and distributed more than 90% of free cash flow to shareholders.

Speaker Change #140: And our second priority is growing our dividend per share and using our buyback program to distribute excess free cash flow to shareholders.

Speaker Change #140: Specifically over the past 10 fiscal years, we have reinvested more than $20 billion in R&D and over $5 billion in capital additions and distributed more than 90% of free cash flow to shareholders.

Brice A. Hill: Our capital allocation strategy supports our operating model, which I'll summarize. First, we invest over $3 billion in R&D each year, collaborating closely with our customers to invent new semiconductor technologies that are critical to their competitive positions in the global megatrends we've described. Second, we design high-volume manufacturing systems that enable our customers to deploy these new chip and advanced packaging technologies at a global scale. Third, we manage a global factory and supply chain network to manufacture these systems.

Speaker Change #140: Our capital allocation strategy supports our operating model, which I'll summarize first we invest over $3 billion in R&D each year collaborating closely with our customers to invent new semiconductor technologies that are critical to their competitive positions and the global Mega trends. We've described.

Speaker Change #140: We design high volume manufacturing systems that enable our customers to deploy these new chip and advanced packaging technologies at global scale.

Speaker Change #140: Third we manage a global factory and supply chain network to manufacture these systems.

Speaker Change #140: Fourth we service our systems, which have decades of useful life, helping customers maximize the return on investment by accelerating ramps and optimizing output yield and cost.

Speaker Change #140: Fifth we reinvest a high percentage of the profits from this activity back into R&D to develop more new technologies and solutions.

Speaker Change #140: And finally, we distribute excess cash to shareholders.

Brice A. Hill: An important point is that every tool we manufacture and ship grows our installed base and our service opportunity, which leads to consistent and stable growth for applied global services. In fact, AGS has delivered 19 consecutive quarters of year-over-year growth, spanning two memory down cycles. Over 80% of AGS revenue comes from recurring services and parts sales, about two-thirds of which is delivered under long-term service agreements that have a 90% renewal rate.

An important point is that every tool, we manufacture and ship grows our installed base and our service opportunity, which leads to consistent and stable growth for applied global services.

Speaker Change #140: In fact, Ags has delivered 19 consecutive quarters of year over year growth spanning two memory down cycles.

Speaker Change #140: Over 80% of Ags revenue comes from recurring services and parts sales about two thirds of which has delivered under long term service agreements that have a 90% renewal rate.

Brice A. Hill: Connecting this to our capital allocation strategy, AGS has continued to produce more than enough operating profit to fully fund our growing dividend. In March 2023, we announced a 23% increase in our dividend per share. And in March of this year, we announced a 25% increase in our dividend. In summary, over the past 10 fiscal years, our operating model has increased company revenue at a compound rate of over 13 percent, non-gap EPS at nearly 30 percent, free cash flow at 33 percent, and dividends per share at nearly 12 percent. Also, over this period, we have reduced net shares outstanding by over 30 percent.

Speaker Change #140: Connecting this to our capital allocation strategy Ags has continued to produce more than enough operating profit to fully fund our growing dividend.

Speaker Change #140: In March 2023, we announced a 23% increase in our dividend per share.

Speaker Change #140: And in March of this year, we announced the 25% increase in summary over the past 10 fiscal years. Our operating model has increased 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%.

Speaker Change #140: Also over this period, we reduced net shares outstanding by over 30%.

Brice A. Hill: Now, I'll summarize our T2 results. On a year-over-year basis, net sales grew slightly to nearly $6.65 billion, non-GAAP gross margin grew 70 basis points to 47.5%, non-GAAP OPEX grew 5% to $1.23 billion, and non-GAAP EPS grew 4.5% to $2.09. Turning to segment results, semiconductor systems revenue remained strong at $4.9 billion and included record ion implant sales. Segment Non-Gap Operating Margin was 34.9%.

Now I'll summarize our Q2 results.

Speaker Change #140: On a year over year basis, net sales grew slightly to nearly 665 billion non.

Speaker Change #140: non-GAAP gross margin grew 70 basis points to 47, 5% non-GAAP Opex grew 5% to $1 $3 billion and non-GAAP EPS grew four 5% to $2 <unk>.

Speaker Change #140: Turning to segment results semiconductor systems revenue remained strong at $4 9 billion.

Speaker Change #140: And included record ion implant sales.

Speaker Change #140: non-GAAP operating margin was 34, 9%.

Brice A. Hill: Applied Global Services revenue increased 7% year-over-year to $1.53 billion, and the segment non-gap operating margin was 28.5%. Our tools under subscription agreements increased by 8% year over year, and our installed base of chambers surpassed 200,000 for the first time. Moving to display, Q2 revenue was $179 million, and the segment non-gap operating margin was 2.8%. We are becoming more confident that the OLED technology found in smartphones will be adopted in notebook PCs and tablets, whose larger screen sizes would spur an increase in capital investment.

Speaker Change #140: Applied global services revenue increased 7% year over year to $1 $3 billion in segment non-GAAP operating margin was 28, 5%.

Speaker Change #140: Our tools under subscription agreement increased by 8% year over year, and our installed base of chambers surpassed 200000 for the first time.

Speaker Change #140: Moving to display Q2 revenue was $179 million and segment non-GAAP operating margin was two 8% we are becoming more confident that the OLED technology found in smartphones will be adopted in notebook Pcs and tablets with larger screen sizes would spur an increase in capital investments.

Speaker Change #140: Turning to cash flows in Q2, we generated nearly $1 4 billion in operating cash flow and nearly $1. One 4 billion and free cash flow, we distributed nearly $1 $1 billion to shareholders, including $266 million of dividends and $820 million of buybacks, we repurchased $4 1 million shares at an average price of 197.

Speaker Change #140: 77 <unk>.

Speaker Change #140: Now I'll share our guidance for Q3.

Speaker Change #140: We expect revenue of $6.65 billion plus.

Speaker Change #140: Plus or minus $400 million and non-GAAP EPS of $2.01.

Speaker Change #140: Plus or minus 18.

Speaker Change #140: Within this outlook, we expect semi systems revenue of around $4 8 billion.

Speaker Change #140: <unk> revenue of about 1.5 dollars 7 billion.

Speaker Change #140: And display revenue of around $245 million we.

Speaker Change #140: We expect non-GAAP gross margin to be approximately 47% and non-GAAP operating expenses to be around $1 6 billion.

Speaker Change #140: Finally, we are modeling a tax rate of 12, 3%.

Michael Sullivan: Thank you. And now, Mike, let's begin the Q&A. Thanks, Brice. To help us reach as many people as we can, please ask just one question on today's call.

Speaker Change #141: Thank you and now Mike let's begin the Q&A.

Mike: Thanks, Bryce to help us reach as many people as we can 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.

Michael Sullivan: 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 our first question comes from the line of CJ Muse from Cancer Fitzgerald.

Speaker Change #142: Certainly and our first question comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.

Christopher James Muse: Your question, please. Yeah, thank you for taking the question. I guess we'd love for you to talk about your visibility today and how your ongoing conversations are going with your large customers as it relates, both to your outlook for kind of the second half versus first half on a calendar basis, as well as, you know, building, you know, that potential backlog into calendar 25. Thank you.

Speaker Change #143: Yes. Thank you for taking the question I guess would love for you to talk about.

Speaker Change #144: Your visibility today and how you are ongoing conversations are going with.

Speaker Change #145: With your large customers as it pertains both to your outlook for kind of second half versus first half on a calendar basis as well as.

Speaker Change #144: Building.

Speaker Change #144: Potential backlog into calendar 'twenty five thank you.

Brice A. Hill: When we look at our business and think about the largest customers, as we look at Q3 and our guidance for Q3, we know that the DRAM shipments that we had for China that we called out that were fairly high in Q1 and Q2 are falling off in the second half. And what we've been expecting is that ICAP strength and leading logic strength would backfill that drop off in DRAM, and that's exactly what we see happening in Q3.

Speaker Change #146: Okay, Great Hi, C. J. Thanks for the question. So when we look at our business and think about our largest customers as we look at Q3 and our guidance for Q3, we know that the.

Speaker Change #147: DRAM shipments that we've had for China that we called out that were fairly high in Q1, and Q2 are falling off in the second half and what we've been expecting is that ICANN strengths and leading logic strength would backfill that.

Speaker Change #147: That drop off in DRAM, and that's exactly what we see happening in Q3 and Thats consistent on the leading logic side with the advent of gate all around process technology and equipment.

Brice A. Hill: And that's consistent on the leading logic side with the advent of gate all around process technology and equipment, you know, beginning to ship earnestly for the HVM ramp that will be coming. And I think that's a good indication of, you know, what we're expecting in the second half. We talked about whether leading logic and ICAPs would be able to fill in for the drop off in Chinese DRAM, and that's exactly what we see in Q3. And then we will look ahead to 25, and we'll point to the same, you know, fundamental ramp for leading logic. That'll be a gate all around.

Speaker Change #147: Beginning to ship Ernest in earnest for the HBM ramp that will be upcoming and I think that's a good indication of what we're expecting in the second half we talked about weather.

Speaker Change #147: Leading logic and high caps would be able to fill in for the drop off in China, DRAM and that's exactly what we see in Q3 and then we will look ahead to 'twenty five a point to the same fundamental.

Gary: Ramp for leading logic that'll be gate, all around Gary highlighted in his remarks that we expected.

Gary E. Dickerson: Gary highlighted in his remarks that we expected, you know, $2.5 billion of business related to gate all around shipments in 24, and we expect to be able to grow that significantly in 25 as that process technology ramps up to HVM, high-value manufacturing. Thank you. One moment for our next question, and the next question comes from the line of Stacy Rasgon from Burtsey Research. Your question, please. Hi guys, thanks for taking my question. Um, Brice, and Gary, I wanted to follow up on that sort of qualitative 2025 outlook. So I guess I probably heard you right.

Gary: $2 $5 billion of business related to get around gate all around shipments in 'twenty, four and we expect to be able to grow that significantly in 'twenty five is that.

Is that a process technology ramps towards HBM high value manufacturing.

Gary: Yeah.

Gary: Yes.

Gary: Okay.

Speaker Change #149: Thank you.

Speaker Change #150: One moment for our next question.

Speaker Change #151: And our next question comes the line of Stacy you're asking from.

Speaker Change #152: G Research your question please.

Stacy Aaron Rasgon: You said two and a half billion on this year, doubling next year or more. So two and a half billion of incremental growth from GATE all around. It sounds like you said the events packaging had the opportunity to double again over time, so that should be growing. HBM theoretically should be growing. ICAPS, I know, has been a little weaker than it was. Feels like it's bottoming out, just given what we're seeing.

Speaker Change #153: Hey, guys. Thanks for taking my question.

Bruce I wanted to and Gary I wanted to follow up on that sort of qualitative 2025 outlook. So I guess I guess I heard you right. You said $2 5 billion hit all of them. This year doubling next year or more so $2 5 billion of incremental year over year growth from gate all around it sounds like you said the events packaging had the opportunity to.

Speaker Change #153: Double again over time, so that should be growing HBM theoretically should be growing I caps I know has been a little weaker than it was it feels like it's bottomed just given what we're seeing that ought to grow in.

Speaker Change #154: NAND Flash is for you guys is pretty close to zero right now as well so I mean I don't agree.

How do I think about like you've talked about over delivering versus the market like let's say the WP market was flat next year given those drivers how would I think about how you guys could grow relative to a market like that given those drivers.

Brice A. Hill: That ought to grow. And I mean, NAND flash memory for your guys is pretty close to zero right now as well. So that ought to grow. How do I think about, you've talked about overdelivering versus the market, like, let's say the WFP market was flat next year. Given those drivers, how would I think about how you guys could grow relative to a market like that, given those drivers? Yeah, thanks, Stacy, for the question. So the way our perspective, you know, we start with the longer-term view.

Speaker Change #154: Yeah. Thanks, Stacy for the question so the way our perspective, we start with the longer term view.

Brice A. Hill: And as Gary described, we're investing in the key inflections for the fastest growing markets. And so our perspective, you know, if you stand back and think over many quarters or the next several years, is that the leading logic technologies like 8 all around and backside power, the advanced packaging, HBM memory, our services business, we think all of those will grow faster than the average market and will help us gain share. And so it's harder to call any particular quarter, you know, or short time period in the near future, but that would be our perspective.

As Gary described we are.

Speaker Change #155: Investing in the key inflections for the fastest growing markets and so our perspective, if you stand back and think over many quarters or the next several years.

Speaker Change #155: That the leading logic technologies like gate, all around and backside power of the advanced packaging HBM memory. Our services business. We think all of those will grow faster than the average market and will help us gain share. So it's harder to call any particular quarter are short time period in the near future, but that would be our perspective.

Speaker Change #155: And I think.

Brice A. Hill: From an ICAPS perspective, you called out GATE all around and ICAPS and DRAM and NAND, I think, thinking about all of them. We've talked about our DRAM share, you know, having improved over 10 percentage points over the last 10 years. And we expect that technology has great tailwinds. We talked about how HBM and utilization and DRAM are improving. So that's, that's a positive.

Speaker Change #156: From a <unk> perspective, you called out gate, all around and I caps, and DRAM and NAND I think thinking about all of them, we've talked about our DRAM share having improved over 10 percentage points over the last 10 years and.

Speaker Change #156: And we expect that technology has great tailwind as we talked about how HBM and utilization in DRAM is improving so that's that's a positive if we think about I caps I caps. The market. We have three quarters here that you can see our first two that are closed and our Q3 guidance and <unk> is very.

Brice A. Hill: And if we think about ICAPS, ICAPS, the market, you know, we have three quarters here that you can see from our first two that are closed in our Q3 guidance, and ICAPS is very strong in those quarters and grows in Q3 to fill in some of that China DRAM business that drops off. And then finally, Gate All Around, the $2.5 billion that Gary highlighted, that's not just the incremental; that's our shipments for the entire business that are associated with Gate All Around that are shipping this year. And we do expect that number to grow next year. Stacy, this is Gary.

Speaker Change #156: Strong in those quarters and grows in Q3 to fill in some of that.

Gary: China DRAM business that drops off and then finally gate all around the $2 $5 billion that Gary highlighted.

Gary: That's not just the incremental that's our shipments for the entire business that are associated with gate all around that are shipping this year and we do expect that to grow next year.

Gary E. Dickerson: You know, really the big focus for us is... Enabling and winning a major device architecture inflection. So, you know, when you break out all of these different device segments, certainly Foundry Logic Leading Edge, the opportunity there for us to grow is significant because we have a very high share of those big inflections. The gate all around, backside power delivery, and wiring is a real strength for us. As Brice mentioned, in DRAM, we gained 10 points of overall DRAM share over the last 10 years, and if I look forward at the architecture inflections in DRAM, we're even better positioned. Those will be much more materials intensive, materials engineering enabled, and, you know, that's going to be a really good position for us. We also talked about packaging.

Gary: Stacy this is Gary.

Gary: Really the big focus for us is.

Gary: Enabling in winning major device architecture inflections.

Gary: So when you break out all of these different device segments.

Gary: Certainly foundry logic, leading edge the opportunity there for us to grow is significant because we have a very high share of those big inflections. The gate all around backside power delivery wiring is a real strength for us.

Price: As price mentioned in DRAM, we gained 10 points of overall DRAM share.

Price: Over the last 10 years, and if I look forward at the architecture inflections in DRAM, we're even better positioned those will be much more materials intensive materials engineering enabled.

And that's going to be a really good position for us we also talked about packaging.

Price: We've increased our view of packaging and 24 to $1 $7 billion, but.

Price: As I mentioned in price reiterated we have an opportunity to double our advanced packaging.

Price: Our advanced packaging business in H P M.

Price: We've increased that gross from Forex to six X this year and the last one.

As our services business 19th consecutive quarters year over year.

Price: Where we've seen growth and with these highly complex architecture inflections. It gives us a really great opportunity to add more value with our services business also as people are moving into new locations.

Gary E. Dickerson: And with these highly complex architecture inflections, it gives us a really great opportunity to add more value with our services business, too, as people are moving into new locations where they don't have an experienced workforce. We've talked about double-digit growth in services. Right now, that's a $6 billion run rate, but that's adding significant growth as we go forward. So there are just a few other thoughts.

They don't have an experienced workforce that we've talked about double digit growth in services right now.

Speaker Change #157: It's a $6 billion run rate, but that's adding significant growth as we go forward. So theres just a few other thoughts, but you said $2 5 billion. This year from gate, all around and more than double that and did I hear that wrong does that suggest $5 billion in gate all around in 2025, Yes did I misunderstand, what you said no I think that math is correct yes.

Stacy Aaron Rasgon: But you said two and a half billion this year from gate all around and more than double that in 20... Did I hear that wrong? Does that suggest 5 billion in gate all around in 2025? Yeah, that's... Or did I misunderstand what you said? No, I think that the math is correct. Yeah, that's right, Stacy.

Brice A. Hill: So that's not just the increment; that's the entire equipment sales that we'll have for that technology. So 2.5 billion for this year, and the opportunity to double that next year. Got it.

Speaker Change #157: That's right Stacy so that's not just the increment that's the entire.

Speaker Change #157: Equipment sales that we'll have for that technology, So $2 5 billion for this year.

Speaker Change #157: And.

Speaker Change #157: Opportunity to double that next year.

Speaker Change #158: Got it thank you guys.

Speaker Change #157: Yes.

Speaker Change #159: Thank you.

Moment for our next question.

Speaker Change #160: And our next question comes from the line.

Speaker Change #161: Upmarket lipolysis.

From Evercore ISI your question please.

Gary E. Dickerson: Gary, when you when you talk about investing more in materials engineering, it seems like you're kind of climbing up the value chain to the place where you know, you're used to being your customer's domain. And a lot of times, when you see companies moving up the value chain and adding more value, you know, ultimately, you see that reflected in, you know, improving margins. So I appreciate that you engage in partnerships. And that's the spirit.

Speaker Change #162: Hi, Thanks for taking my question.

Speaker Change #163: Maybe a question for Gary Gary when you when you talk about like investing more in materials engineering.

Speaker Change #164: It seems like you're kind of climbing up the value chain to the place where it used to be your customers domain.

Speaker Change #164: And a lot of times when you when you see companies moving up the value chain and adding more value.

Speaker Change #164: Ultimately you see that reflected in <unk>.

Speaker Change #165: Improving margins so.

Appreciate that you engage in partnerships and thats the spirit, but like if you're adding more value. It seems like that ultimately at the end of the day.

Mark John Lipacis: But like, if you're adding more value, it seems like that, ultimately, at the end of the day, you know, should come back to you and higher profitability. And I'm wondering if you could just talk, you know, philosophically about that, like, how is that something that you would expect to see happen? Or does that manifest in other ways?

Speaker Change #166: It should come back to you and higher profitability I'm wondering if you could just talk.

Speaker Change #166: Philosophically about that like how is that something you'd.

Speaker Change #167: You would expect to see happen or does that manifest in other way. Thank you.

Gary E. Dickerson: Thank you. Yeah, thanks for the question, Mark. So, you know, if you look at the industry overall, all our customers are racing to be first to market to deliver those major device architecture inflections that determine their competitive position. So, gate all around, backside power, those new DRAM architectures, and packaging are becoming more and more important to power performance and cost. So that is really what shapes the competitive landscape in the industry, and it's very, very clear.

Speaker Change #167: Thanks for the question Mark So yeah. If you look at the industry overall all of our customers are racing to be first to market to deliver those major device architecture inflections that determine their competitive position so gate.

Speaker Change #168: <unk> all around backside power.

Speaker Change #168: New DRAM architectures, and packaging is becoming more and more important to power performance and cost so that.

Speaker Change #168: That is really what shapes the competitive landscape in.

Speaker Change #168: In the industry.

Speaker Change #168: It's very very clear, we're working with our customers.

Speaker Change #168: For technology generations out into the future. So we have very high visibility.

Speaker Change #168: This broad and connected portfolio that we have gives us an opportunity to engage with customers in those early and very deep relationships on those architecture inflections and as we look forward, we do see materials engineering as a percentage of spec.

Speaker Change #168: And the relative contribution increasing and apply it has clear leadership, especially with this broad connected portfolio, we've built integration capability inside apply that.

Gary E. Dickerson: We've built integration capability inside Applied that is really tremendous and really co-innovating with our customers as they're driving those architecture inflections. So I do believe for sure that we will be creating more value in those relationships with our customers, and that certainly is valuable for them, and our focus is to capture more value as we're delivering more value with them. So your basic question, I agree with your thoughts. Thanks. Very helpful.

Speaker Change #168: It's really tremendous and really co innovating with our customers as they are driving those architecture.

Inflections.

Speaker Change #168: So.

Speaker Change #168: I do believe for sure that we will be creating more value in those relationships with our customers and.

Speaker Change #168: That certainly is valuable for them and you know are our focus is to capture more value and as we're delivering more value with them. So your basic question I agree with your thoughts.

Speaker Change #169: Thanks very helpful.

Speaker Change #170: Thank you one moment for our next question.

Speaker Change #171: And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.

Brice A. Hill: So you're raising the forecast there by a billion dollars, I think on, I think, HPM, you're raising it by another, you know, 100 million or so. Is that all going to show up in July and October? So does it mean that conceptually, the second half of the year is, you know, over a billion dollars higher than you thought before? And then, gate all around, what is driving such a significant growth versus what you thought before?

Vivek Arya: Thanks for taking my question.

Vivek Arya: Got it maybe back to the gate all around so you're raising the forecast there by $1 billion I think on I think HBM, you're raising it by another 100 million or so is that all going to show up in July and October So does it mean that conceptually.

Vivek Arya: Second half of the year.

Vivek Arya: Over a $1 billion higher than what you.

Speaker Change #172: Before and then on gate all around what is driving.

Speaker Change #173: That's a significant growth versus what you've talked before 1 billion increase though not abundant 5 billion based on a very.

Speaker Change #174: Any strong number so I'm just curious what are the kind of the qualitative factors and then just also quantitatively does it mean that second half the $1 billion higher.

Speaker Change #175: <unk> hired and what Youre talking to Florida.

Brian Edward Chin: Hi, Vivek, it's Brian So I'll, just do a clarification here.

This quarter, we decided last quarter when we talked about the incremental revenue for gate all around that it was a little bit confusing. So we changed in this quarter, we're talking about all of our revenue that's associated with the gate all around.

Transistor and wiring and so that's not just the increments. So the $2 5 billion that we're talking about this quarter is not an issue.

Brian Edward Chin: It's not supposed to be interpreted as an increase relative to the $1 billion, we talked about last quarter. We're just changing the basis now we're just quoting all of the business that's associated with the.

Brice A. Hill: Now we're just quoting all of the business that's associated with the Gate All-Around product, so hopefully that helps. So as far as answering the question about what's driving the increase, I don't think our perspective has changed very much. It's $2.5 billion for this year.

Brian Edward Chin: The gate all around product so hopefully that helps so as far as answering the question about what's driving the increase I don't think our perspective has changed very much its $2 5 billion for this year. It can grow significantly next year as the technology ramps and then.

Brice A. Hill: What I would say is you do see some of that in our Q3 guide. So, as you know, we took down or are, you know, dropping off the incremental Chinese DRAM shipments that we had. And in the second half, we're filling that in with ICAP strength and growing leading logic shipments that are driven by Gate all-around. Relative to kind of what drives the incremental spending, these technologies where you are, Improving device performance, the drive current, leakage, power, consumption, all of those things are incredibly difficult.

Brian Edward Chin: What I would say is you do see some of that in our Q3 guide. So as you know we took down.

Brian Edward Chin: Dropping off the incremental China DRAM shipments that we had and in the second half, we're filling that in with ICANN strengths and growing leading logic shipments that are driven by gate all around.

Speaker Change #176: Right got it thank you.

Speaker Change #177: Relative to kind of what drives the incremental spending.

Speaker Change #178: These technologies, where you are.

Speaker Change #178: Improving device performance to drive current leakage power consumption and all of those things are incredibly difficult.

Speaker Change #178: And so the <unk>.

Brice A. Hill: And so the customers, and it's really all about this materials magic, you know, that we're able to provide that broad portfolio of different types of technologies. So step counts are increasing at every one of those different technology nodes as they are driving those roadmaps for performance, power, to meet the demand, especially for high-performance computing, AI computing, and other demand-type applications. So again, those are very, very, very, very, very, difficult technologies, whether it's 100 billion transistors in a GPU or 100 kilometers of wiring in an application processor. Those are really amazing, amazing technological accomplishments with materials.

Speaker Change #178: Customers and it's really all about materials magic that we're able to provide.

Speaker Change #178: With that broad portfolio of different types of technologies. So step counts are increasing at every one of those different technology nodes as they are driving those roadmaps for performance power.

Speaker Change #178: To meet that especially for high performance computing AI computing.

Speaker Change #178: Demand type of applications. So again those are very very very very difficult technologies, whether it's a 100 billion transistors and a GPU or a 100 kilometers of wiring and an applications processor. Those are really amazing amazing technology to accomplish accomplishments with material.

Speaker Change #178: That's what drives that incremental spending.

Christopher Caso: That's what drives that incremental spending. 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 evening.

Speaker Change #179: Thank you.

Speaker Change #180: Thank you one moment for our next question.

Speaker Change #180: Okay.

And our next question comes from the line of Chris Caso from Wolfe Research. Your question. Please.

Christopher Caso: Yes. Thank you. Good evening. My question is on advanced packaging and you were pretty specific.

Speaker Change #181: With what you're expecting this year you spoke about the opportunity to double that again, you didn't provide a timeframe on that so if you could help us with some of the timeframe on.

Christopher Caso: So if you could help us with some of the timeframe on when you expect to double that, and just in terms of what's driving that, we know there's advanced packaging in Logic and HBM. What's the mix of that in terms of what's driving the expectation time? Hi Chris, this is Gary.

When do you expect to double that and just in terms of whats driving that we know there is advanced packaging in logic and HBM.

Speaker Change #182: Whats the mix of that in terms of what's driving the expectations higher.

Gary E. Dickerson: So this whole focus on advanced packaging and heterogeneous integration is really a major driver across the entire industry. When you look at AI servers or, you know, any of these different kinds of applications, you see tremendous innovation. In high bandwidth memory, you see tremendous innovation and how you're connecting together all of those high-performance logic chips and memory chips. And we really see the growth there being very, very significant because it's so important to the industry's roadmap as kind of classics. Moore's Law has slowed down significantly.

Gary: Hi, Chris This is Gary so this whole focus around advanced packaging heterogeneous integration is really a major drive across the entire <unk>.

Gary: Tire industry.

When you look at.

Speaker Change #183: Hi servers or.

Speaker Change #183: Any of these different kinds of applications, you see tremendous innovation and the high bandwidth memory, you see tremendous innovation in how you are connecting together.

Speaker Change #183: All of those high performance logic chips and memory chips and.

Speaker Change #183: We really see the growth there being very very significant because its so important to the industry's roadmap is kind of classic Moore's law.

Speaker Change #183: It has slowed down significantly. This is another major driver of how the industry will innovate going forward and with applied we have the broadest portfolio of technologies Pvt, CVD CMP plating etch, we've added hybrid bonding digital lithography E beam test, we have a very broad.

Speaker Change #183: Portfolio and as we see those roadmaps and that's where I come back to architecture inflections are really what drives your incremental business going forward. So we can see the road maps.

Speaker Change #183: For our foundry logic customers for memory customers all of them are investing very heavily in these types of technologies and some of these areas also that our new innovations from applied will help us drive that business too.

Speaker Change #183: Times higher and I think that.

Speaker Change #183: Compound annual growth rate keeps going up from there. The other advantage that we have besides this broad portfolio and a deep multi generation connection that we have with all of our customers.

Speaker Change #184: It is our full flow packaging lab in Singapore, we're working with leading customers on those next generation innovations, Chris So we have pre.

Speaker Change #184: Pretty good line of sight to what those inflections will look like the architecture inflections will look like in a very strong position to grow our share as those inflections come to market, we're not giving a specific time frame on the doubling yeah, it'll happen over a number of years, but very very.

Speaker Change #184: We're optimistic about our opportunities in packaging.

Speaker Change #184: Thanks.

Speaker Change #185: Thank you one moment for our next question.

Speaker Change #185: Okay.

Speaker Change #186: And our next question comes from the line of <unk> <unk> from Raymond James Your question. Please.

Bryce: Thank you Bryce I have a question on China.

Speaker Change #187: I think last quarter you said.

Speaker Change #188: You expect China to normalize to about 30% or so by the end of this year. So my question is is that still the expectation and then it looks like <unk> is still holding up pretty well. So is the decline primarily DRAM going forward and I'm just curious as to given what we are hearing about what we are.

Speaker Change #188: We're seeing in the end markets, if I caps I mean, it looks like the broader analog is still relatively weak and auto is kind of mixed I'm just curious as to what's driving the <unk>.

Speaker Change #189: Strength in rate caps.

Speaker Change #190: Okay. Thanks for any yes first of all our mix as we move to the second half of the year will normalized with respect to China as a percent of our total revenue. So it will be closer to 30% as expected and it's the dynamic that you highlighted we had some catch up DRAM shipments to.

Speaker Change #190: Customers in China for the last three quarters those will fall off as we go through Q3, and Q4 and that really will bring our our percentage of China revenue back down to closer to what's average over the last few years, which will call about 30%.

Speaker Change #190: And then with respect to the mix of business so as that.

Speaker Change #190: DRAM business falls off our <unk> business.

Speaker Change #190: And our leading edge logic business does increase to fill that in and so that's consistent with continued strength in <unk>, which the rest of the market for us and China would be <unk> related and I think you described it well the end markets are mixed so industrial and auto have been weaker.

Speaker Change #190: <unk> smartphone PC related products have been.

Speaker Change #190: Slow, but gaining some strength recently and then as we've talked about image sensors power chips Microcontrollers a lot of those markets have been stronger.

Speaker Change #190: So it's been mixed end markets, but the customers are investing for forward looking <unk>.

Demand in to get capacity in place for forward looking demand and when we see utilization in those markets. We've seen it improve so I think.

Speaker Change #190: When people ask us for guidance hopefully the best thing. We can tell you is Q1 and Q2 are very strong in <unk> and Q3 will be another strong quarter in the <unk> market. Thanks for the question.

Brice A. Hill: So I think, you know, when people ask us for guidance, hopefully, the best thing we can tell you is Q1 and Q2 are very strong in ICAPS, and Q3 will be another strong quarter in the ICAPS market. Thanks for the question. Thanks, Bryce.

Speaker Change #191: Thanks Raj.

Atif Malik: Thank you. One moment for our next question. And our next question comes from the line of Atif Malik from Citi. Your question, please. Thank you for the question. I have a question on Gator all around as well.

Speaker Change #192: Thank you one moment for our next question.

Speaker Change #193: And our next question comes from the line of <unk> Malik from Citi. Your question. Please.

Thank you for taking my question I have a question on the gate all around as well very strong outlook, the $2 5 billion doubling next year.

Atif Malik: Very strong outlook, two and a half billion doubling to next year. Is the customer funnel for this demand pretty broad across the four foundries? And also, if you can rank order for us in the two and a half billion FBA, LD, patenting, like what it is now, what's driving the most demand? Thank you. I think I'll take the first part.

Speaker Change #194: The customer funnel for this demand pretty broad across the board boundaries and also if you can rank order for us.

Speaker Change #195: $5 billion.

Speaker Change #196: Back to me.

What's driving the most demand thank you.

Speaker Change #197: I think I'll take the first part I think that.

Brice A. Hill: I think that demand is across our customer base, so it's not one single customer, but we won't share any details about the relative balance between customers. And then, you know, from a device mix perspective, Gary, or, sorry, an equipment mix, I don't know if there's anything you would highlight there. Yeah, I think, you know, again, one of the advantages that we have is this broad portfolio of technologies, along with integrated tools and also our integration engineering, where we're working with customers who are really co-innovating on these different technology inflections.

Speaker Change #198: That demand is across our customer base. So it's not one single customer, but we won't share any details about the relative balance between.

Speaker Change #199: Customers and then from a device mix perspective, Gary or I'm, sorry in equipment mix I don't know if theres anything you would highlight there yeah I think.

Again, one of the advantages that we have is this broad portfolio of technologies along with our.

Speaker Change #200: Greater tools and also our integration engineering, where we're working with customers, who really co innovating on on these different technology inflection. So if you look at gate all around we have P. P. B D. A L. The selective removal etch thermal processing implant CMP in E beam, so it's a very broad.

Brice A. Hill: So, if you look around GATE all around, we have EPI, PVD, ALD, selective removal, etch, thermal processing, implant, CMP, and E-beam. So, it's a very broad portfolio, and, you know, I'm not going to break out all of those different pieces, but what I would say is our ability to connect that portfolio together is really a tremendous strength, and our ability to co-optimize as you think about, and we did this back in FinFET also, where we were able to co-optimize and innovate in how you build those structures so that you can improve power Does that answer your question? Yes, thank you.

Speaker Change #199: Our broad portfolio.

Speaker Change #199: You know I'm not going to breakout all of those different pieces, but what I would say is our ability to connect that portfolio together is really a tremendous strength and our ability to co optimize as youre thinking about and we've done this back in Finfet also where we were able to co op.

Speaker Change #199: Eyes, and innovate and how you're building those structures. So that you can improve power and performance. So we're doing the same thing with gate all around.

Does that answer your question.

Speaker Change #201: Yes. Thank you. Thank you one moment for our next question.

Speaker Change #199: Okay.

Speaker Change #202: And our next question comes from the line of Toshio Harry from Goldman Sachs. Your question. Please.

Toshiya Hari: Hi, good afternoon. Thank you so much for taking the question I had two quick ones one on <unk> and the other one on NAND.

Speaker Change #204: So in HBM your customers would tell us that they're sold out certainly for 'twenty four for the most part they are sold out for 25 as well. So my guess is you've got pretty good visibility into into next year.

Speaker Change #204: Gary you talked about overall advanced packaging doubling over the medium to long term, but when you zoom into HBM could that business for you multiply again in 25 on a year over year basis and.

Speaker Change #205: And then on the NAND side.

Speaker Change #206: The business continues to be pretty depressed your customers their profitability is improving cash flows improving are becoming less bad.

Speaker Change #207: Are you starting to see purchase orders from your customers come back or what do they need to see for them to.

Speaker Change #208: Spend on <unk> again, thank you.

Brice A. Hill: Thank you. Okay, Toshiya, it's Brice. I'll start, and then Gary may add something to the HBM. So, you know, on the sold-out comment, what we do, we have seen utilization improve across the DRAM wafer starts. We've seen the allocation to HBM from a wafer start perspective increase from 5% to probably something closer to 20%. That said, it's not 100% utilized, so, you know, you could speculate what the if there's, you know, some restraint.

Speaker Change #209: Okay Associates price I'll start and then.

Speaker Change #210: Sir you may add something on the HBM. So on the on the sold out comment what we do we have seen utilizations improve across the DRAM.

Speaker Change #211: For starts we've seen the allocation to HBM from a wafer start perspective increase from 5% to probably something closer to 20% that said, it's not 100% utilized so.

You can speculate what the if there is.

Speaker Change #211: Some restraint it could be in the packaging side and we have seen orders for HBM going up so we'll have to let you think about that.

And talk to those vendors from that perspective on the NAND on the NAND side or.

Speaker Change #211: Our perspective on NAND is that Moore's.

Speaker Change #211: La is still very much alive in NAND bit density is increasing with each generation of NAND fairly aggressively and it's meeting the demand function for four increased bits and what that really means is that the business. We see in NAND is for technology upgrades.

Speaker Change #211: More technology upgrades, not really new wafer starts so that's what we expect to see as we move forward and overall, we expect NAND to grow at the speed of semiconductors. It's obviously storage is a very important part in several of our vendors called out how important storage is even for <unk>.

Brice A. Hill: So that's what we expect to see as we move forward. And overall, we expect NAND to grow at the speed of semiconductors. It's obviously storage has a very important part, and several of the vendors have called out, you know, how important storage is, even for AI, and that it will grow. So I think, you know, for us, it's been slow, but we expect it to grow over time, and memory in total to be about a third of our, you know, our sales for WFE. And then, Gary, back to you, whether anything specific on... Yeah, really, hi, Toshiya. You know, nothing really too much more beyond what Brice was talking about.

Speaker Change #211: And then it will grow so I think.

Speaker Change #211: For us it's been slow, but we expect it to grow over time in memory in total to be about a third of our.

Speaker Change #211: Our sales.

Gary: For Wi Fi and then Gary back to you whether anything specific on it really Tokyo, nothing really too much more beyond what Brian was talking about and we have seen the demand for H B M.

Gary E. Dickerson: And we have seen the demand for HBM strengthen. Strengthening, we went from about a 4x increase to a 6x increase. Thank you.

Speaker Change #212: Strengthening we went from about Forex increased to six <unk> increase.

Speaker Change #212: From the last time that we are.

Speaker Change #212: Talk to you guys and I would say that we still are seeing incremental demand.

Speaker Change #213: <unk> forward, so that Paul is still there from customers, we're not giving any point estimate for next year, but we do continue to see.

Speaker Change #213: Stronger demand in that segment.

Speaker Change #214: Thank you.

Krish Sankar: Thank you one moment for our next question. And our next question comes from the line of Krish Sankar from TD Cowan. Your question, please? Yeah, hi, thanks for taking my question. Gary, I had a question on backside power delivery. You know, it seems that the industry has two approaches to it. One is the backside wiring with direct contact to the transistors. Another one is the nano-TSB approach.

Speaker Change #215: Thank you one moment for our next question.

Speaker Change #216: And our next question comes from the line of Krish Sanka from TD Cowen Your question. Please.

Gary E. Dickerson: I'm kind of curious. You've spoken about the 100 incremental $1 billion SAM for 100,000 data starts a month. How does this compare with those two approaches? And also, can you quantify what kind of revenues you expect this year and next year for applied and backside power delivery? Thank you. Oh, I question that. Yeah, I don't want to talk too much about the, you know, specific architectures that customers are using. It's confidential, you know, for all all of those different customers.

Krish Sankar: Yeah, Hi, Thanks for taking my question I'll go to your other question on boss said about delivery.

Speaker Change #218: The industry has still approaches to it one is the backside riding with direct contact with the plans with the level of the nano DSP approach.

Speaker Change #219: I'm kind of curious you spoken about the 100 incremental $1 billion.

Speaker Change #219: 100000 basis got amongst all of the split between those two approaches and also.

Can you quantify what kind of revenues you expect this year and next year for applied and back the other way. Thank you.

Chris: Oh, Hi, Chris Yeah, I don't want to talk too much about the specific architectures that customers are using it.

Speaker Change #219: Confidential.

Speaker Change #219: For all of those different customers.

I would say that going forward that.

Gary E. Dickerson: I would say that going forward, direct connect to the backside is the path that everybody is focused on. So, you know, I think over time, that's a that will grow a fairly significant amount. Well, both of those approaches will grow a fairly significant amount. And we're deeply engaged with customers on that inflection, leading and wiring overall.

Speaker Change #219: Direct connect to the back side is the path that everybody is focused on so I think over time that that will grow a fairly significant amount well both of those approaches will grow a fairly significant amount.

Speaker Change #219: And we're deeply engaged with customers on that inflection where it.

Gary E. Dickerson: We have a very, very high share of wiring. And so wiring going to the backside, we've said that that gives us an opportunity to get 50% of that spend when that inflection happens. So we're supporting both of those different types of approaches for the backside. But I don't want to get too specific in terms of, you know, which one we see grow bigger, you know, over time. You know, I think that it could move to Direct Connect.

Leading in wiring overall, we have a very very high share of wiring.

Speaker Change #219: And so wiring going to the back side, we've said that that gives us an opportunity of 50% of that spend.

Speaker Change #219: When that inflection happens.

Speaker Change #219: We're supporting both of those different.

Speaker Change #219: Types of approaches for the back side, but don't want to get too specific in terms of.

Which one do we see bigger.

Speaker Change #219: Over time.

Speaker Change #219: I think that it could move to the to the direct connect but you know that.

Gary E. Dickerson: But, you know, that timing, I don't want to give specifically because that's going to be each one of the different customers' roadmaps. Relative to timing for revenue, it's pretty small for us right now in 2024. It will grow in 2025, but the significant ramp for backside power is still, you know, out, beyond $25 in revenue. Thank you, Gary.

Speaker Change #219: Timing I don't want to give specifically because that's going to be.

Speaker Change #219: Each one of the different customers' roadmaps relative to timing for revenue, it's pretty small for us right now.

Speaker Change #219: In 2024, it will grow in 'twenty, five, but the ramp significant ramp for backside power is.

Speaker Change #219: It is still.

Speaker Change #219: Out.

Speaker Change #219: Beyond 'twenty five in revenue.

Speaker Change #221: Okay got it thank you.

Gary E. Dickerson: Thank you. Thank you. One moment for our next question. And our next question comes from the line of Timothy Arcuri from UBS Securities. Your question, please. Thanks a lot.

Thank you one moment for our next question.

Speaker Change #221: Okay.

Speaker Change #221: And our next question.

Speaker Change #222: It comes from the line of Timothy Arcuri from UBS Securities. Your question. Please.

Timothy Michael Arcuri: Brice, I had a two-part question on China DRAM. And the first part is that you talked about it coming down to $500 million. Is that stepping all the way down in fiscal Q3? So what's the assumed step down in China DRAM for fiscal Q3? And then more broadly, of the $1.6 billion worth of DRAM business, I'm wondering if you can kind of help us figure out how much of that is China. If I look at Korea, and I look at, you know, how much that is, it looks like about a billion dollars of the $1.6 billion in DRAM revenue is from China. Can you confirm whether that's in the right ballpark? Hi Tim.

Timothy Michael Arcuri: Thanks, a lot Brian I had a two part question on China.

Ran: Ran in the first part is you talked about it coming down $500 million is that stepping all the way down in fiscal Q3, so what's the assumed stepped out in China.

Ran: DRAM for fiscal Q3, and then and then more broadly of the $1 6 billion with DRAM business. I'm wondering if you can kind of help us figure out how much of that is China. If I look at Korea, and I look at how much that it looks like about $1 billion of $1 six.

Speaker Change #224: Grant revenue is is that China can you can you confirm whether that's in the right ballpark.

Brice A. Hill: Thanks for the question. The only quantification that I gave in prior quarters was that our DRAM business as a whole was up more than $500 million in the quarters where we had that incremental. So I think I'll just leave it at that and say it was more than $500 million in each of the last three quarters. And as we look into the second half, it doesn't drop completely to zero in Q3, but it drops significantly, and then it's pretty close to zero in Q4.

Timothy Michael Arcuri: Hi, Tim Thanks for the question the only quantification that I gave in prior quarters was that our our DRAM as a whole was up more than $500 million.

Speaker Change #225: In the quarters, where we had that incremental so I think I'll just leave it at that and say, it's more than $500 million in each of the last three quarters.

Brice A. Hill: In our mix to China, revenue for the company, as I highlighted in an earlier question, will be about in the range of 30 percent, which is normal for us. So I think that's as close as I can get on that. Thanks for the question. Sure, Brice.

Speaker Change #225: And as we look into the second half.

Speaker Change #225: It doesn't drive completely to zero in Q3, but it drops significantly and then it's pretty close to zero in Q4, and our mix to China revenue for the company as I highlighted to an earlier question will be about.

Speaker Change #225: In the range of 30%, which is normal for us.

Speaker Change #225: So I think thats as close as I can get on that thanks for the question.

Brian: Sure Brian Thank you.

Joseph Michael Quatrochi: Thank you. Thank you. One moment for our next question, and our next question comes from the line of Joe Quatrochi. Joe Quatrochi from Wells Fargo.

Speaker Change #226: Thank you one moment for our next question.

Speaker Change #227: And our next question comes from the line of Joe <unk>.

Speaker Change #228: At Troche from Wells Fargo. Your question. Please.

Joseph Michael Quatrochi: Your question, please. Yeah, thanks for taking the time to ask it. I wanted to kind of try to understand just the trends that you're seeing in ICAPs. Can you help us understand the difference in the growth that you're seeing from China versus non-China? Because it sounds like as we look at, you know, China revenue normalizing, the DRAM falling off, you know, obviously, the rest of that's mostly just ICAPs. So can you help us just kind of understand the trends between China and non-China? Hi Joe.

Joseph Michael Quatrochi: Yes, thanks for taking the question I wanted to kind of try to understand the trends that youre seeing in iqos.

Speaker Change #229: Can you help us just understand.

Speaker Change #230: Difference in the growth that youre seeing from China versus non China, because it sounds like as we look at China revenue normalizing in the DRAM falling off obviously the rest of that is mostly just iPad. So can you help us just kind of understanding the trends between China and non China.

Brice A. Hill: Thanks for the question. Yeah, for China, what I would say is the last three quarters have been very strong. So, you know, if we're speculating about a slowdown or, you know, a digestion period, one of the reasons I didn't reemphasize that is, You know, we're kind of going by what we're seeing.

Speaker Change #231: Hi, Joe Thanks for the question Yeah for.

For China, what I would say is the last three quarters have been very strong so.

Speaker Change #232: If we're speculating about a slow down or.

Speaker Change #233: A digestion period, one of the reasons I Didnt reemphasize that is.

Speaker Change #233: We're kind of going by what we're seeing so we had two strong quarters Q1, Q2 or Q3 guide again has.

Speaker Change #233: Strength in <unk>, and a strong fourth quarter for China, when we think about the world right now I think we have three regions growing in the.

Speaker Change #233: The rest of the regions.

Brice A. Hill: So that corresponds with the end markets, you know, sort of being mixed at this point, elements of WFE last year. ICAPS was about 40% of WFE by that pie chart on May 2nd that was put out. China's our largest market in ICAPS, and we monitor that carefully. We've got a large number of customers. We're tracking more than 30 factory projects that are in the ramp process. In other words, they have capacity, they're adding capacity, they're ramping up. We're tracking utilization.

Speaker Change #233: Not growing so that corresponds with the end markets sort of being mixed at this point our view of China overall.

Speaker Change #233: The team showed a pie chart.

Speaker Change #233: Of.

Speaker Change #233: Different device.

Speaker Change #233: Elements of WMC last year I caps was about 40% of Wi Fi by that Pie chart on may 2nd that was put out.

Speaker Change #233: China is our largest market and I caps and we monitor that carefully we've got about we've got a large number of customers. We're tracking about 30 different more than 30 factory projects that are in ramp process in other words, they have capacity, they're adding capacity, they're ramping we're tracking.

Brice A. Hill: Utilizations are improving. We understand yields are improving. So we think that the Chinese market will be a very large and important market for us going forward. We've said we don't see a cliff for that market, and I think we'd stick by all those remarks at this point.

Utilizations utilizations are improving.

Speaker Change #233: We understand yields are improving so we think that the China market will be.

Speaker Change #233: Very large and important market for us going forward. We said, we don't see a cliff for that market and I think we'd stick by all those remarks at this point.

Speaker Change #234: Thank you.

Brice A. Hill: Thank you. 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 #235: Thank you one moment for our next question.

Speaker Change #236: And our next question comes from the line of Harlan sur from Jpmorgan. Your question. Please.

Harlan Sur: Thanks for taking my question. You know, as we transition from a more mature specialty ICAPS-driven growth profile to a leading-edge sort of advanced foundry logic memory spending profile this year and going forward, you know, this typically tends to be a strong tailwind for your process control and diagnostics portfolio, which leans very heavily on your most advanced tools and solutions, right, because feature sizes get smaller, so better resolution is required, but also new and more defect and yield challenges, So it's probably a driver of your leading-edge CFD-driven e-bean portfolio this year. Are you guys still seeing your portfolio grow like 4x this year?

Speaker Change #237: Good afternoon. Thanks for taking my question as we transition from our more mature specialty I kept driven growth profile to the leading edge sort of advanced foundry logic memory spending profile this year and going forward.

Speaker Change #238: Typically tends to be a strong tailwind care plus control and diagnostics portfolio, which means very heavily on your most advanced tools and solutions right because you guys.

Speaker Change #238: Sizes get smaller so better resolution required but also new.

Speaker Change #238: And more defect and yield challenges right. So it's probably a driver of your leading edge Cfd driven E beam political just here are you guys still seeing that portfolio grow like Forex this year.

Speaker Change #239: How does the pipeline look for next year, and maybe mid to longer term given the significant manufacturer ability challenges does <unk> see process control and diagnostics intensity rising faster than overall <unk> intensity over the next few years.

Gary E. Dickerson: And how does the pipeline look for next year? And maybe, mid to longer term, like given the significant manufacturability challenges, does the applied team see process control and diagnostics intensity rising faster than overall WSC intensity over the next few years? Thanks, Harlan. This is Gary.

Gary E. Dickerson: So I would say that for sure. The connection that we have with our e-beam technology and these major architecture inflections is a real advantage for us because, again, it's a race to see who gets there first relative to those major architecture inflections, and learning rate, how fast you learn, is one of the determining factors. So having this unique capability is a real advantage for Applied. I mean, obviously, it's a good growth driver for us from a revenue perspective, but that synergy with the rest of our broad portfolio, our connected portfolio, is a real advantage. Cold field emission, which is really one of the key technologies in electron optics, gives us the highest resolution at up to 10 times higher imaging speeds.

Gary: Oh, Thanks, Harlan this is Gary so.

Gary: I would say that for sure the connection that we have with our E beam technology and these major architecture inflections is a real advantage for us because again, it's a race on who gets there first relative to those major architectural inflections and learning.

How fast you learn.

Gary: As one of the determining factors so having this unique capability.

Gary: Is it a real advantage for applied I mean, obviously, it's a good growth driver for us from a revenue perspective, but that synergy with the rest of our broad portfolio of connected portfolio is it rail advantage on coldfield emission, which.

Gary: <unk> is really one of the key.

Gary: Key technologies in the electron optics it gives us the highest resolution.

Gary: Add up to 10 times higher imaging speeds. So it really is highly differentiated and we are still on track this year to grow our cfe systems revenue.

Gary E. Dickerson: So it really is highly differentiated, and we are still on track this year to grow our CFE systems revenue by 4X to 24X, and that would represent about 50% of our total e-beam system sales. And then, when I look forward, again, I see PDC as a really great growth driver for Applied. We have the strongest pipeline of new products than we've ever had, and the synergy with the rest of our process equipment business, all of that materials magic, materials innovation is increasing.

Gary: Around four acts in 'twenty, four and that would represent about 50% of our total E beam system sales and then when I look forward.

Gary: Again, I see PD.

Gary: PTC is a really great growth driver for applied we.

Gary: Have the strongest pipeline of new products that than we've ever had and the synergy with the rest of our process equipment business all of that materials magic materials innovation.

Gary: Is increasing so again very very optimistic about the shape of that business.

Gary E. Dickerson: So again, very, very optimistic about the shape of that business. Thank you, Gary. Yeah, thanks, Harlan. And operator, we have time for just one more quick question, please. Certainly. One moment for our final question. And our final question for today comes from the line of Mehdi Hosseini from Chesquihana. Your question, please.

Speaker Change #240: Thank you Gary.

Speaker Change #241: Yes, Thanks, Harlan and operator, we have time for just one more quick question. Please certainly one moment for our final question.

And our final question for today comes from the line of Mehdi Hosseini from <unk>. Your question. Please.

Mehdi Hosseini: Yes, thanks for letting me ask the question. Gary, you're talking about this Infection Point technology, leading-edge logic, HBM, GEDEM, and advanced packaging. But would it be fair to say that what is not in your backlog is the additional wafer capacity, especially for a gate all around and memory, and that that would be something that would be coming in? The POs will be placed later this year for shipment in 2025. Yeah, hi Mehdi, it's Brice. I guess I'll take that one.

Mehdi Hosseini: Yes, Thanks for letting me ask the question. The day you were talking about this.

Mehdi Hosseini: Infection point technology, leading edge logic, it should be and get them the best packaging, but would it be fair to say that what is not in your backlog is the additional wafer capacity, especially for gate all around and memory.

Mehdi Hosseini: That would be something that would be coming in.

Mehdi Hosseini: The appeal is be placed later DCF for shipment in 2025.

Brice A. Hill: We do expect, you know, I can't tell if it's a Greenfield question or not, but we do expect increased wafer starts across, you know, definitely ICAPS, definitely Leading Logic, a smaller amount in DRAM, and probably the place where we don't really expect increased wafer starts is in NAND, but that will still be upgrades. So most of the memory technologies, you know, are upgrades, but it'll be a combination of new technologies and new plant and equipment across the board. Okay, thanks Mehdi for your question.

Price: Yeah, Hi, Matt its price I guess I'll take that one we do expect.

Speaker Change #242: I cant tell if its a greenfield question or not but we do expect to increase wafer starts.

Speaker Change #242: Across.

Speaker Change #242: Definitely.

Speaker Change #242: <unk> definitely leading logic, a smaller amount in DRAM.

Speaker Change #242: And probably the place where we don't really expect increased wafer starts in.

Is in NAND, but that will still be upgrades. So most of the memory technologies.

Speaker Change #242: Our upgrades, but it'll be a combination of new technologies, and new new plant and equipment across the board.

Speaker Change #243: Thank you.

Okay. Thanks, Matt for your question and now Brian would you like to give us your closing thoughts.

Brice A. Hill: And now, Brice, would you like to give us your closing thoughts? Thanks, Mike. I think we've done a good job anticipating the roadmap inflections in data center AI. We can see the pull for our solutions in gated all around chips from transistors to front side wiring and backside wiring and in advanced packaging. Same goes for DRAM, where we're number one in materials engineering and especially strong in HBM stacking.

Brice A. Hill: In future calls, we'll have a lot more to say about our positions in edge AI and IoT plus automotive and clean energy, which are very big and long-term drivers of our ICAP. The momentum in our systems business fuels our service business, which is driving very stable subscription-like growth and helping us increase the dividend at an accelerated rate. Gary will be at the Bernstein Conference in New York on May 30th, and I hope to see many of you at the B of A Conference in San Francisco on June 6th. Thank you, Mike. Let's close the call. Okay.

Gary will be at the Bernstein Conference in New York on May 30th and I Hope to see many of you at the Bofa conference in San Francisco on June 6th. Thank you, Mike, Let's close the call. Okay. Thanks, Bryce 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 by five P. M Pacific time today and we'd like to thank you for your continued interest in applied materials.

Michael Sullivan: 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 by 5 p.m. Pacific time today.

Speaker Change #244: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q2 2024 Applied Materials Inc Earnings Call

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