Q2 2025 Applied Materials Inc Earnings Call
Welcome to the applied materials second quarter fiscal 2025 earnings conference call. During the prepared remarks, all participants will be in a listen only mode. Afterwards, there will be a question and answer session I would now like to turn the call over to Liz morale Vice President of Investor Relations.
You may begin.
Thank you good afternoon, and thank you for joining us for today's call.
Speaker Change: With me today are Gary Dickerson, President and CEO and Brice Hill CFO.
Speaker Change: Before we continue let me remind you that today's discussion contains forward looking statements within the meaning of the federal securities laws, including predictions estimates projections or other statements about future events.
Speaker Change: Actual results may differ materially from those mentioned in these forward looking statements as a result of risks and uncertainties.
Speaker Change: Information concerning these risks and uncertainties as discussed in our most recent Form 10-K, 10-Q, and 8-K filings with the SEC.
Speaker Change: Do not intend to update any forward looking statements.
Speaker Change: During today's call. We will also reference non-GAAP financial measures Rec.
Speaker Change: Reconciliations of GAAP to non-GAAP results can be found in today's earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at IR that applied materials Dot com.
Speaker Change: I'll now turn the call over to Gary Thanks Liz.
Gary Dickerson: Our second fiscal quarter of 2025 applied materials delivered strong results across the board, including record earnings per share.
Gary Dickerson: These results reflect great execution by our teams around the world as well as the agility and flexibility we have in our global operations and supply chain.
Gary Dickerson: While we are paying close attention to our highly dynamic macro environment, we have not seen significant changes in market demand our customers remain focused on winning the race to be first to market with transformative new technologies.
Gary Dickerson: Applied is working closely with our customers and partners to accelerate the industry's roadmap. We are very well positioned at major technology inflections in fast growing areas of the market, which supports our multi year growth trajectory.
Gary Dickerson: In my prepared remarks today I'll provide our latest market outlook I'll explain how applies innovative products and services are enabling fundamental advances in semiconductor technology.
Gary Dickerson: I'll describe how we are translating these innovations into sustainable profitable growth across our business.
Gary Dickerson: Starting with our perspective on the market the major technology trends reshaping the global economy, including Iot automation on robotics electric and autonomous vehicles and clean energy are all built on top of advanced semiconductors.
Gary Dickerson: Central to our future market outlook is AI.
Gary Dickerson: Which is the most transformative technology of our lifetimes and has almost limitless potential use cases.
Gary Dickerson: We are seeing remarkable progress in AI capabilities, we're still in the early phases of a multi decade buildout of applications and infrastructure.
Gary Dickerson: Large scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack.
Gary Dickerson: These requirements are reshaping the semiconductor roadmap and changing the way chips are designed and manufactured.
Gary Dickerson: The impact of AI data center innovation and investments is apparent in the wafer fab equipment market.
Gary Dickerson: Where there are significant shifts in the spending mix. This year, we see investment in leading edge foundry logic growing substantially in 2025, and we also expect spending for leading edge DRAM to be up significantly we see lower spending in China with investments in both DRAM and mature logic Dow.
Gary Dickerson: For the year and finally, we are seeing an uptick in NAND investment, albeit from very low levels seen over the past several years.
Gary Dickerson: Against this market backdrop applied is well positioned for 2025 and beyond and 2024, we underperformed the market in China due to the market access restrictions imposed on U S companies at the same time outside of China, We grew faster than our peer group.
Gary Dickerson: Thanks to our strength in leading edge foundry and DRAM trade.
Gary Dickerson: Trade restrictions have also had an impact on our service business.
Gary Dickerson: Spite these headwinds we grew our core parts and services revenues in the low double digit range last year and we're on track to deliver a similar growth rate in 2025.
Gary Dickerson: On top of our growing installed base, we are successfully increasing the portion of those systems in the field covered by higher value advanced services and comprehensive service agreements more than two thirds of our service revenue comes from subscriptions and we expect this percentage to <unk>.
Gary Dickerson: The increase in the coming years.
Gary Dickerson: At a company level through 2020 for applied materials has grown revenues for five consecutive years. This momentum continues in 2025 if.
Gary Dickerson: If we take our first half results plus our third quarter guide revenues are up 7% year to date.
Gary Dickerson: Looking further ahead. We also believe we're in a great position for the future given the direction of the industry Road map, our strong leadership positions at key device architecture inflections and the unique portfolio of solutions and capabilities, we provide to our customers' customer.
Gary Dickerson: Customers are racing to be first to market to deliver major architectural innovations in logic compute memory packaging and power devices, including next generation gate, all around transistors backside power delivery for F squared in three D. DRAM advanced packaging compound semiconductors.
Gary Dickerson: For our power electronics and Silicon Photonics.
Gary Dickerson: These technology inflections grow the market for wafer fab equipment increase the relative mix of materials engineering technologies and provide opportunities for applied to gain market share.
Gary Dickerson: Advanced foundry logic is a great example of this if we compare and advanced fab using integrated gate, all around and backside power delivery architecture to the last generation of Finfet technology applies revenue opportunity is approximately 30% higher for the equivalent fat.
Gary Dickerson: <unk> capacity.
Gary Dickerson: And advanced DRAM, we're focused on addressing the most critical steps for next generation technologies and this has enabled us to establish a strong leadership position in this market.
Gary Dickerson: In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments and DDR five and high bandwidth memory.
Gary Dickerson: Across advanced foundry logic, and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market.
Gary Dickerson: One example is our Sim three magnum etch system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February 2024.
Gary Dickerson: Another example is our breakthrough coldfield emission E beam technology that has strong momentum and gate, all around and high bandwidth memory and supported record revenues for our process diagnostics and control business this past quarter.
Gary Dickerson: As we look at how the industry's roadmap is evolving we see our broad capabilities and connected product portfolio is a major leadership strength.
Gary Dickerson: This gives us earlier visibility and a more holistic view of the industry's most valuable technical opportunities. It allows us to develop solutions to address those high value opportunities faster and most importantly, it means we can deliver unique solutions by co optimizing.
Gary Dickerson: <unk> and combining our innovations.
Gary Dickerson: With the pace of technology accelerating.
Gary Dickerson: Being first to market has incredible value for our customers and applied materials for this reason another key pillar of our strategy is high velocity co innovation.
Gary Dickerson: Our goal is to increase the speed of developing and commercializing next generation technologies through earlier and deeper collaboration with customers and partners.
Gary Dickerson: Applied global Epic platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources.
Gary Dickerson: Construction of our new flagship R&D facility the Epic Center in Silicon Valley is progressing on schedule and we expect the center to start operations in spring 2026.
Bryce: Before I hand over to Bryce I'll quickly summarize first.
Bryce: While we recognize that the macro environment is highly dynamic applied continues to deliver strong financial performance.
Gary Dickerson: We are not currently seeing significant changes in customer demand and we have agility in our global operations to adapt to a range of scenarios.
Gary Dickerson: Second the race to deliver high performance energy efficient AI computing remains the dominant driver of the semiconductor industry's roadmap.
Gary Dickerson: Flight is best positioned as a major device architecture inflections that will enable that roadmap to be realized and third we are seeing strong traction with our high velocity co innovation strategy, where earlier and deeper collaboration with our customers and partners.
Gary Dickerson: Is enabling us to bring next generation technology to market faster than ever before now I'll turn the call over to Bryce.
Bryce: Thanks, Gary and thank you to everyone joining us for today's call.
Speaker Change: We delivered another strong quarter in fiscal Q2 with robust year over year revenue growth gross margin expansion and record earnings per share.
Bryce: These excellent results were driven by increased leading edge foundry logic investments.
Bryce: Given the strong end market demand for AI, enabling semiconductors. This performance was achieved within the rapidly evolving economic and trade policy environment of the past several months.
Bryce: And we leveraged our global supply chain and diversified manufacturing footprint to successfully navigate the dynamic commercial landscape.
Bryce: With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2 with approximately $2 billion in dividends and share repurchases and bought back approximately one 4% of shares outstanding.
Bryce: Turning to the details for Q2, our results were largely in line with our expectations with total net revenue of approximately $7 1 billion up 7% year over year with growth across all our business segments.
Bryce: non-GAAP gross margin was 49, 2% up 170 basis points year over year, and our highest quarterly gross margin since fiscal year 2000.
Bryce: The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments.
Bryce: non-GAAP operating expenses were $1 3 billion down slightly as a percentage of revenue on a year over year basis with growth in R&D, partially offset by decreases in G&A.
Bryce: Is he focused on funding critical technology inflection related research.
Bryce: non-GAAP earnings per share was a record $2 39 up 14% year over year, given the revenue growth better profitability and share repurchases.
Bryce: Moving to the segments semiconductor systems revenue was $5 to $6 billion for Q2 up 7% year over year with growth in foundry logic as customer investments at the leading edge more than offset declines for the <unk> nodes that serve the Iot communications automotive power and sensor markets and growth in NAND up.
Bryce: Grades more than offsetting year over year declines in DRAM.
Bryce: non-GAAP operating margin of 36, 4% was up 150 basis points year over year.
Bryce: Moving to applied Global services Ags delivered revenue of 1.5 dollars 7 billion in Q2 up 2% year over year.
Bryce: As healthy growth in services more than offset the expected decline in sales of 200 millimeter equipment.
Bryce: non-GAAP operating margin of 28, 5% was flat year over year.
Bryce: Lastly, our display business delivered revenue of $259 million with non-GAAP operating margin of 26, 3%.
Bryce: Moving to the balance sheet and cash flows we ended the quarter with cash and cash equivalents of $6 2 billion and debt of $6 3 billion.
Bryce: And cash from operations in the quarter was approximately $1 6 billion.
Bryce: Or 22% of revenue.
Bryce: Capital expenditures were $510 million up from the year ago period, and driven by the build out of applied materials equipment and process innovation and commercialization center epic the largest and most advanced facility of its type globally.
Bryce: Free cash flow for Q2 was approximately $1 $1 billion.
Bryce: As I mentioned earlier, we increased capital allocation in Q2 with total shareholder distributions of approximately $2 billion with.
Bryce: <unk> paid of $325 million and share repurchases of approximately $1 $7 billion.
Bryce: As previously announced during the quarter, our board of directors approved a 15% increase to our dividend per share. This marks another year of healthy growth for our dividend one of our key capital allocation priorities and as I like to point out the dividend in its growth are closely correlated with the recurring revenue and profits in our services business.
Bryce: We also announced that our board approved an additional $10 billion share repurchase authorization.
Bryce: As of the end of the quarter approximately $15 9 billion in total remains available to us for future share repurchases.
Bryce: Turning to our outlook as we contemplate the year over year performance. We expect in Q3, we are seeing an acceleration from our leading edge foundry logic products, which are key enablers in the ongoing gate, all around buildout, and which were more than offset a lower level of investment in the <unk> nodes. Following two years of strong spending by these customers.
Bryce: Also expect a stable and healthy DRAM market and growth in NAND driven by upgrades.
Bryce: Factoring in these views for fiscal Q3, we expect total revenue of $7 2 billion plus.
Bryce: Plus or minus $500 million, representing a 6% increase year over year at the midpoint and non-GAAP EPS of $2 35.
Bryce: Plus or minus 20.
Bryce: Representing an 11% increase year over year at the midpoint.
Bryce: We expect semiconductor system revenues of approximately $5 4 billion up approximately 10% year over year and Ags revenue of approximately 1.55 billion down 2% year over year with growth in core services impacted by the trade restrictions previously disclosed and declines in <unk>.
Bryce: Demand for 200 millimeter equipment.
Bryce: Rounding out the business segments, we expect display revenue of approximately $250 million.
Bryce: Lastly, given our business mix in Q3, we expect non-GAAP gross margin of approximately 48, 3% and non-GAAP operating expenses of approximately $1 3 billion and we are modeling a tax rate of approximately 13% and.
Bryce: In closing while.
Bryce: The trade environment continues to evolve our global supply chain and diversified manufacturing capabilities provide us with significant agility and flexibility to respond to changing conditions.
Bryce: In the near term, we see overall demand and customer investments continuing at the expected rate and pace.
Even in the current environment.
Bryce: In the long term secular drivers for growth in our business remains intact.
Bryce: We are positioning ourselves to benefit from the opportunities that will emerge as the equipment industry invest to support a one trillion dollar plus semiconductor market by the end of the decade, and we are investing for the growth that we expect in our business over that time.
Speaker Change: Thank you and we're now ready to begin the Q&A Liz.
Liz Morale: Thanks, Bryce to help us reach as many people as we can on today's call. Please limit yourself to one question. If you have an additional question. Please re queue and we'll do our best to come back to you later in the session.
Speaker Change: Thank you ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star One again and our first question comes from the line of Stacy you're asking from Bernstein Research. Your question. Please.
Stacy: Hey, guys. Thanks for taking my questions.
Speaker Change: I wanted to dig into its services in China. So last quarter, you talked about like the incremental hit from the China restrictions across some equipment and services, but you and we saw the hit particularly on the Ags segment, but you had said that you'd return to sequential growth in Q3, but this is not sequential growth. This is kind of flattish to maybe even down a little.
Speaker Change: But sequentially I guess, what what's going on there or is that just like a bigger hit than expected on 200 millimeter or is China worse, and what is or what how should we be thinking about growth for this business I guess into the into the end of year do you think it resumes sequential growth in Q4.
Speaker Change: Hi, Stacy thanks for the question so on the Ags you've got a lot of those elements correct. So what we would say is the core business in Q2 had a record and we expect the core to grow at low double digits during the year.
Speaker Change: Just like you would expect for that part of the business, even with the impacts we've seen from lower China business due to those trade restrictions.
Speaker Change: In the quarter, our Q2, and Q3, Thats, where you have the effects of some of those accounts, becoming restricted so the year over year growth.
Speaker Change: We just made year over year growth for the quarter on Ags and Youre right. Its really the 200 millimeter equipment that slows down significantly during that quarter that makes that.
Speaker Change: Look weaker from a performance perspective, so I think the key things that we want our investors to think about.
Speaker Change: As Ags will grow at low double digits going forward as we digest these trade rules with.
Speaker Change: With our Q3 guidance you can see that it's marginal quarter over quarter in total where we'll have the full effect of all of those rules, but the core will be growing year over year, and we will see that low double digit growth for the core for the full year going forward. After Q3, you should expect.
Speaker Change: See the sequential type of growth that you would expect to deliver that low double digit going forward and then I would just point out just for investors to remember that yes, we do connect our dividend so the recurring profit for that business.
Speaker Change: And it is largely a recurring revenue business. So about 90% at this point is recurring revenue.
Speaker Change: Yes.
Speaker Change: Hi, renewals of multiyear contracts and about 66% of the business is under those subscription agreement so pretty strong from a recurring revenue and profit perspective. Thanks for the question, but it does seem like the 200 millimeter is weaker than you thought like is that is that correct. Yes.
Speaker Change: Yes, I think thats, one factor it might be a little bit less than we thought and then the second is we expected a little bit more in utilization for the quarter and utilization stayed about flat for the quarter. So.
Speaker Change: The spares side of the business was also probably not right up to what we expected.
Speaker Change: Got it that's helpful. Thank you.
Speaker Change: Thanks.
Speaker Change: 200 millimeter a lot of that business is tied to power electronics and long term.
Speaker Change: That's going to be mid to high single digit growth.
Speaker Change: But in the near term that business is down from where it was at previously so again, that's one of the things, that's causing that business to be weaker in the near term, but in service. We're driving a lot of service innovation. We have 8000 tools connected in the field and I think high confidence that we'll grow at low double digit going forward.
Speaker Change: Got it thank you.
Speaker Change: Thank you and our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.
Vivek Arya: Thanks for taking my question.
Vivek Arya: If I contrast, the sales growth you have versus peers.
Vivek Arya: Many of them are expecting to grow double digit you guys are more consistent.
Vivek Arya: 7% or so growth rate in the perception is your higher <unk> exposure. So could you help us size. What ICANN is now as a percentage of sales do you think it has bottomed and continue to be a headwind and if you could give us some trends on China versus non China demand.
Vivek Arya: Demand for the rest of the year. Thank you.
Vivek Arya: Hi, Vivek. Thanks for the question, So I guess I would start mature logic.
Speaker Change: I caps with the <unk> end markets Iot communication auto power sensors for us.
Vivek Arya: First thing we would say is we expect mid to high single digit growth across the horizon heading to that one to one three trillion dollar market buy.
Vivek Arya: By 2030 from a semi perspective, and when you look inside our business. We're expecting right now if you look at semi and Ags, We would say mid twenty's percent will be about the share of the China business for us if that gives you a perspective, there and when we think about <unk>.
Vivek Arya: Specifically.
Vivek Arya: We're restricted from competing with some accounts in some accounts, but for the accounts that were able to sell to where you think we're performing very well from a share perspective, we expect those markets to grow.
Vivek Arya: And we see that market investing more and more than 28 nanometer going forward. They kind of built out the 50 plus nanometer.
Vivek Arya: Capacity is now focusing on 28 nanometer and we feel like we're very well positioned on 28 nanometer we've got.
Vivek Arya: The world leading foundry positions.
Vivek Arya: In that node.
Vivek Arya: We're confident that that.
Vivek Arya: That 25% for the business is probably a good number to think of without display and that should grow over time.
Vivek Arya: Looking forward.
Vivek Arya: Yeah, Vivek, maybe just to clarify the <unk>.
Vivek Arya: Mid twenty's as a percentage of our total company revenue.
Vivek Arya: As China semi including equipment and service. So that's kind of that number and I'm sure you know and other people on the call know we have a display business that adds a few percent to overall applied revenue and what I would add.
Vivek Arya: Certainly we're extremely well positioned.
Vivek Arya: The big drivers for AI, if you look at high performance logic.
Vivek Arya: Graham compute memory high bandwidth memory packaging power electronics all of those areas are.
Speaker Change: The fastest growing areas of the market very well positioned there and as Brian said <unk>.
Vivek Arya: Caps.
Speaker Change: We expect over time that will grow kind of mid to high single digits.
Speaker Change: The 28 nanometer investment as Brian said is increasing significantly as a percentage of the total in China and our share there is higher so that will help us in 'twenty five and also going forward.
Speaker Change: I'd say about high caps.
Speaker Change: This has been a focus for us for more than five years, we have new products and high caps that will enable us to expand into large new segments.
Speaker Change: We have new products, where we have significant cost innovations to better compete in cost sensitive areas of the market. So I'm.
Speaker Change: Optimistic that with all of those different factors, we're going to continue to see strong growth we have grown five years previous to this year.
Speaker Change: Growing in the first three quarters of 25, and I think really well positioned for these key inflections.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.
Speaker Change: Yes. Good afternoon. Thank you for taking the question I just wanted to focus on gross margins I think a quarter ago, you talked about 48, two is kind of the floor.
Speaker Change: <unk>.
Speaker Change: China, normalizing, but that would kind of trade tensions or whatnot. It might now be 48% was hoping you could kind of update on that and then.
Longer term into 2006.
Speaker Change: And beyond can you kind of speak to how you see value based pricing cost reductions in that.
Speaker Change: <unk> manufacturing across both Australia, Singapore and trajectory for margins could go. Thank you.
Speaker Change: Thanks T J good to hear from you.
Speaker Change: Yes, 48, 2%. So obviously, we had $49 two in the quarter and we talked about it in the Q2, we talked about a very favorable mix.
Speaker Change: Our guide is 48, three and Youre right we highlighted.
Speaker Change: You might remember last year, we were in the 40 Sevens mid 40 Sevens.
Speaker Change: Hoping that we could get it into the <unk> 48, and we've done we've made good progress on pricing cost management and logistics improvements.
Speaker Change: And so I do feel like the <unk>, the low 40 eights, probably right around 48 to $48 three is the right.
Speaker Change: Level, where the companies operating at this point.
Speaker Change: And that has modest impacts from tariffs so in Q2.
Speaker Change: Very small impact from tariffs because.
Speaker Change: We had inventory positions that were pre tariff and then in Q3 in our guidance also modest effect of tariffs because you pointed out we have a very flexible manufacturing operation with a global footprint, we have a global supply chain. We've worked for years since COVID-19 on duplicating sources across the.
Speaker Change: Across the globe, and we'll be making price adjustments for the things that.
Speaker Change: It cannot be managed from a tariff perspective, so our guidance for Q3 really reflects being able to manage that environment, very well and having the flexibility to manage it very well and then the last thing to say on the pricing.
Speaker Change: We do feel like we're making very good progress with value based pricing and cost management and I would just say that our expectation is we'll continue to.
Speaker Change: Make improvements to that level of margin as we go forward.
Speaker Change: C. J. This is Gerry one thing I would say.
Speaker Change: Aligned with what Brian talked about we've been driving these cost improvements we've made a lot of progress. There. We're also driving better value capture as we go forward, we're enabling many of these really critical inflection for the industry and I think the thing that I would focus on here is sustainable Maher.
<unk> improvement we made progress this year.
Speaker Change: We've been making progress over the last few years, but I really believe that the initiatives that we're driving cost improvements the initiatives, we're driving and value capture all of those things will sustain going forward and we'll continue to see progress.
Speaker Change: This year and in future years.
Speaker Change: Thank you and our next question comes from the line of Melissa Weathers from Deutsche Bank. Your question. Please.
Melissa Weathers: Thank you for taking my question on the DRAM side of things. It seems like H P. M is really helped put a floor in DRAM WC spending since cyclically, we're still kind of bouncing along the bottom, but Adrian does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those two dynamics going forward like how.
Speaker Change: Do we think about the cyclical piece of DRAM.
Melissa Weathers: Compared to the H B M upside that you're seeing.
Melissa Weathers: Okay, Melissa Hi, yes.
Speaker Change: Thinking about the HBM components. So from a wafer starts perspective I think in this year HBM is a component of DRAM should reach 16% and what we would highlight there is it's growing at a 40% rate similar to the AI data Center type.
Melissa Weathers: Type components.
Melissa Weathers: On the data center side, so that has put DRAM in total, including HBM equipment really continuing to operate at very high levels. So at least on our side I wouldn't say cyclical low I'd actually say.
Melissa Weathers: Maybe last year was a record year. This year will be close to a record year or it could be a record DRAM is very strong.
Melissa Weathers: And the way, we think of it as it's being pulled by that AI leading edge.
Melissa Weathers: And all the compute memory that's needed for that and the HBM is a great example of that so hopefully that gives you a perspective from our from our side that business is operating very strongly across all those technologies.
Melissa Weathers: Yes, Melissa this is Gary I would add that if you look over a little over a decade, we've gained 10 points of market share in DRAM and in this.
Melissa Weathers: The compute memory is going to be one of the fastest growing areas of the market over time. So if you look at especially in the data center. So that business is growing very quickly and we talked about.
Melissa Weathers: With DDR five an H b M, 40% growth with our top three leading customers. So that business is growing at a high rate and we are very strongly positioned if you look at what we've been able to achieve in terms of share gains in DRAM and where the.
Melissa Weathers: DRAM architectures are going to the future. The next big inflection is for F squared.
Melissa Weathers: <unk>.
Melissa Weathers: Architecture.
Melissa Weathers: <unk> is a great opportunity for applied we are deeply engaged with all of those different customers and we will outperform with all of our innovations is that new architecture is adopted so again very strong growth in DRAM for applied outperformance in.
Melissa Weathers: In the past and very well positioned going forward.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Harlan sur from Jpmorgan. Your question. Please.
Good afternoon, and thanks for taking my question last couple of earnings calls you guys have been articulating.
Speaker Change: Leading edge foundry logic, and leading edge memory spending acceleration as we move through the year, which implies that calendar second half spending on leading edge technologies will be higher versus the first half spend is that still the team's view and then kind of tied to that advanced technology drives more penetration of your integrated system solution.
Speaker Change: I think you guys exited last year with integrated solutions, representing about 30% of the overall systems business, what do you anticipate that mix.
Again this fiscal year.
Speaker Change: Great Harlan good to hear from you so on the leading edge definitely.
Speaker Change: Accelerating and what we were highlighting in previous quarters, as we sort of we're thoughtful about the slower investment rate and <unk> in the mature.
Speaker Change: Technologies. After two years of very rapid growth, we were all hoping that leading edge should begin to accelerate after a lesser year in 'twenty, four and 'twenty three and that's exactly what we're seeing so.
Speaker Change: You see a pick up through the course of the year that should be matched hopefully by all the things that you see in the market. If you look at the cloud service providers Capex.
Speaker Change: Those numbers have only been going up we've seen recent announcements of.
Speaker Change: New factories in spending from the leading logic.
Speaker Change: Companies. So yes, I think we expect that trend to be enduring when we think about all the technologies that are packed around AI data center. So DRAM HBM advanced packaging and of course, leading logic, where there's 100% utilization on the on the front end there.
Speaker Change: That is accelerating and then on the integrated equipment, we're still averaging approximately 30%. So that you can look at that is growing at the 7% rate almost 7% rate that we see the business growing.
Speaker Change: At this point in time.
Speaker Change: Perfect. Thank you thank.
Speaker Change: Thank you.
Thank you and our next question comes from the line of Timothy Arcuri from UBS Securities. Your question. Please.
Speaker Change: Thanks, I had a clarification and a.
Speaker Change: Question, So Bryce I just wanted to clarify what the figures for it services for the entire year this year. So.
Speaker Change: You were talking about low double digit growth, but that would assume that the back half is up like 30% half on half. So is that really the message or you keep talking about the core part of service. That's what is going to grow low double.
Speaker Change: So can you just tell us what you think the total.
Speaker Change: This will grow for the year and then my question is most of the other companies expect <unk> to be pretty first half weighted this year I know you don't talk about the market as a whole, but can you give us some sense of whether you would also say that market's first half weighted this year. Thanks.
Speaker Change: Okay, Tim Thanks, So so on the services, yes, when we think about core we're stripping out the 200 millimeter equipment sales for that so if you had an estimate in prior years of what those components are for our core we're hitting a record in this quarter, we will have a record next quarter and we're saying for the whole.
Year, even despite losing not being able to serve some of those accounts in China, we will have low double digit growth in our core business. So without that 200 millimeter, but 200 millimeter will make the overall ags business growth look much smaller for the year and so we'll have to see where that lands, but it will be.
Speaker Change: Much smaller for the year.
Speaker Change: And then for first half second half, we're talking about three quarters for applied that are growing almost 7%.
Speaker Change: And what we would say is the trends that are pulling the business seem fairly durable to us and we've talked about leading edge accelerating so without filling in two more quarters, we'll have to see where that goes but we havent seen really a change in the trajectory of demand or the trajectory of those trends.
Speaker Change: In the last 90 days.
Speaker Change: Okay. So you have to say that the back half will be pretty flat with the first half.
Speaker Change: Yeah.
Speaker Change: It's not really the message like I said, we won't fill in those last two quarters youll, probably when youre thinking of calendar year that would be our Q4 and part of our Q1. So we're not giving specific guidance for that but what we would say is almost 7% year over year. So far year to date for the company and the trends that are pulling on the mark.
Speaker Change: It seemed fairly durable so.
Speaker Change: Hopefully that helps.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question comes from the line of Krish Sanka from TD Cowen Your question. Please.
Speaker Change: Yes, hi, Thanks for my question I also had a question on the clarification, Gary just have a longer term question for you.
Speaker Change: You're clearly gaining traction in new technologies like gate, all around back football delivery, but when I look at your leadership products more on a unit process specification level. It seems like DVD moving to AMD on CVD etch and CMP, you always had U S. Japanese competition, but do you have some you have some legit Chinese competition doing the segments.
Speaker Change: So I'm just kind of wondering how to think about the leadership product momentum over the next one to three years. Some of these shifts in competition at all.
Speaker Change: So can you give any color of rationale on the 9% Betsy stake. Thank you.
Speaker Change: Sure Chris So the way I would think about it if you look at our leadership products, they're really targeted.
Speaker Change: The biggest inflections that are being driven.
Speaker Change: By AI and so.
Speaker Change: High performance logic, what we've said is that.
Speaker Change: We will for gate, all around and backside power distribution. Those are the two big inflections that are going forward.
Speaker Change: <unk> gained share and we are extremely well positioned to capture more than 50% of the available opportunity in those.
Speaker Change: Those inflections, so again very strongly positioned there and compute memory and DRAM again, that's another one that's being driven by AI.
Speaker Change: And I mentioned that earlier, we gained a little over a decade about 10 points of share in DRAM.
Speaker Change: And we're.
Speaker Change: Again, very well positioned.
Speaker Change: DRAM on the last six F squared nodes and also for four F squared.
Speaker Change: Even better positioned I met in the last month I think.
Speaker Change: Pretty much all of those DRAM Ceos and most of the.
Speaker Change: High performance logic, Ceos very strong possess positions very deep engagements and then if you look at our high bandwidth memory, we have high share their advanced packaging is another one.
Speaker Change: Where there are a tremendous architecture inflections.
Speaker Change: And we're just very very well positioned so Chris again I have high confidence.
Speaker Change: That.
Speaker Change: He will gain share as those inflections happen and we have visibility because we have such deep relationships with all of these different customers and one of the things that everybody is focused on us.
Speaker Change: This theme of high velocity co innovation, everybody is racing to be first to market with those new architecture inflections whoever gets there first wensberg everybody else's left behind so I think that that's driving is earlier and deeper collaborations with those customers.
Speaker Change: And so again, we have very high visibility on our positions going forward for all of those major architecture inflections.
Speaker Change: Yes.
Speaker Change: And Chris on Betsy So five year relationship with Betsy, We recently extended our collaboration agreements working very well with them I think you know our perspective on energy efficient compute as their solution combined with our solutions.
Speaker Change: For die to wafer bonding or will be very important for that energy roadmap going forward and so we felt as we extended the collaboration agreement. We felt that we wanted to make an investment in their company at the same time.
Speaker Change: And on the 9% no specific information to share there we had a lot of investments during the quarter. In addition to that with our epic facility that we're building the world class Fab in Sunnyvale, and then also the share buybacks that we mentioned so that was.
Speaker Change: That's our the information that we have to share there, yes, Chris what I would say also I've personally been involved working with Betsy for.
Speaker Change: Many years they are the leader in die to wafer and die to die bonding and our teams have developed an integrated hybrid bonding product with six technologies.
Speaker Change: Integrated together there was a question about integrated products earlier on the call.
Speaker Change: So in this case this is a really important innovation for the most advanced and AI memory chips.
Speaker Change: Where again, we have an applied platform.
Speaker Change: With the Bassi Bonder, along with five other technologies and we think this is going to be a meaningful growth driver going forward.
Speaker Change: And contribute to very strong growth rate in our advanced packaging business.
Speaker Change: Into the future.
Speaker Change: Alright. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from behind.
Speaker Change: D Husseini from Susquehanna International Group your question. Please.
D Husseini: Thanks for taking my question. This is for the team what are the key assumptions embedded.
Speaker Change: And the low and high end of your July quarter.
Speaker Change: The new guide of $6 seven to $7 7 billion.
Thanks Betty.
Speaker Change: That's astute observation, we widened our range by.
Speaker Change: $100 million at this point, so it's plus.
Speaker Change: Or minus 500 million for the quarter, we had been doing plus or minus $400 million.
Speaker Change: And it was really two things.
Speaker Change: Hadn't changed that in the last few years and so the business is obviously larger so we typically ask ourselves whether we should increase the range and then certainly during this period as we saw during the quarter. There was a lot of volatility.
Speaker Change: In the macro in the market and geopolitical and trade et cetera, and so we felt there's a number of scenarios that are.
Speaker Change: Being thought about and so we thought it was a good time to widen the range Theres nothing our algorithmic or mathematical in this selection. We just thought we would indicate that.
Speaker Change: There is more volatility in the environment than typical.
Speaker Change: I assume that's more impacting the ikea business than the leading edge, which is more strategic right.
Speaker Change: Yeah.
Speaker Change: Could you say again please.
Speaker Change: Eric.
Speaker Change: Yes.
Speaker Change: It really is the revenue.
Speaker Change: Size is larger and there are changes.
Speaker Change: That are happening from a regulatory standpoint.
Speaker Change: Tariffs.
Speaker Change: Those things that create more uncertainty.
Speaker Change: And so it's really a combination of those two things, but it was a very small change.
Speaker Change: Range, but again, it's just those factors.
Speaker Change: Thank you guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: And as a reminder, if you have a question. Please press star one on your telephone. Our next question comes from the line of <unk> <unk> from Raymond James Your question. Please.
Yes.
Speaker Change: Thank you.
Speaker Change: My question is on the NAND business I know, it's a relatively small business for you, but it's up nicely and I think you're guiding for growth again.
Speaker Change: On one hand, youre customers are talking about taking the utilization down.
Speaker Change: And on the other hand, you and your peers are talking about.
Speaker Change: Spending improving so if you could talk to the sustainability of the growth and what exactly is driving it up and that would be helpful. Thank you.
Speaker Change: Sure sure.
Speaker Change: Thanks for the question so on the NAND business. It has ticked up both in our Q2 and in our Q3, obviously coming from lower levels, but yes, I think for that business agree that utilization is lower but most of those investments are made to upgrade process technologies and upgrade fact.
Speaker Change: <unk> to the latest nodes we see.
Speaker Change: Low twenty's percent bit demand.
Speaker Change: From a growth rate perspective, going forward and the way that the customers have been supplying that is by improving their technologies and advancing those nodes. So most of the business is upgrades and I would say they don't really change their plans on upgrades with a change in utilization they will focus on.
Speaker Change: Having the density advancement they need from a tech perspective, so really I think it is just that that these these are.
Speaker Change: Investments they make with our lead time and they are thinking about upgrading the technology.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Tim <unk> from Redburn Atlantic Your question. Please.
Speaker Change: Yes, hi, thanks, very much for taking my question. So I had a question on advanced packaging and I guess a question for Gary here, which is around kind of applied materials appetite for risk.
Speaker Change: It's an emerging application is obviously growing very fast.
Speaker Change: But also maybe the technologies that are going to be needed on a 234 year view in advanced packaging.
Speaker Change: <unk> may change and I, just maybe wanted to ask kind.
Speaker Change: Kind of what is applied appetite for risk or maybe trying new things new technologies to serve that market. Thank you.
Speaker Change: Hi, Tim so.
Speaker Change: And advanced packaging. This is going to be one of the most important inflections of the industry.
Speaker Change: How you connect together all of the different high performance logic compute memory DRAM.
Speaker Change: High bandwidth memory, all of those different chipsets and different components.
Speaker Change: There's going to be tremendous innovation and advanced packaging. So applied we've been investing and we're the leader in that market.
Speaker Change: We've been investing for a number of years with new capabilities. We have in advanced packaging lab in Singapore, a full flow lab, where some of our leading customers are working with US there on these new architectures.
Speaker Change: We have.
Speaker Change: Good thing for US is that we have very high visibility.
Speaker Change: And where the industry is going and I talked about this concept of high velocity co innovation, we are working with our customers to shape the industry roadmap, so I think more than anyone else.
Speaker Change: So.
Speaker Change: When we're placing those bets you talked about appetite for risk, we have pretty high visibility where to place the bets because we're in such deep.
Speaker Change: And connected relationships with the customers and we have this broad unique and connected portfolio. So we're in deep relationships with our customers and even our customers customers.
Speaker Change: As they're looking at.
Speaker Change: Inflections in packing packaging AI connectivity those areas. So again I have very high confidence there are innovations that were driving that will expand our total available market in packaging and we're extremely well positioned we've grown significantly over the.
Speaker Change: Last few years.
Speaker Change: Packaging Forex revenue in the last five years.
Speaker Change: And I have high confidence that we'll continue a very high growth rate going forward.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you and our next question comes from the line of Charles <unk> from Needham <unk> Company. Your question. Please.
Speaker Change: Good afternoon. Thanks for taking my question I have a question more on China.
Speaker Change: I think maybe two months ago.
Speaker Change: On China, there is a new company called the Psych area.
Speaker Change: Launched.
Speaker Change: <unk> new tools.
Speaker Change: Lots of overlap with a met portfolio, but I think the common perception based on what Im hearing is.
Speaker Change: Apply to probably has likely the greater downside a lot of the peers with all these new companies emerging in China.
Speaker Change: Wanted to ask.
Speaker Change: If any thoughts you can provide.
Speaker Change: On that particular competitor and what could be the implications for <unk>.
Speaker Change: <unk> market share, especially I think the team just talking about actually gaining more share in China as the customers more transitioning from 50 540 nanometer to 28 nanometer. Thank you.
Speaker Change: Hi, Charles Thanks for the question. So again just to remind you China semi.
And the mid twenties.
Speaker Change: Including equipment and services as a percentage of total company revenue.
Speaker Change: And yes, as we talked about earlier 28 nanometer, where the investment is increasing we have higher share.
Speaker Change: The most important thing for US is we have a great innovation pipeline and <unk>. We formed this group more than six years ago was actually April 12, 2019 is when we form the group.
Speaker Change: And we're driving significant innovations with new products that will expand our markets.
Speaker Change: New Tam for applied materials, new products that have significant cost innovations for our cost competitive areas of the market. So I feel really good about.
Speaker Change: The pipeline that we have going forward, expanding our available market and our ability to compete and so I think in any of these different industries. The key thing is you have to run faster than competitors and we have a great team and I caps. They have delivered great results and I would say that.
Speaker Change: I'm pretty positive about the pipeline that we have going forward and are positioned to drive growth in the <unk> market into the future.
Brian Chin: Thank you and our next question comes from the line of Brian Chin from Stifel. Your question. Please.
Brian Chin: Hi, good afternoon, and thanks for letting us ask your question.
Speaker Change: Gary embrace you clearly remain confident on your positioning for the upcoming key technology inflections and advanced logic.
Speaker Change: Generally there is some anticipation that two nanometer and 16 angstrom nodes can represent at least at least a few hundred thousand of wafer capacity expansion.
Speaker Change: Imagine your thoughts around significant has changed however.
Speaker Change: Given the current level of Geo economic concerns you, what's your view on pacing here and whether this could cause these investments, perhaps the spread out over a longer horizon.
Brian Chin: I guess I'll start Brian and thanks for the question.
Brian Chin: The way, we always think of the market is what's driving demand from a wafer perspective.
Brian Chin: And if.
Brian Chin: You look at Pcs and smartphones they've been growing at low single digits. So those are fairly stable markets, but when you look at data center, it's growing at 20% and if you look at the if you carve out the wafers inside that that are associated with accelerators graphics et cetera. So the.
Brian Chin: AI component of data center, it's growing at 40% when we look at the leading edge factories across the industry there at 100% utilization.
Brian Chin: And we all have thought about the gate all around technology, especially with backside power delivery and thought Wow, that's a that's a significant improvement and power performance.
Brian Chin: And density for the chip so it looks like a really good node that technology it looks like a strong node.
Brian Chin: So we think that trends from a demand perspective, a very very strong.
Brian Chin: And we're expecting a significant build out of that technology and I think if you look at recent announcements either cloud service provider capex or even the largest foundry youll see I think you'll see a lot of energy around the roadmap.
Brian Chin: Thank you.
Speaker Change: And our next question comes from the line of Chris <unk> from Wolfe Research. Your question. Please.
Brian Chin: Thank you good evening.
Speaker Change: Just a question.
Brian Chin: We've gone through a lot with your.
Brian Chin: How are you kind of shaping up this year and know that it's it's too early to start talking quantitatively on next year, but I wonder if you could kind of address a little bit about qualitatively next year kind of where you're feeling.
Brian Chin: Better.
Brian Chin: About growth for next year, what are the things that we should be looking for as we build out our WMC models into next year and whats your level of conviction that next year is indeed a growth year.
Brian Chin: Hi, Chris Great question. So the way we think about it is we kind of set that anchor one to $1 three trillion in 2030 for the semi industry.
Brian Chin: And you can.
Brian Chin: Use a range of assumptions for what the equipment intensity.
Brian Chin: What the equipment intensity might be.
Brian Chin: Associated with that and that'll give you a pretty significant growth in the equipment business over the next five years and so probably just like you in your model.
Brian Chin: We don't try to pick the uneven growth that one year might describe we have we modeled pretty smooth growth from here to 2030 riding AI riding.
Brian Chin: The AI data center all the key.
Brian Chin: Key technologies that we're describing when we think about.
Brian Chin: Robotics, and large language models and all of those types of things. We think those are strong demand drivers. So what we would say is those are enduring trends and you can see the industry, making the investments right. Now you look at the cloud service providers you look at the foundries you look at us with the investment we're making in R. R.
Brian Chin: Rob here in Sunnyvale, and our platform for innovation across the world. So I think those are the signals that you should look for is are the companies.
Brian Chin: Making those investments and do we expect that trend to continue.
Brian Chin: And I know people always want to know if you.
Brian Chin: After five years of growth for applied and we're growing at 7%. So far this year year to date, everybody wants to know if the next quarter. After this one will be down or if next year will be down we really don't model. It that way, we just have kind of a.
Brian Chin: Smooth growth to that 2030, and we understand that it will be uneven.
Brian Chin: And we have time for one last question. Thanks.
Brian Chin: Certainly.
Brian Chin: Final question for today is a follow up from the line of Stacy Raskin from Bernstein Research. Your question. Please.
Brian Chin: Stacy Your line is open you might have your phone on mute I apologize. Thank you for fitting me in again I appreciate it.
Stacy Raskin: Bryce I wanted to go back to your commentary just very quickly to make sure I have it on the segment growth for next quarter I think you said that.
Speaker Change: I thought these are year over year statements foundry and logic you'd have leading edge more than offsetting the <unk> decline. So it sounds like you think foundry logic grows year over year, you said DRAM stable, so DRAM kind of flattish year over year, and then you said NAND growing I guess year over year, but within the full guide would that not imply that demand is down sequentially. Just can you sort of confirm.
Stacy Raskin: That I have.
Harry on the segments correct.
Stacy Raskin: Yes, Stacy I think you've got all of those right and it was a year over year commentary that we're providing so NAND has ticked up leading logic is definitely accelerating.
Stacy Raskin: I think we've shared that.
Stacy Raskin: Mature logic is down but.
Stacy Raskin: We expected that after the two years of rapid growth and so.
Stacy Raskin: To the extent that that's a little lower it's being filled in by leading and just sort of continued strength on the DRAM and whats happened in the DRAM business, depending on which quarter Youre looking at the first couple of quarters last year, we had.
Stacy Raskin: Shipments to China customers. This year that business is still very strong and it's all of that leading edge those leading edge customers that are making those investments. So I think you have those.
Stacy Raskin: Puts and takes correct.
Stacy Raskin: Got it okay. So I have the breakout of DRAM down I guess DRAM down sequentially NAND could.
Stacy Raskin: It could be up sequentially, and then foundry and logic would be up pretty decent sequentially. If I, if I tie out those year over year statements, Yes, that's fair.
Stacy Raskin: Got it okay. Thank you I appreciate it thank.
Speaker Change: Thank you. Thank you. Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to price Hill for any further remarks.
Stacy Raskin: Thank you.
Liz Morale: In summary, we're pleased to be operating at record levels, we're well equipped to navigate the dynamic conditions and the economic environment and we're investing in significant industry collaborations to accelerate innovation, all of which position us to grow our business over the coming years. Thank you Liz please close the call.
Liz Morale: Great. Thank you Bruce and thanks to everyone for joining the call today.
Gary Dickerson: I'd like to call your attention to two upcoming Investor events first Gary will attend the Bernstein strategic decisions conference on May 29th and then on June 4th price will be at the Bofa Global Technology Conference.
Liz Morale: Lastly, a replay of today's call will be available on the Investor Relations website by five PM Pacific time today. Thank.
Gary Dickerson: Thank you for your continued interest in applied materials.
Gary Dickerson: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect. Good day today.
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