Q3 2026 Applied Materials Inc Earnings Call

August 13, 2026

Speaker #1: Welcome to the APPLIED MATERIALS third quarter of fiscal 2026 earnings 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.

Operator: Welcome to the Applied Materials Q3 of fiscal 2026 earnings 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 call over to Mike Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Speaker #1: call over to Mike Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Speaker #2: Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer.

Michael Sullivan: Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer. Before we begin, I would like to remind you that today's call includes 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 discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter. Next, I would like to remind you about our two special events during SEMICON West.

Mike Sullivan: Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer. Before we begin, I would like to remind you that today's call includes 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 discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter. Next, I would like to remind you about our two special events during SEMICON West.

Speaker #2: Before we begin, I'd like to remind you that today's call includes forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ.

Speaker #2: Information concerning these risks and uncertainties is discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures.

Speaker #2: Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com.

Speaker #2: In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter.

Speaker #2: Next, I'd like to remind you about our two special events during Semicon West. On Monday afternoon, October 12, we'll host an unveiling of the new Epic Center in Silicon Valley, California.

Michael Sullivan: On Monday afternoon, 12 October, we will host an unveiling of the new EPIC Center in Silicon Valley, California. On Tuesday morning, 13 October, we hope you will join Gary, Brice, and our business unit leaders for our investor breakfast presentation at the Yerba Buena Center in San Francisco. You can join us in person or on a live webcast. With that introduction, I would now like to turn the call over to Gary Dickerson.

Mike Sullivan: On Monday afternoon, 12 October, we will host an unveiling of the new EPIC Center in Silicon Valley, California. On Tuesday morning, 13 October, we hope you will join Gary, Brice, and our business unit leaders for our investor breakfast presentation at the Yerba Buena Center in San Francisco. You can join us in person or on a live webcast. With that introduction, I would now like to turn the call over to Gary Dickerson.

Speaker #2: And on Tuesday morning, October 13, we hope you'll join Gary, Brice, and our business unit leaders for our investor breakfast presentation at the Yerba Buena Center in San Francisco.

Speaker #2: You can join us in person or via live webcast. And with that introduction, I'd now like to turn the call over to Gary Dickerson.

Speaker #3: Thank you, Mike. In our third fiscal quarter of 2026, Applied Materials delivered another set of record-breaking results, including the highest quarter-on-quarter revenue growth in the company's history.

Gary Dickerson: Thank you, Mike. In our Q3 of fiscal 2026, Applied Materials delivered another set of record-breaking results, including the highest quarter-on-quarter revenue growth in the company's history. The rapid global build-out of AI infrastructure, combined with Applied's leadership positions in the most enabling and highest-value technologies for AI computing, provide the company with an exceptionally strong foundation for multi-year revenue and profit growth. As 2026 has progressed, customers have found new ways to address clean room space constraints and significantly increase their demand for tool deliveries. In the past three months, we have again made upward revisions to our revenue growth forecast for the year, and we are confident we will grow faster than the overall market. As AI computing drives unprecedented demand for semiconductors, there is a large gap between demand and supply for advanced chips.

Speaker #3: The rapid global build-out of AI infrastructure combined with APPLIED's leadership positions in the most enabling and highest-value technologies for AI computing provide the company with an exceptionally strong foundation for multi-year revenue and profit growth.

Speaker #3: As 2026 has progressed, customers have found new ways to address cleanroom space constraints and have significantly increased their demand for tool deliveries. In the past three months, we have again made upward revisions to our revenue growth forecast for the year, and we are confident we will grow faster than the overall market.

Speaker #3: As AI computing drives unprecedented demand for semiconductors, there is a large gap between demand and supply for advanced chips. To ensure our supply chain and field teams can support their ramps, our largest customers are giving us longer-term commitments and rolling eight-quarter forecasts.

Gary Dickerson: To ensure our supply chain and field teams can support their ramps, our largest customers are giving us longer-term commitments and rolling eight-quarter forecasts. This increased demand visibility gives us high confidence that 2027 will be another strong growth year for Applied Materials. As customers move quickly to bring new fab capacity online while simultaneously optimizing yield and output of their existing production facilities, we also see strong incremental demand for our advanced service solutions. In my prepared remarks, I will share my views on how AI is resizing and reshaping the semiconductor industry and its ability to realize the value of advanced technology. I will describe the increasing value Applied is delivering to our customers by accelerating their technology roadmaps, optimizing existing production capacity, and helping ramp new fabs faster.

Speaker #3: This increased demand visibility gives us high confidence that 2027 will be another strong growth year for APPLIED MATERIALS. As customers move quickly, to bring new fab capacity online while simultaneously optimizing yield and output of their existing production facilities, we also see strong incremental demand for our advanced service solutions.

Speaker #3: In my prepared remarks, I will share my views on how AI is reshaping and resizing the semiconductor industry and its ability to realize the value of advanced technology.

Speaker #3: I will describe the increasing value Applied is delivering to our customers by accelerating their technology roadmaps, optimizing existing production capacity, and helping ramp new fabs faster.

Speaker #3: And I'll provide a brief update on our EPIC strategy as we prepare to start operations in our new EPIC Center in Silicon Valley. As I have said before, I strongly believe that AI is the biggest and most consequential technology inflection of our lifetimes.

Gary Dickerson: I will provide a brief update on our EPIC strategy as we prepare to start operations in our new EPIC Center in Silicon Valley. As I have said before, I strongly believe that AI is the biggest and most consequential technology inflection of our lifetimes. While we are still in the early innings of deployment, AI is reshaping the global economy and becoming fundamental to the relative competitiveness of companies. What I am seeing at Applied Materials is a great case study in AI's real-world impact. Our investments in AI are on track to deliver compelling returns by accelerating our revenue growth and operating profit margins. In R&D and services, we are using AI to create highly differentiated products, significantly speed up product development timelines, and create valuable new service solutions for customers.

Speaker #3: While we are still in the early innings of deployment, AI is reshaping the global economy and becoming fundamental to the relative competitiveness of companies.

Speaker #3: What I am seeing at Applied Materials is a great case study in AI's real-world impact. Our investments in AI are on track to deliver compelling returns by accelerating our revenue growth and operating profit margins.

Speaker #3: In R&D and services, we're using AI to create highly differentiated products significantly speed up product development timelines and create valuable new service solutions for customers.

Speaker #3: In operations, supply chain, and our corporate functions, AI is helping us ramp faster, drive meaningful improvements in productivity, and scale our revenue significantly faster. We see similar trends playing out across a wide variety of industries.

Gary Dickerson: In operations, supply chain, and our corporate functions, AI is helping us ramp faster, drive meaningful improvements in productivity, and scale our revenue significantly faster than our headcounts. Beyond Applied, we see similar trends playing out across a wide variety of industries. As the performance and cost of AI computing improves, many new applications will become technically viable and economically attractive. These expansive opportunities for value creation are fueling an intense global competition for AI leadership, which can be described as two concurrent races. The first race is for technology leadership. AI data center returns are determined by the number of tokens generated per second and the total cost of ownership, which is dominated by energy consumption. Improvements in token per second per watt are primarily driven by innovations in semiconductor devices and systems.

Speaker #3: As the performance and cost of AI computing improves, many new applications will become technically viable and economically attractive. These expansive opportunities for value creation are fueling an intense global competition for AI leadership, which can be described as two concurrent races.

Speaker #3: The first race is for technology leadership. AI data center returns are determined by the number of tokens generated per second and the total cost of ownership, which is dominated by energy consumption.

Speaker #3: Improvements in token-per-second-per-watt are primarily driven by innovations in semiconductor devices and systems. This can be seen in the value the semiconductor and semiconductor equipment industries are generating from their most advanced technologies.

Gary Dickerson: This can be seen in the value the semiconductor and semiconductor equipment industries are generating from their most advanced technologies. The second race is for capacity, as demand for advanced semiconductors to support AI infrastructure scaling far exceeds supply. As a result, chipmakers are intensely focused on increasing output and yields of their existing factories while rapidly building new ones. For Applied, the technology race and the capacity race are fueling new opportunities to create and capture value. In the race for technology leadership, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost. Together, we expect these areas to represent around 80% of wafer fab equipment growth in 2026 and 2027.

Speaker #3: The second race is for capacity as demand for advanced semiconductors to support AI infrastructure scaling far exceeds supply. As a result, chipmakers are intensely focused on increasing output and yields of their existing factories while rapidly building new ones.

Speaker #3: For APPLIED, the technology race and the capacity race are fueling new opportunities to create and capture value. In the race for technology leadership, leading-edge foundry logic DRAM and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost.

Speaker #3: Together, we expect these areas to represent around 80% of wafer fab equipment growth in 2026 and 2027. These three areas are also where Applied has strong leadership positions, where we identified key AI inflections early, and where we've shifted our investments to build an innovative pipeline of next-generation solutions.

Gary Dickerson: These three areas are also where Applied has strong leadership positions, where we identified key AI inflections early, and where we have shifted our investments to build an innovative pipeline of next-generation solutions. In the past quarter alone, we have announced six new products, including our Centura Prime epitaxy system, designed specifically for high-performance DRAM, Producer Avila, that enables higher performance and higher layer count, high-bandwidth memory, Nokota VMax, our next-generation plating system, and Opta Quad CMP for advanced packaging, and two new E-beam systems also for advanced packaging that expand on our E-beam leadership in the front end. Advanced packaging is one of the most important areas for AI compute innovation, and we see very strong multi-year growth for Applied.

Speaker #3: In the past quarter alone, we have announced six new products, including our Centura Prime epitaxy system designed specifically for high-performance DRAM, producer Avila, that enables higher performance and higher layer count high-bandwidth memory, Nokota Vmax, our next-generation plating system, and OptiQuad CMP, for advanced packaging.

Speaker #3: And two new E-beam systems, also for advanced packaging, that expand on our E-beam leadership in the front end. Advanced packaging is one of the most important areas for AI compute innovation and we see very strong multi-year growth for APPLIED.

Speaker #3: APPLIED is the overall leader in this market with strong positions in high-bandwidth memory and 3D chiplet stacking and we now expect our overall packaging revenues to grow more than 70% in calendar 2026.

Gary Dickerson: Applied is the overall leader in this market, with strong positions in high-bandwidth memory and 3D chiplet stacking, and we now expect our overall packaging revenues to grow more than 70% in calendar 2026. We are also well-positioned for future packaging inflections as the industry moves to new architectures and larger size panel formats. We have built a broad portfolio of next-generation technologies for panel, including digital lithography, deposition, etch, and E-beam review. In the global race to add semiconductor manufacturing capacity, our customers' ability to increase yield and output in their existing production fabs is incredibly valuable. This creates expanded opportunities for Applied to deliver new innovations in three key areas. Services, process diagnostics and control, and new products that increase wafer output per area of fab space. Our advanced service solutions enable customers to better optimize performance of their high-volume manufacturing operations.

Speaker #3: We're also well positioned for future packaging inflections as the industry moves to new architectures and larger-size panel formats. We have built a broad portfolio of next-generation technologies for panel, including digital lithography, deposition, etch, and E-beam review.

Speaker #3: In the global race to add semiconductor manufacturing capacity, our customers' ability to increase yield and output in their existing production fabs is incredibly valuable.

Speaker #3: This creates expanded opportunities for APPLIED to deliver new innovations in three key areas: services, process diagnostics and control, and new products that increase wafer output per area of fab space.

Speaker #3: Our advanced service solutions enable customers to better optimize performance of their high-volume manufacturing operations. We already have more than 37,000 chambers in the field connected to our proprietary AIX software capabilities and use AI-powered monitoring, diagnostics, and predictive analytics.

Gary Dickerson: We already have more than 37,000 chambers in the field connected to our proprietary AIx software capabilities and use AI-powered monitoring, diagnostics, and predictive analytics. Our advanced services are delivering yield improvements for customers and helping us drive higher growth rates in Applied Global Services. We now expect AGS to grow more than 20% in calendar 2026 and to deliver a sustainable long-term annual growth rate in the mid-teens. Our metrology and inspection product portfolio is also enabling customers to accelerate fab yields and output improvements. The most advanced logic and DRAM devices require more E-beam steps that can provide sub-nanometer resolution for high aspect ratio structures. Applied has unique E-beam technology and is the leader in this growing market. In parallel, we are introducing new optical inspection products, which enable us to increase application share in these markets as well.

Speaker #3: Our advanced services are delivering yield improvements for customers and helping us drive higher growth rates in Applied Global Services. We now expect AGS to grow more than 20% in calendar 2026 and to deliver a sustainable, long-term annual growth rate in the mid-teens.

Speaker #3: Our metrology and inspection product portfolio is also enabling customers to accelerate fab yields and output improvements. The most advanced logic and DRAM devices require more e-beam steps that can provide sub-nanometer resolution for high aspect ratio structures.

Speaker #3: APPLIED has unique E-beam technology and is the leader in this growing market. In parallel, we are introducing new optical inspection products which enable us to increase application share in these markets as well.

Speaker #3: As a result, we expect to grow our process diagnostics and control business more than 50% in calendar 2026 and we have a strong pipeline of new products that will fuel growth in 2027 and beyond.

Gary Dickerson: As a result, we expect to grow our process diagnostics and control business more than 50% in calendar 2026, and we have a strong pipeline of new products that will fuel growth in 2027 and beyond. Finally, we are developing a new portfolio of output innovation products that increase the wafers that can be processed per square foot of clean room space. One example is our new epitaxy system for DRAM that not only increases device performance, but also uses 20% less clean room space than our earlier products. We have multiple output innovation products in qualification at customer sites that will provide significant increases in output per unit area. With incredibly strong customer pull for next-generation technology and unprecedented demand for semiconductor manufacturing capacity, the value of time to market has never been greater.

Speaker #3: Finally, we are developing a new portfolio of output innovation products that increase the wafers that can be processed per square foot of clean room space.

Speaker #3: One example is our new epitaxy system for DRAM that not only increases device performance, but also uses 20% less cleanroom space than our earlier products.

Speaker #3: We have multiple output innovation products in qualification at customer sites that will provide significant increases in output per unit area. With incredibly strong customer pull for next-generation technology, and unprecedented demand for semiconductor manufacturing capacity, the value of time-to-market has never been greater.

Speaker #3: Our Epic strategy is designed to increase innovation and commercialization velocity by creating earlier and deeper engagements with our customers and partners and co-locating key innovators.

Gary Dickerson: Our EPIC strategy is designed to increase innovation and commercialization velocity by creating earlier and deeper engagements with our customers and partners and co-locating key innovators. For chipmakers, EPIC provides much earlier access to Applied's new product innovations that are at the foundation of future AI compute architectures. The output from EPIC will be more mature technology that can deliver high yields faster in volume manufacturing. For Applied, EPIC co-innovation programs will enable us to be designed in to new chip and packaging architecture inflections, increase R&D productivity and value sharing, and provide better multi-node visibility to guide our investments and resource allocation. Since our last earnings call, we announced that Broadcom will join EPIC as an innovation partner to accelerate development of advanced chip packaging technologies for next-generation AI systems. We also signed EPIC partnership agreements with SCREEN and UC Berkeley.

Speaker #3: For chip makers, EPIC provides much earlier access to Applied's new product innovations that are at the foundation of future AI compute architectures. The output from EPIC will be more mature technology that can deliver high yields faster in volume manufacturing.

Speaker #3: For APPLIED, Epic co-innovation programs will enable us to be designed in to new chip and packaging architecture inflections increase R&D productivity and value sharing and provide better multi-node visibility to guide our investments and resource allocation.

Speaker #3: Since our last earnings call, we announced that Broadcom will join Epic as an innovation partner to accelerate the development of advanced chip packaging technologies for next-generation AI systems.

Speaker #3: We also signed EPIC partnership agreements with Screen and UC Berkeley. This brings our total number of announced EPIC engagements to 11, spanning system companies, leading chip makers, top research universities, and innovation partners.

Gary Dickerson: This brings our total number of announced EPIC engagements to 11, spanning system companies, leading chip makers, top research universities, and innovation partners. The centerpiece of our EPIC platform is our brand-new EPIC Center in Silicon Valley. We will move the first R&D tool into the clean room next week, and we are on track to start operations in the coming months. Before I hand over to Brice, let me briefly summarize. Demand for advanced semiconductors and semiconductor equipment continues to strengthen, and as customers find new ways to address clean room space constraints, we see higher demand for 2026 tool deliveries. With support from our supply chain, we have again increased our expectations for 2026 revenue, and we are confident we will grow faster than the overall market this calendar year.

Speaker #3: The centerpiece of our EPIC platform is our brand-new EPIC Center in Silicon Valley. We will move the first R&D tool into the clean room next week, and we are on track to start operations in the coming months.

Speaker #3: Before I hand over to Brice, let me briefly summarize. Demand for advanced semiconductors and semiconductor equipment continues to strengthen and as customers find new ways to address clean room space constraints we see higher demand for 2026 tool deliveries.

Speaker #3: With support from our supply chain, we have again increased our expectations for 2026 revenue. We are confident we will grow faster than the overall market this calendar year.

Speaker #3: In the race for AI technology leadership, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost.

Gary Dickerson: In the race for AI technology leadership, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost. These are areas where Applied has strong leadership positions and an innovative pipeline of next-generation solutions, supporting strong revenue and margin growth in 2027 and beyond. We are working closely with our customers to optimize yield outputs and fab ramp times with valuable new innovations in services, process diagnostics and control, and output innovation products. Brice, over to you.

Speaker #3: These are areas where Applied has strong leadership positions and an innovative pipeline of next-generation solutions, supporting strong revenue and margin growth in 2027 and beyond.

Speaker #3: And we're working closely with our customers to optimize yield, outputs, and fab ramp times with valuable new innovations in services, process diagnostics and control, and output innovation products.

Speaker #3: Brice, over to you.

Speaker #2: Thanks, Gary. I'm pleased to share that Applied delivered another quarter of double-digit sequential and year-over-year growth in revenue, operating profit, and non-GAAP earnings per share.

Brice Hill: Thanks, Gary. I am pleased to share that Applied delivered another quarter of double-digit sequential and year-over-year growth in revenue, operating profit, and non-GAAP earnings per share. Fiscal Q3 also marks our 13th consecutive quarter of year-over-year gross margin expansion, which demonstrates how we are benefiting from the tremendous value our products and services bring to our customers and the entire AI ecosystem. Our fiscal Q4 guidance demonstrates continued strong year-over-year momentum, and in the H2 of the calendar year, we expect particularly strong growth in DRAM, as well as leading-edge foundry logic and the advanced packaging for both. On today's call, I will update you on the demand environment, discuss how we are scaling our operations for continued growth, demonstrate how value creation is expanding our gross margins, summarize our Q3 results, and provide our Q4 guidance.

Speaker #2: Fiscal Q3 also marks our 13th consecutive quarter of year-over-year gross margin expansion which demonstrates how we are benefiting from the tremendous value our products and services bring to our customers and the entire AI ecosystem.

Speaker #2: Our fiscal Q4 guidance demonstrates continued strong year-over-year momentum and in the second half of the calendar year we expect particularly strong growth in DRAM as well as leading-edge foundry logic and the advanced packaging for both.

Speaker #2: On today's call, I'll update you on the demand environment, discuss how we're scaling our operations for continued growth, demonstrate how value creation is expanding our gross margins, summarize our Q3 results, and provide our Q4 guidance.

Speaker #2: Over the past quarter, the demand outlook has strengthened across all the leading indicators we track. Cloud service providers continue to increase their investments in AI infrastructure.

Brice Hill: Over the past quarter, the demand outlook has strengthened across all the leading indicators we track. Cloud service providers continue to increase their investments in AI infrastructure. Importantly, many of these companies are already generating positive returns on their investments, and so are their enterprise customers, including Applied. As Gary described, we are accelerating the pace of new product development, increasing revenue, and generating new efficiencies in our support functions. In fact, G&A as a percentage of operating expenses has declined to the lowest level in our history. Turning to our direct customers, most leading-edge logic and DRAM fabs are running at full capacity. Utilization levels are rising across the board, including in ICAPS, where we see strong demand in AI-related markets like power and optical chips. As a result, our customers have announced more than 10 new fab projects just this quarter.

Speaker #2: Importantly, many of these companies are already generating positive returns on their investments. And so are their enterprise customers, including APPLIED. As Gary described, we are accelerating the pace of new product development, increasing revenue, and generating new efficiencies in our support functions.

Speaker #2: In fact, G&A is a percentage of operating expenses has declined to the lowest level in our history. Turning to our direct customers, most leading-edge logic and DRAM fabs are running at full capacity.

Speaker #2: Utilization levels are rising across the board, including in ICAPS, where we see strong demand in AI-related markets like power and optical chips. As a result, our customers have announced more than 10 new fab projects just this quarter.

Speaker #2: Customers continue to give us longer visibility than we've ever had, with some conversations now extending to 2030. These communications are valuable to our company and to our supply chain partners, who are scaling with us to support our customers' growth forecasts.

Brice Hill: Customers continue to give us longer visibility than we've ever had, with some conversations now extending to 2030. These communications are valuable to our company and our own supply chain partners who are scaling with us to support our customers' growth forecasts. During the quarter, we officially opened our newest manufacturing center in Singapore and, combined with other expansions worldwide, have nearly doubled our manufacturing space over the past several years. Based on the longer-term demand signals from our customers, we are now taking this further, hiring and training new manufacturing and customer support teams so that we have the capacity to double our quarterly system output from current levels by 2028. In fact, we added more than 1,500 people this quarter in worldwide manufacturing and AGS customer support.

Speaker #2: During the quarter, we officially opened our newest manufacturing center in Singapore and, combined with other expansions worldwide, have nearly doubled our manufacturing space over the past several years.

Speaker #2: Based on the longer-term demand signals from our customers, we are now taking this further—hiring and training new manufacturing and customer support teams so that we have the capacity to double our quarterly system output from current levels by 2028.

Speaker #2: In fact, we added more than 1,500 people this quarter in worldwide manufacturing and AGS customer support. We are also planning our next manufacturing capacity expansion ensuring we have the option to support further increases in demand by 2030.

Brice Hill: We are also planning our next manufacturing capacity expansion, ensuring we have the option to support further increases in demand by 2030. Next, I'll discuss value creation and sharing. Applied is delivering value to our customers in the AI ecosystem in more ways than ever before. We've increased R&D in every year since Gary joined the company in 2012, and the investments have broadened from equipment innovations to materials engineering solutions that result in better chips. More recently, we've significantly increased R&D in advanced packaging innovations that enable better systems, supplementing our R&D with two small acquisitions. Today, we're increasing investments in technologies that enable better fab economics as we accelerate ramps and boost output and yields. All of these technologies will be put to work at the EPIC Center, where we will co-innovate with our customers and partners to accelerate the AI roadmap.

Speaker #2: Next, I'll discuss value creation and sharing. Applied is delivering value to our customers in the AI ecosystem in more ways than ever before. We've increased our R&D every year since Gary joined the company in 2012.

Speaker #2: In the investments have broadened from equipment innovations to materials engineering solutions that result in better chips. More recently, we've significantly increased our R&D in advanced packaging innovations that enable better systems supplementing our R&D with two small acquisitions.

Speaker #2: And today, we're increasing investments in technologies that enable better fab economics as we accelerate ramps and boost output and yields. All of these technologies will be put to work at the Epic Center where we will co-innovate with our customers and partners to accelerate the AI roadmap.

Speaker #2: In short, we've broadened our focus from making better equipment to enabling better chips and systems for AI, and better fab returns for our customers.

Brice Hill: In short, we've broadened our focus from making better equipment to enabling better chips and systems for AI and better fab returns for our customers. These investments have made us a more valuable partner to our customers and enabled us to share in the value we create. Three years ago, we implemented a systematic approach to value-based pricing, and today you can see the benefits reflected in our strong revenue growth and gross margins, which have increased to over 50% for the company and over 55% in Semiconductor Systems. We have higher pricing and margins in both new and existing products. At the same time, we remain focused on cost improvements and use them aggressively to help offset higher input costs. As we look at the many opportunities we have to further increase the value of chips, systems, and fabs, we are confident we will continue to expand gross margins.

Speaker #2: These investments have made us a more valuable partner to our customers and enabled us to share in the value we create. Three years ago, we implemented a systematic approach to value-based pricing, and today you can see the benefits reflected in our strong revenue growth and gross margins, which have increased to over 50% for the company and over 55% in Semiconductor Systems.

Speaker #2: We have higher pricing and margins in both new and existing products. At the same time, we remain focused on cost improvements and use them aggressively to help offset higher input costs.

Speaker #2: As we look at the many opportunities we have to further increase the value of chips, systems, and fabs, we are confident we will continue to expand gross margins.

Speaker #2: Next, I'll summarize our Q3 results. We generated record revenue of $9.1 billion, up 15% sequentially and 25% year-over-year. Non-GAAP gross margin was up 40 basis points sequentially and 150 basis points year-over-year.

Brice Hill: Next, I will summarize our Q3 results. We generated record revenue of $9.1 billion, up 15% sequentially and 25% year over year. Non-GAAP gross margin increased to 50.4%, up 40 basis points sequentially and 150 basis points year over year. Non-GAAP operating margin expanded to a record 34%, up 190 basis points sequentially and 330 basis points year over year. We delivered record non-GAAP earnings per share of $3.50, which is up 22% sequentially and 41% year over year. Last quarter, I discussed our focus on increasing operating leverage. We grew revenue much faster than spending in Q3 on both a sequential and a year-over-year basis, and drove OpEx as a percentage of revenue to the lowest level in nearly four years. Turning to the segments, Semiconductor Systems delivered record revenue of $7 billion, which is up 18% sequentially and 27% year over year.

Speaker #2: Non-gap operating margin expanded to a record 34% up 190 basis points sequentially and 330 basis points year-over-year. And we delivered record non-gap earnings per share of $3.50 which is up 22% sequentially and 41% year-over-year.

Speaker #2: Last quarter, I discussed our focus on increasing operating leverage. We grew revenue much faster than spending in Q3, on both a sequential and year-over-year basis, and drove OPEX as a percentage of revenue to the lowest level in nearly four years.

Speaker #2: Turning to the segments, semiconductor systems delivered record revenue of $7 billion which is up 18% sequentially and 27% year-over-year. The revenue mix was similar to last quarter as capacity additions and gate all-around and FinFET drove record foundry logic revenue.

Brice Hill: The revenue mix was similar to last quarter as capacity additions in Gate-All-Around and FinFET drove record foundry logic revenue. DRAM revenue, which includes HBM packaging, grew by 52% year over year to record levels. As we look ahead to the H2 of the calendar year, we expect a very significant increase in DRAM revenues as our customers begin to expand clean room capacity. Looking to our individual materials engineering business units, we had record revenues and deposition in Q3, including in PVD, CVD, and epitaxy, which is one of our fastest-growing businesses this year. In materials modification, we had record sales in thermals and treatments. In materials removal, we had record revenue in both etch and CMP. We also had records in process diagnostics and control, which is growing faster than our overall systems business this year.

Speaker #2: DRAM revenue, which includes HBM packaging, grew by 52% year-over-year to record levels. As we look ahead to the second half of the calendar year, we expect a very significant increase in DRAM revenues as our customers begin to expand cleanroom capacity.

Speaker #2: Looking to our individual materials engineering business units, we had record revenues in deposition in Q3 including in PVD, CVD, and EPITAXI which is one of our fastest growing businesses this year.

Speaker #2: In Materials Modification, we had record sales in thermals and treatments. In Materials Removal, we had record revenue in both Etch and CMP. We also had records in Process Diagnostics and Control, which is growing faster than our overall systems business this year.

Speaker #2: Segment non-GAAP gross margin increased 190 basis points year-over-year to 55.4%. Non-GAAP operating profit increased 45% year-over-year to a record $2.7 billion. Applied Global Services delivered record revenue of $1.8 billion, which is up 22% year-over-year, reflecting both subscription services growth and high transactional parts demand.

Brice Hill: Segment non-GAAP gross margin increased 190 basis points year over year to 55.4%. Non-GAAP operating profit increased 45% year over year to a record $2.7 billion. Applied Global Services delivered record revenue of $1.8 billion, which was up 22% year over year, reflecting both subscription services growth and high transactional parts demand. Ramp readiness is a major priority, and the team added more than 1,000 customer support engineers. AGS is using AI and warehouse automation to grow as efficiently as possible, which is reflected in strong gross margin of 35.6%, up 180 basis points year over year, and operating margin of 30.1%, up 280 basis points year over year. From a regional perspective, China represented 26% of our Semiconductor Systems plus AGS revenue. We now expect our China revenue to increase this calendar year, led by investments in 28 nanometer foundry logic, where Applied has strong technology differentiation and share.

Speaker #2: Ramp readiness is a major priority, and the team added more than 1,000 customer support engineers. AGS is using AI and warehouse automation to grow as efficiently as possible, which is reflected in a strong gross margin of 35.6%, up 180 basis points year-over-year, and an operating margin of 30.1%, up 280 basis points year-over-year.

Speaker #2: From a regional perspective, China represented 26% of our semiconductor systems plus AGS revenue. We now expect our China revenue to increase this calendar year led by investments in 28 nanometer foundry logic where APPLIED has strong technology differentiation and share.

Speaker #2: Other revenue of $294 million was in line with our expectations. We generated record operating cash flow of over $3 billion. Capital expenditures were $707 million, resulting in free cash flow of $2.3 billion.

Brice Hill: Other revenue of $294 million was in line with our expectations. We generated record operating cash flow of over $3 billion. Capital expenditures were $707 million, resulting in free cash flow of $2.3 billion. We distributed $860 million to shareholders, including $420 million in dividends and $440 million in stock repurchases. We have $12.8 billion remaining in our share buyback authorization and continue to expect to distribute 80% to 100% of free cash flow to shareholders. Now, I will share our guidance for Q4. We expect company revenue of $10.25 billion ± $500 million, which is up 51% year over year. We expect non-GAAP EPS of $4.02 ± $0.20, which is up 85% year over year.

Speaker #2: We distributed $860 million to shareholders, including $420 million in dividends and $440 million in stock repurchases. We have $12.8 billion remaining in our share buyback authorization and continue to expect to distribute 80 to 100 percent of free cash flow to shareholders.

Speaker #2: Now, I'll share our guidance for Q4. We expect company revenue of $10.25 billion, plus or minus $500 million, which is up 51% year-over-year. We expect non-GAAP EPS of $4.02, plus or minus $0.20, which is up 85% year-over-year.

Speaker #2: Within this outlook, we expect Semiconductor Systems revenue of around $7.9 billion, up 62% year-over-year; AGS revenue of about $1.84 billion, up 22% year-over-year; and Other Revenue of around $510 million, composed primarily of display revenue.

Brice Hill: Within this outlook, we expect Semiconductor Systems revenue of around $7.9 billion, up 62% year-over-year, AGS revenue of about $1.84 billion, up 22% year-over-year, and other revenue of around $510 million, composed primarily of display revenue. I have said previously that our display business includes new products that could help us drive higher quarterly revenue in future periods. For modeling purposes, we now expect other revenue to be approximately $400 million per quarter on average through 2027. We expect non-GAAP gross margin to be approximately 50.4% in Q4, up 230 basis points year-over-year, and we expect non-GAAP operating expenses of around $1.58 billion. As a reminder, Q1 of fiscal 2027 will be a 14-week quarter, which will result in a higher than average step-up in our Q1 operating expenses.

Speaker #2: I've said previously that our display business includes new products that could help us drive higher quarterly revenue in future periods. For modeling purposes, we now expect other revenue to be approximately $400 million per quarter on average through 2027.

Speaker #2: We expect non-gap gross margin to be approximately 50.4% in Q4 up 230 basis points year-over-year. And we expect non-gap operating expenses of around $1.58 billion.

Speaker #2: As a reminder, Q1 of fiscal 2027 will be a 14-week quarter, which will result in a higher-than-average step-up in our Q1 operating expenses.

Speaker #2: Finally, we are modeling a non-gap tax rate of around 11% and a tax rate of around 13% in 2027 as we absorb the effect of the global minimum tax.

Brice Hill: Finally, we are modeling a non-GAAP tax rate of around 11% and a tax rate of around 13% in 2027 as we absorb the effect of the global minimum tax. In summary, the rapid adoption of AI that we have been investing for is driving strong growth and record revenue and profitability for Applied Materials. We are enabling better chips, systems, and fab returns and systematically sharing in the value we create. We see continued record performance in the second half of the calendar year with a sizable increase in DRAM and leading-edge foundry logic revenue. Based on the unprecedented visibility we are receiving from our customers, we expect another strong record year in 2027 and are making substantial investments to be able to ramp to higher levels beyond next year. Now, Mike, let us begin the Q&A session.

Speaker #2: In summary, the rapid adoption of AI that we've been investing for is driving strong growth and record revenue and profitability for APPLIED Materials. We are enabling better chips, systems, and fabric turns and systematically sharing in the value we create.

Speaker #2: We see continued record performance in the second half of the calendar year, with a sizable increase in DRAM and leading-edge foundry logic revenue. Based on the unprecedented visibility we're receiving from our customers, we expect another strong record year in 2027 and are making substantial investments to be able to ramp to higher levels beyond next year.

Speaker #2: Now, Mike, let's begin the Q&A session.

Speaker #3: Thanks, Brice. To help us reach as many people as we can on today's call, please ask just one question, and no more than one brief follow-up question.

Michael Sullivan: Thanks, Brice. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up question. Operator, let us please begin.

Mike Sullivan: Thanks, Brice. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up question. Operator, let us please begin.

Speaker #3: Operator, let's please begin.

Speaker #1: Certainly, and our first question for today comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please.

Operator: Certainly. Our first question for today comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please.

Speaker #4: Yeah, good afternoon. Thank you for taking the question. You know, a quarter ago you quantified 70 systems' growth of 30-plus percent. Curious if there’s kind of a framework for thinking about what the growth outlook looks like now, given your positive commentary.

CJ Muse: Yeah, good afternoon. Thank you for taking the question. Quarter though you quantified Semiconductor Systems growth of 30% plus. Curious if there's kind of framework for thinking about what the growth outlook looks like now, given your positive commentary. Is there any sort of framework that we should be thinking about into calendar 2027?

CJ Muse: Yeah, good afternoon. Thank you for taking the question. Quarter though you quantified Semiconductor Systems growth of 30%+. Curious if there's kind of framework for thinking about what the growth outlook looks like now, given your positive commentary. Is there any sort of framework that we should be thinking about into calendar 2027?

Speaker #4: And is there any sort of framework that we should be thinking about into calendar '27?

Speaker #2: Hi, CJ. It's Brice. Thanks for the question. So, you know, our key comments there, and the way that we're seeing the business, is that demand strengthened again during the quarter.

Brice Hill: Hi, CJ. It's Brice. Thanks for the question. Our key comments there and the way that we're seeing the business is that demand strengthened again during the quarter. We see new projects being added by our customers on the factory side. We see CapEx forecasts going up by our customers, and we see strong CapEx from the cloud service providers all announced. The greater than 30% that we highlighted last quarter, we're saying now that it's greater than that at this point. We didn't want to guide our out Q1 at this point, so that's as much information that we're providing. When we look into 2027, we expect this whole demand function led by AI to continue. We're saying 2027 at this point, we expect another strong year.

Speaker #2: We see new projects being added by our customers on the factory side. We see CapEx forecasts going up by our customers, and we see strong CapEx from the cloud service providers, all announced.

Speaker #2: So the mid, you know, the greater than 30% that we highlighted last quarter—we're saying now that it's greater than that at this point. We didn't want to guide or outlook Q1 at this time.

Speaker #2: So that's as much information as we're providing. But when we look into 2027, we expect this whole demand function, led by AI, to continue.

Speaker #2: So, we're saying '27 at this point; we expect another strong year.

Speaker #4: Yeah, CJ, this is Gary. I would add just that the fastest growing parts of the market or the leading-edge foundry logic DRAM and advanced packaging, we said that's around 80% of the growth in wafer fab equipment spending this year.

Gary Dickerson: Yeah, CJ, this is Gary. I would add just that the fastest-growing parts of the market are the leading-edge foundry logic, DRAM, and advanced packaging. We said that's around 80% of the growth in wafer fab equipment spending this year, and then we'll see a similar profile in 2027. Those are the fastest-growing parts of the market. Those are areas where we have clear leadership and really well-positioned going forward. As you said, we increased greater than 20% is what we said year-over-year in February, then greater than 30% in May, and now we think stronger than that going forward. Demand in all the conversations with the customers is very strong. What we're hearing from customers with these eight-quarter rolling forecasts is very strong multiyear demand. I really want to thank our supply chain teams and operations teams.

Speaker #4: And then we'll see a similar profile in '27. Those are the fastest-growing parts of the market. Those are areas where we have clear leadership and are really well-positioned going forward.

Speaker #4: So as you said, we increased greater than 20% is what we said year-over-year in February, then greater than 30% in May. And now we think stronger than that going forward.

Speaker #4: And so, demand and all the conversations with the customers is very strong. And what we're hearing from customers with these eight-quarter rolling forecasts is very strong multi-year demand. I really want to thank our supply chain teams and operations teams.

Speaker #4: You know, they're doing a great job in responding. But again, customers are being very creative in how they're able to expand space and take tools earlier.

Gary Dickerson: They're doing a great job in responding. Customers are being very creative in how they're able to expand space and take tools earlier. Our teams are reacting very quickly and we're in a strong position to outperform this year.

Speaker #4: Our teams are reacting very quickly and we're in a strong position to outperform this year.

Speaker #2: It's a strong environment, CJ. And we also highlighted that we expect to gain share during the year.

Brice Hill: Strong environment, CJ, and we also highlighted that we expect to gain share during the year.

Speaker #4: Very helpful. And I guess, as a follow-up on gross margins—you know, you talked about value-based pricing, and I think, you know, we've heard from most companies around anything expedited service, new tools.

CJ Muse: Very helpful. As a follow-up on gross margins, you talked about value-based pricing, and I think, we have heard from most companies around anything expedited service, new tools. You talked about like-for-like pricing pushing higher. Could you speak maybe directly to that, and how we should be thinking about the implications to your overall gross margins as we proceed into fiscal 2027 and beyond? Thanks so much.

Speaker #4: You talked about like-for-like pricing pushing higher. Could you speak directly to that, and how we should be thinking about the implications for your overall gross margins as we proceed into fiscal 2027 and beyond?

Speaker #4: Thanks so much.

Speaker #2: Sure. So you know, over the last three years, approximately 300 basis points increase in our company-level gross margins. One driver for that was our value-based pricing.

Brice Hill: Sure. Over the last 3 years, approximately 300 basis points increase in our company level, gross margins. One driver for that was our value-based pricing, that we do for every single tool. The issue, CJ, was when we came through COVID, supply chain crisis, cost of inputs went up. We found ourselves needing to reprice every tool. We put that value-based process in place, and that is what we do, is examine the value of every single tool and put a new price on every single tool. We think that is required in an environment where the input costs change constantly. Looking forward, we expect to be able to continue to improve our gross margins. We are already over 55% at the Semiconductor Systems level. Value-based pricing will continue to be a part of that.

Brice Hill: Sure. Over the last three years, approximately 300 basis points increase in our company level, gross margins. One driver for that was our value-based pricing, that we do for every single tool. The issue, CJ, was when we came through COVID, supply chain crisis, cost of inputs went up. We found ourselves needing to reprice every tool. We put that value-based process in place, and that is what we do, is examine the value of every single tool and put a new price on every single tool. We think that is required in an environment where the input costs change constantly. Looking forward, we expect to be able to continue to improve our gross margins. We are already over 55% at the Semiconductor Systems level. Value-based pricing will continue to be a part of that.

Speaker #2: That we do for every single tool so the, you know, the issue, CJ, was when we came through COVID, you know, supply chain crisis, cost of inputs went up.

Speaker #2: We found ourselves needing to reprice every tool, so we put that value-based process in place. And that's what we do: examine the value of every single tool and put a new price on every single tool.

Speaker #2: We think that's required in an environment where input costs change constantly. And then, looking forward, we expect to be able to continue to improve our gross margins.

Speaker #2: We're already over 55% at the semi-systems level. And, you know, value-based pricing will continue to be a part of that.

Speaker #4: Yeah, CJ, I would add that I think our ability to create value for customers has never been stronger. This race to bring new AI architectures to market is what every one of our single customers is focused on.

Gary Dickerson: Yeah. CJ, I would add that, I think our ability to create value for customers has never been stronger. This race to bring new AI architectures to market is what every one of our single customers is focused on. Applied has the most enabling technologies, as I said, and the fastest-growing parts of the market. We have a tremendous opportunity for creating value there. I also talked about yield and output innovation. All of our customers, they are racing to be first to market with these new architectures, and also ramping as fast as possible, optimizing yield and output. That puts us in a position where our products are extremely valuable. Our services are also more valuable. That is driving the greater than 20% service growth that we are seeing.

Speaker #4: APPLIED has the most enabling technologies, as I said, and the fastest-growing parts of the market. So we have a tremendous opportunity for creating value there.

Speaker #4: And I also talked about yield and output innovation. So all of our customers, they're racing to be first to market with these new architectures.

Speaker #4: And then also ramping as fast as possible, optimizing yield and output. So that puts us in a position where our products are extremely valuable.

Speaker #4: Our services are also more valuable. That's driving the greater than 20% service growth that we're seeing. We talked also about greater than 50% growth in our PDC business that also is related to yield optimization.

Gary Dickerson: We talked also about greater than 50% growth in our PDC business that also is related to yield optimization. Our pipeline of new products is also very strong, and all of those have higher margins, and that will give us a tailwind going forward.

Speaker #4: And then our pipeline of new products is also very strong. And all of those have higher margins. And that will give us a tailwind going forward.

Speaker #1: Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Operator: Thank you. Our next question comes from the line of Vivek Arya from BofA Securities. Your question, please.

Speaker #5: Thanks for taking my question. So, Gary, many of your memory customers are saying that they have three- to five-year long-term agreements with good visibility into units and pricing.

Vivek Arya: Thanks for taking my question. Gary, many of your memory customers are saying that they have three to five year, long-term agreements with good visibility into units and pricing. I know you mentioned you have eight quarters of visibility, but as you look at your customers who are signing up for a greater level of alignment with their end customers, how is that kind of translating into your longer-term visibility beyond these eight quarters?

Speaker #5: I know you mentioned you have eight quarters of visibility. But as you look at your customers, you know, who are signing up for greater level of alignment with their end customers, how's that kind of translating into your longer-term visibility beyond these eight quarters?

Speaker #2: Yeah, I can start on that, Vivek. Hi, this is Brice. So, you know, what we have from customers—of course, the large customers—we actually have visibility to the roadmap.

Brice Hill: Yeah, I can start on that, Vivek. Hi, it is Brice. What we have from customers, of course, the large customers, we actually have visibility to the roadmap. So we have a perspective on probably five years of visibility for our largest customers. We ask them for the detail at a detail level for the eight quarters that we have been speaking about, so we can aggregate that and get it to our supply chain. Other things that have changed, we get longer lead time POs from our customers so that the details are agreed, from a longer lead time perspective. We also have some charges that have moved into this environment, like cancellation charges and expedite charges, that help navigate the environment. So there has been a number of changes, and I think visibility is significantly increased from prior periods.

Speaker #2: So we, you know, we have a perspective on probably five years of visibility for our largest customers. We asked them for the detail at a detail level for the eight quarters that we've been speaking about so we can aggregate that and get it to our supply chain.

Speaker #2: And you know, other things that have changed, we get longer lead time POs. From our customers so that the details are agreed you know, from a longer lead time perspective.

Speaker #2: And then we also have, you know, some charges that have moved into this environment, like cancellation charges and expedite charges, that help navigate the environment.

Speaker #2: So there's been a number of changes. And I think visibility is you know, significantly increased from prior periods.

Speaker #4: Yeah, Vivek, this is Gary. Certainly everybody can see that there's a gap between supply and demand DRAM, especially with AI as we're expanding from training to inference to agentic AI to physical AI.

Gary Dickerson: Yeah, Vivek, this is Gary. Certainly, everybody can see that there is a gap between supply and demand. DRAM, especially with AI, as we are expanding from training to inference to agentic AI to physical AI, memory demand continues to go higher. I would say especially DRAM. DRAM, this is going to be a very strong growth year for Applied. More H2 weighted in terms of our DRAM growth, but very strong growth in DRAM. I think as you know, we have expanded our DRAM share significantly over the last several years, and we continue to see strong growth in our DRAM business going into 2027. As you said, as we are in all of these conversations with customers, they are talking about multi-year growth, and significant demand that we are increasing our capacity to meet.

Speaker #4: Memory demand continues to go higher. And I'd say especially DRAM—you know, DRAM—this is going to be a very strong growth year for Applied.

Speaker #4: More second-half weighted in terms of our DRAM growth. But very strong growth in DRAM. And I think, as you know, we've expanded our DRAM share significantly over the last several years.

Speaker #4: And we continue to see strong growth in our DRAM business going into 27. And as you said, you know, as we're in all of these conversations with customers, you know, they're talking about multi-year growth.

Speaker #4: And significant demand that we're increasing our capacity to meet. And then for us, relative to our position in DRAM, we are the number one process equipment provider in DRAM.

Gary Dickerson: For us, relative to our position in DRAM, we are the number one process equipment provider in DRAM. We are the leader in the CMOS periphery logic to upgrade transistors for higher performance and power, including, I talked earlier on the call about very strong epitaxy growth, HBM packaging. We are the leader in materials deposition for wiring and patterning, conductor etch, E-beam technologies, and we are in deep partnerships with customers also for future DRAM architectures, innovations in 6F², 4F², and we are very well-positioned for 3D DRAM in the future. So I have high confidence that we are going to continue to drive significant growth and gain share in this segment.

Speaker #4: We're the leader in the CMOS periphery logic to upgrade transistors for higher performance and power. Also, as I talked about earlier on the call, we've seen very strong EPI growth.

Speaker #4: HBM packaging we're the leader. Materials deposition for wiring and patterning. Conductor etch, E-beam technologies. And we're in deep partnerships with customers also for future DRAM architectures.

Speaker #4: Innovations in 6F squared, 4F squared, and we're very well positioned for 3D DRAM in the future. So, I have high confidence that we're going to continue to drive significant growth and gain share in this segment.

Speaker #5: Got it. For my follow-up, one more on gross margins. You know, if I go back from calendar '21 to '25, your gross margins and those of your U.S. peers were about the same.

Vivek Arya: Got it. For my follow-up, one more on gross margins. If I go back from calendar 2021 to 2025, your gross margins and those of your US peer were about the same. In fact, Applied was slightly ahead. But in the near term, they are about 150 basis points higher. So I understand, mix for every company is different, but I am curious, how come the gross margins were so aligned in those five years, yet they are kind of lagging a little bit. So just what is the prospect for expanding gross margins to more of this industry level going forward? Thank you.

Speaker #5: In fact, you know, Applied was slightly ahead. But in the near term, you know, they are about 150 basis points higher. So I understand, you know, mix for every company is different.

Speaker #5: But I'm curious, how come the gross margins were so aligned in those prior five years? Yet, you know, they are kind of lagging a little bit now.

Speaker #5: So just what's the prospect, Brice, for expanding gross margins to more of this industry level going forward? Thank you.

Speaker #2: Yeah, Vivek, I don't know if I have a great reason to, you know, think about comparisons. But from our perspective, we've made tremendous progress from a gross margin advancement.

Brice Hill: Yeah, Vivek, I do not know if I have a great reason to think about comparisons, but from our perspective, we have made tremendous progress from a gross margin advancement. We talked about our value pricing, and really it is the portfolio. The portfolio continues to strengthen as we target the R&D and the collaborations with our customers at the most valuable inflection solutions that need to be developed. So the pricing really is just demonstrating the value of that portfolio. Yes, we expect to be able to continue that. Of course, we have some other elements in our portfolio, like the display business that we have talked about. When that grows faster, that has a different effect on the corporate gross margin. So the portfolios are different between the two companies, but we expect to be able to continue to improve our gross margin and grow the value over time.

Speaker #2: We talked about our value pricing, and really it's the portfolio. The portfolio continues to strengthen as we target R&D and the collaborations with our customers, yet the most valuable, you know, inflection solutions need to be developed.

Speaker #2: And so the pricing really is just demonstrating the value of that portfolio. And yes, we expect to be able to continue that. Of course, we have some other elements in our portfolio like the display business that we've talked about.

Speaker #2: When that grows faster, you know, that has a different effect on the corporate gross margins. So the portfolios are different between the two companies.

Speaker #2: But we expect to be able to continue to improve our gross margin and grow the value over time.

Speaker #4: Yeah, again, I would also add, we have been driving margin growth—pretty significant margin growth. We talked about 13 consecutive quarters of year-over-year growth.

Gary Dickerson: Yeah. Again, I would also add, we have been driving margin growth, pretty significant margin growth. We talked about 13 consecutive quarters of year-over-year growth, 190 basis points in our Semi business in the last year. I have high confidence we are going to continue to drive margins higher, continuing the growth that we have seen over the last few years.

Speaker #4: You know, 190 basis points in our semi business in the last year. And I have high confidence we're going to continue to drive margins higher, continuing the growth that we've seen over the last few years.

Speaker #5: Thank you.

Vivek Arya: Thank you.

Speaker #1: Thank you. And our next question comes from the live. From Bernstein Research.

Operator: Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research.

Speaker #5: Hi guys. Thanks for taking my questions. I have one more on gross margins as well. And look, I feel a little bad harping on it because they're actually really good.

Stacy Rasgon: Hi, guys. Thanks for taking my questions. I have one more on gross margins as well. I feel a little bad harping on it because they are actually really good. They are well over 50%, they are coming in higher than you had expected. I am just wondering, you are guiding them flat at these current levels, at least in the near term, on a pretty sizable revenue increase. Just given all the commentary around portfolio and pricing and everything, I was just a little surprised. Why is that? Is that just a function of the display business growing sequentially to just mix between the businesses? Or is there something else going on in the near term?

Speaker #5: You know, they're well over 50%, and they are coming in higher than you'd expected. But I'm just wondering: you are guiding them flat at these current levels, at least in the near term, on a pretty sizable revenue increase.

Speaker #5: Given all the commentary around the portfolio and pricing and everything, I was just a little surprised. Why is that? Is it just a function of the display business growing sequentially?

Speaker #5: So it just mixed between the businesses? Is there something else going on in the near term?

Speaker #2: Hi Stacey, Brice. Yeah, thanks for pointing out the growth in display. You know, it's certainly a factor in the recipe. But really it's just ramp headwinds as with the growth, we're ramping a lot of customer service engineers, we have a lot of resources that we're adding in the semi-business.

Brice Hill: Hi, Stacy. Bryce. Yeah, thanks for pointing out the growth in display. It's certainly a factor in the recipe, but really it's just ramp headwinds. With the growth, we're ramping a lot of customer service engineers. We have a lot of resources that we're adding in the semi business. Yes, we get the benefit of strong segment mix with semi growing so strongly. We get the benefit of more volume. We do have some ramp costs that are in the forecast. So we feel good about, in our guided quarter, we feel good about having a flattish margin at the company level. Then, like we said, as you look longer term, we'll expect to be able to continue to grow the margin.

Brice Hill: Hi, Stacy. Brice. Yeah, thanks for pointing out the growth in display. It's certainly a factor in the recipe, but really it's just ramp headwinds. With the growth, we're ramping a lot of customer service engineers. We have a lot of resources that we're adding in the semi business. Yes, we get the benefit of strong segment mix with semi growing so strongly. We get the benefit of more volume. We do have some ramp costs that are in the forecast. So we feel good about, in our guided quarter, we feel good about having a flattish margin at the company level. Then, like we said, as you look longer term, we'll expect to be able to continue to grow the margin.

Speaker #2: And so yes, we get the benefit of strong segment mix with semi-growing, so strongly. And we get the benefit of more volume. But we do have some ramp costs that are in the forecast.

Speaker #2: So we feel good about, in our guided quarter, we feel good about having a flattish margin at the company level. And then, like we said, as you look longer term, we’ll expect to be able to continue to grow the margin.

Speaker #5: Got it. So, I guess to follow up on that then—if there are ramp costs now, how long do those last? Are you still ramping up more engineers and other costs into subsequent quarters?

Stacy Rasgon: Got it. So I guess to follow up on that then. If there's ramp costs now, I guess how long do those last? Are you still ramping up more engineers and other costs, like into subsequent quarters, or are you all in this quarter? Then as we think about the pace of that expansion, what does it look like? I think you've talked about last quarter, thinking about something like 10 bps or something sequentially going forward. Is that still the trajectory? Or given some of the other drivers, do you think it can come in better than that?

Speaker #5: Or are you all in this quarter? And then, as we think about the pace of that expansion, what does it look like?

Speaker #5: I think you've talked about last quarter thinking about something like, you know, 10 bips or something sequentially kind of going forward. Is that still the trajectory?

Speaker #5: Or, given some of the other drivers, do you think it can come in better than that?

Speaker #2: No, I think you know, I think the continued pace of improvement, you know, we called that slow in the past. I think slow improvement is the right way to think about it.

Brice Hill: No, I think the continued pace of improvement, we called that slow in the past. I think slow improvement is the right way to think about it. We do expect to improve it over the longer horizon. So I think we will continue to add employees over the next few quarters, but I think that headwind will recede as the revenues continue to grow.

Speaker #2: We do expect to improve it, you know, over the longer horizon. So, I think we will continue to add employees over the next few quarters.

Speaker #2: But I think that headwind will recede as the revenues continue to grow.

Speaker #1: Thank you. And our next question comes from the line of Timothy O'Curry from UBS. Your question, please.

Operator: Thank you. Our next question comes from the line of Timothy Arcuri from UBS. Your question, please.

Speaker #5: Thanks. Brice, I want to go back to this systems guidance for the year. So you said up more than 30 last call. Things have gotten better since then.

Timothy Arcuri: Thanks. Brice, I want to go back to this systems guidance for the year. You said up more than 30 last call. Things have gotten better since then. But even if you go 40%, that implies a pretty big decel into December. So you would go from 18% in July to 12% in October to then 6% in January, and that gets you to like 40%. Lam Research is talking about WFE being up like 38%. So if you are going to outgrow, you have to be at least 40%, if you believe their numbers. Would you commit to growing systems 40% or more?

Speaker #5: But even if you go 40%, that implies a pretty big decel into December. So you'd go from 18% in July, to 12% in October, to then 6% in January.

Speaker #5: And that gets you to like 40%. And Lamb is talking about, you know, WFE being up like 38. So if you're going to outgrow, you have to be at least 40 if you believe their numbers.

Speaker #5: So, would you commit to growing systems by 40% or more?

Speaker #2: Hi Tim, thanks for the question. We are committing that we expect to outgrow, and we think that's already happened so far this year. We expect that to continue, wherever we land from a growth perspective, as we get through the year.

Brice Hill: Hi, Tim. Thanks for the question. We are committing that we expect to outgrow. We think that has already happened so far this year, and we expect to have that happen wherever we land from a growth perspective as we get through the year. I think you have got the dynamics right. We first guided greater than 20%. We raised that after customers added clean room projects. We raised it to greater than 30%, and we are saying it is even higher now. So yeah, we are not giving that number because we are not guiding that out quarter. But those are the right dynamics.

Speaker #2: And I think you've got the dynamics right. We first guided greater than 20%. We raised that after customers added cleanroom projects. We raised it to greater than 30%.

Speaker #2: And we're saying it's even higher now. And so, yeah, we'll expect — you know, we're not giving that number because we're not guiding that out quarter.

Speaker #2: But those are the right dynamics. I guess the last thing I'll add.

Timothy Arcuri: Okay.

Speaker #5: Okay.

Speaker #2: I guess the last thing I'll add there is, we do expect sequential growth in our Q1, the calendar Q4, but we're not guiding that at this point.

Brice Hill: I guess the last thing I will add there is we do expect sequential growth in our Q1, the calendar Q4, but not guiding that at this point.

Speaker #5: Okay, Brice. And then maybe ask a different way. So the comment about manufacturing capacity, doubling. So should I just take that kind of at face value and say you're shipping roughly you're, you know, revenuing roughly, you know, 7 billion in the July quarter.

Timothy Arcuri: Okay, Brice. Then maybe asked a different way. The comment about manufacturing capacity doubling, should I just take that kind of at face value? So you are shipping roughly, you are revenuing roughly $7 billion in the July quarter. At face value, does that mean that sometime during calendar 2028, you would be revenuing $14 billion, or is it more nuanced than that? Thanks.

Speaker #5: So at face value, does that mean that sometime during calendar 28 you'd be revenuing 14 billion? Or is it more nuanced than that? Thanks.

Brice Hill: It is more nuanced. I think you should take it explicitly. It is capacity. So it is not a revenue forecast for 2028. What we have to do with long lead investments like clean room is make sure we have the clean room in place with a profitable business for any demand forecast or any demand reality in that environment. We are just communicating because partially we are communicating to our suppliers also. We are putting the capacity in place to be able to support a wide range of output requirements in 2028, and as far as that goes, the years after also. No, it is not a revenue forecast, but yes, it is giving you an indication of what we will be prepared for.

Speaker #2: It is more nuanced. I think you should take it explicitly—it's capacity. So it's not a revenue forecast for 2028. What we have to do with long-lead investments like clean rooms is make sure we have the clean room in place with a profitable business or any demand forecast, or any demand reality in that environment.

Speaker #2: And so we're just communicating because partially we're communicating to our suppliers also. We're putting the capacity in place. To be able to support a wide range of output requirements in 2028.

Speaker #2: And as far as that goes, the years after also. So no, it's not a revenue forecast. But yes, it's giving you an indication of what we will be prepared for.

Speaker #5: Okay, thanks.

Gary Dickerson: Okay, thanks.

Timothy Arcuri: Okay, thanks.

Speaker #1: Thank you. And our next question comes from the line of Chris Sanker from TD Cowen. Your question, please.

Operator: Thank you. Our next question comes from the line of Krish Sankar from TD Cowen. Your question, please.

Speaker #5: Yeah, thanks for the question. I just want to do a follow-up on Tim's question. Gary or Brice, it seems like your customer conversation seems to have shifted from annual price discussion to basically delivering and meeting requirements, basically time to market with a two-year visibility.

Krish Sankar: Yeah, thanks for taking my question. I just wanted to do a follow-up on Kim's question. Gary or Brice, it seems like your customer conversation seems to have shifted from annual price discussion to basically delivering and meeting requirements based on time to market with a 2-year visibility. I am just wondering, does this give you some freedom on pricing, or does it add more burden on expenses on setting up your capacity and the supply chain for the upcoming ramp? If you have the visibility of 2 years, why not give a chance for the quality of the outlook? Then I have a follow-up.

Speaker #5: I'm just wondering, does this give you some freedom on pricing? Or does it add more burden on expenses in prepping your capacity on the supply chain for the upcoming ramp?

Speaker #5: And if you have the visibility of two-years, why not give a giant quarter qualitative outlook and then at a follow-up?

Speaker #2: Hi Chris. Yeah, the customers definitely, you know, especially the large customers, we've got very strong visibility. And you're right, they are becoming more and more interested in scheduled delivery and hitting the schedules, which is why they're collaborating and cooperating on specificity of the orders and the eight-quarter visibility that we're also sharing with our suppliers.

Brice Hill: Hi, Krish. Yeah, the customers definitely, especially the large customers, we have very strong visibility. You are right, they are becoming more and more interested in scheduled delivery and hitting the schedules, which is why they are collaborating, cooperating on specificity of the orders and the eight-quarter visibility that we are also sharing with our suppliers. I think that dynamic, it has improved the situation for us in the planning environment dramatically from the prior year. I think all those things are true. I guess that is our perspective at this point.

Speaker #2: So I think that dynamic has improved the situation for us and the planning environment dramatically from the prior year. So, you know, I think all those things are true.

Speaker #2: I guess that's our, you know, our perspective at this point.

Krish Sankar: Got you. Then maybe Brice, I think in your prepared comments, you spoke about certain customers giving you visibility into 2030. I am just curious, are those conversations about technology, or is it still about capacity to scale up and meet that demand?

Speaker #5: Gotcha. Gotcha. And then maybe, Brice, I think in your prepared comments you spoke about certain customers giving you visibility into 2030. I'm just curious, are those conversations about technology?

Speaker #5: Or is that still about capacity to scale up and meet that demand?

Speaker #2: Well, yeah, it's definitely about technology. So especially with the large customers or mature customers, you know, we know the fab projects that are on the roadmap.

Brice Hill: Well, yeah, it is definitely about technology. Especially with the large customers or mature customers, we know the fab projects that are on the roadmap, we know the technology that is planned, and even if it is a new technology, we have a perspective of our position in those technology. We do have the ability to plan in a detailed manner, for five years. Then what happens at the eight quarter out is we get very specific about the node and the tool types that need to be built so that we can pass that information along to the suppliers. We do have-

Speaker #2: We know the technology that's planned. And, you know, even if it's a new technology, we have a perspective of our position in those technologies.

Speaker #2: So, we do have the ability to plan in a detailed manner for five years. And then, what happens at the eight-quarter-out is we get very specific about the node.

Speaker #2: And the tool types that need to be built so that we can pass that information along to the suppliers. And we do have—.

Krish Sankar: Got you. That makes-

Speaker #5: Gotcha. Let me. Yeah, Chris, you know, we are I'm in many of those conversations with the CEOs. Of our largest customers. And for sure, you know, they're giving us visibility, detailed visibility for the eight-quarters.

Brice Hill: Yeah.

Gary Dickerson: Yeah, Krish, I am in many of those conversations with the CEOs of our largest customers, and for sure, they are giving us detailed visibility for the 8 quarters. Even beyond that, I think they have communicated they see strong multi-year demand in their business, so they are wanting us to be ready to support that demand. As you know, it takes time for us to get the supply chain ready to support those levels. Yeah, we are getting the visibility relative to capacity needs, beyond the 8 quarters. On the technology, I would say that those discussions go out maybe 10 years in the future because Applied is the most enabling for those key architecture inflections.

Speaker #5: But even beyond that, I think they have communicated they see strong multi-year demand in their business. And so they're wanting us to be ready to support that demand, and as you know, it takes time for us to get the supply chain ready to support those levels.

Speaker #5: So yeah, we are getting the visibility relative to capacity needs, you know, beyond the eight-quarters. On the technology, I would say that those discussions go out maybe 10 years in the future.

Speaker #5: Because Applied is the most enabling for those key architecture inflections. We have the broadest, most connected, most unique portfolio to enable the new transistors, the wiring, the DRAM architectures, and new packaging architectures.

Gary Dickerson: We have the most broad, the most connected, the most unique portfolio to enable the new transistors, the wiring, the DRAM architectures, new packaging architectures, and it takes time to bring those innovations to market. Applied is unique in the portfolio we have. We have the most enabling technologies. If you looked at the top 5 or 10 technologies you need to enable these new architectures, Applied has by far the majority of those technologies. So very deep co-innovation relationships with customers where we are co-creating those architectures. That technology visibility goes beyond 5 years in these deep co-innovation relationships with the customers.

Speaker #5: And it takes time to bring those innovations to market. So applied is unique in the portfolio we have. We have the most enabling technologies, if you looked at the top five or ten technologies you need to enable these new architectures.

Speaker #5: Applied has, by far, the majority of those technologies, and so we have very deep co-innovation relationships with customers where we're co-creating those architectures. That technology visibility goes beyond five years.

Speaker #5: In these deep co-innovation relationships with the customers. Gotcha. Thanks a lot, Gary. Thanks a lot, Brice. Appreciate it.

Krish Sankar: Got you. Thanks a lot, Gary. Thanks a lot, Brice. Appreciate it.

Speaker #1: Thank you. And our next question comes from the line of Harlan Sur from JP Morgan. Your question, please.

Operator: Thank you. Our next question comes from the line of Harlan Sur from JPMorgan. Your question, please.

Speaker #3: Hey, good afternoon. Thanks for taking my question. You know, the team previously guided your global iCAPS business to be flat to slightly up this year.

Harlan Sur: Hey, good afternoon. Thanks for taking my question. I know the team previously guided your global ICAPS business to be flat to slightly up this year. Outside of China, we are seeing a strong cyclical recovery in automotive, industrial, for your analog power microcontroller customers, right? They are also articulating an environment of tight supply as well. Utilizations are rising meaningfully, Brice, as you articulated, but are these global customers also starting to pick up their spending? Do you see your total ICAPS business growing this year?

Speaker #3: Outside of China, I mean, we are seeing a strong cyclical recovery in automotive, industrial for your analog power, and microcontroller customers, right? They are also articulating an environment of tight supply as well.

Speaker #3: Utilizations are rising meaningfully. Brice, as you articulated, but are these global customers also starting to pick up their spending? And do you see your total iCAPS business growing this year?

Speaker #2: Harlan, thanks. Thanks for the question. So I'll start here. Yeah, in pointing this out, we do see a change in the iCAPS dynamic. So you called out the increasing utilization across those customers.

Brice Hill: Harlan, thanks for the question. I will start here. Yeah, in pointing this out, we do see a change in the ICAPS dynamic. You called out the increasing utilization across those customers. That is a positive. Our view of China is that it will grow this year and it will grow next year. That is a big part of our ICAPS portfolio. We do think that ICAPS overall will grow this year and will grow next year. We are hopeful that the digestion that we have talked about on the equipment side in the past is expiring and we can return to growth. Then specifically for our non-China customers, as we look into next year, we think there will be positive growth for those customers. We see bright spots in power and photonics and other areas.

Speaker #2: That's a positive. Our view of China is that it will grow this year and it will grow next year. That's a big part of our iCAPS portfolio.

Speaker #2: And we do think that iCAPS overall will grow this year and will grow next year. So, the digestion—you know, we're hopeful that the digestion that we've talked about on the equipment side in the past is expiring.

Speaker #2: And we can return to growth. And then, specifically for our non-China customers, as we look into next year, we think there will be positive growth for those customers.

Speaker #2: We see bright spots in power and photonics and other areas, so it's looking much more positive than, you know, it has the last couple of years.

Brice Hill: It is looking much more positive than it has the last couple of years.

Speaker #3: I appreciate the color there. And another quarter of strong revenue growth and growth in operating margin profitability in AGS, right? 30% operating margins. I think that's the highest level I think in two years.

Harlan Sur: I appreciate the color there. Another quarter of strong revenue growth and growth in operating margin profitability in AGS, right? 30% operating margins. I think that is the highest level, I think, in 2 years. Plus your incremental gross margins, I think for the last couple of quarters have been well above 40%, so strong, and you also have been delivering strong incremental operating margins as well. I know the team has historically thought that they could drive AGS operating margins longer term into the low 30% range, but on your strong incremental margin profile, could we see gross margins approaching the 40% range and operating margins in the mid-30s as AGS revenues continue to scale higher, advanced services becomes a bigger part of the mix over the long term?

Harlan Sur: I appreciate the color there. Another quarter of strong revenue growth and growth in operating margin profitability in AGS, right? 30% operating margins. I think that is the highest level, I think, in two years. Plus your incremental gross margins, I think for the last couple of quarters have been well above 40%, so strong, and you also have been delivering strong incremental operating margins as well. I know the team has historically thought that they could drive AGS operating margins longer term into the low 30% range, but on your strong incremental margin profile, could we see gross margins approaching the 40% range and operating margins in the mid-30s as AGS revenues continue to scale higher, advanced services becomes a bigger part of the mix over the long term?

Speaker #3: What are your incremental gross margins? I think for the last couple of quarters they've been well above 40%, so strong. And you also have been delivering strong incremental operating margins as well.

Speaker #3: I know the team has historically thought that they could drive AGS operating margins, longer term, into the low 30% range. But on your strong incremental margin profile, could we see gross margins approaching the 40% range and operating margins in the mid-30s as AGS revenues continue to scale higher?

Speaker #3: Do advanced services become a bigger part of the mix over the long term?

Speaker #2: Yeah, thanks, Harlan. So I think not different from the semi-business. We do expect that we have the opportunity to improve gross margins over time.

Brice Hill: Yeah. Thanks, Harlan. I think not different from the semi business, we do expect that we have the opportunity to improve gross margins over time in the services business. What is happening there is that solutions like the information solutions that come from AIx are allowing us to develop new products and be more efficient in the services that we are providing. That, combined with the growing installed base, gives us good growth there. Then this year, we had the benefit of significant increase in utilization, which grows the spares business more quickly than in prior years. That helps us from a gross margin perspective. From that point, you can only grow to 100% utilization once. That sort of slows down, but we do expect we will be able to improve gross margins over time in the services business.

Speaker #2: In the services business, what's happening there is that, you know, solutions like the information solutions that come from AI are allowing us to develop new products and be more efficient in the services that we're providing.

Speaker #2: That, combined with the growing installed base, gives us good growth there. And then this year, we had the benefit of a significant increase in utilization, which grows the spares business more quickly than in prior years.

Speaker #2: So that helps us from a gross margin perspective that from that you know, that point, you can only grow to 100% utilization once. So that's sort sort of slows down.

Speaker #2: But we do expect we'll be able to improve gross margins over time in the Services business.

Harlan Sur: Appreciate that.

Speaker #5: Yeah, Harlan, I would add that I would add that, you know, for customers right now, optimizing output and yield is incredibly important. In a supply constrained environment.

Gary Dickerson: Yeah, Harlan, I would add that for customers right now, optimizing output and yield is incredibly important in a supply-constrained environment, and that is going to go on for some period of time. The value of services that optimize yield is incredibly valuable. The good news is we have a lot of new innovations there. We talked about over 37,000 chambers connected to our AIx servers. We have AI-enabled applications for preventative maintenance or chamber matching. Those are incredibly valuable services that will drive our top-line growth, our service contract growth faster, and also enable us to capture value more quickly. Actually, I am more positive on growth in the AGS business, both top line and bottom line than I have ever been.

Speaker #5: And that's going to go on for some period of time. So the value of services that optimize yield is incredibly valuable. And the good news is we have a lot of new innovations there.

Speaker #5: We talked about over 37,000 chambers connected to our AX servers. We have AI-enabled applications. For preventative maintenance or chamber matching, those are incredibly valuable services.

Speaker #5: That will drive our top line growth, our service contract growth faster and also enable us to capture value more quickly. So actually, I am more positive on growth in the AGS business, both top line and bottom line than I've ever been.

Harlan Sur: Oh. Thanks, Gary. Thanks, Brice.

Speaker #3: Well, thanks, Gary. Thanks, Brice.

Speaker #1: Thank you. And our next question comes from the line of Blaine Curtis from Jefferies. Your question, please.

Operator: Thank you. Our next question comes from the line of Blayne Curtis from Jefferies. Your question, please.

Speaker #4: Hey, good afternoon, guys. Thanks for letting me ask a question. I want to ask on NAND. It doubled in the quarter. Obviously, off small base.

Blayne Curtis: Hey, good afternoon, guys. Thanks for letting me ask a question. I want to ask on NAND. It doubled in the quarter, obviously off a small base. Just curious what you're seeing in that market. You didn't mention it in October. I'm assuming maybe that's just small dollars, that's why you didn't call it out, but is it continuing to grow?

Speaker #4: Just curious what you're seeing in that market. And then, you didn't mention it in October. I'm assuming maybe that's just small dollars; that's why you didn't call it out.

Speaker #4: But is it continuing to grow?

Speaker #2: Hi, Blaine. Yeah, good growth in NAND this year from a percentage perspective. Small base, like you say, but we think this year is a strong year of growth for NAND.

Brice Hill: Hi, Blayne. Yeah, good growth in NAND this year from a percentage perspective. Small base like you say, but we think this year is a strong year of growth for NAND. As we look forward into our next year, we think the dynamic is that really that AI dynamic that we've called out before and Gary mentioned earlier, leading edge logic and DRAM and advanced packaging will be the fast growers. ICAPS should return to growth for us. NAND should grow, but will be a slower grower in the out year.

Speaker #2: As we look forward, you know, into our next year, we think the dynamic is that really that AI dynamic that we've called out before and Gary mentioned earlier, leading edge logic and DRAM and advanced packaging will be the fast growers.

Speaker #2: iCAPS should return to growth for us. NAND should grow, but will be, you know, a slower grower in the out year.

Speaker #4: Thanks. And then, Brice, maybe on CapEx—you talked about the expansion of spending for 2030. I don't know if that's going to hit now.

Blayne Curtis: Thanks. Brice, maybe on CapEx. You talked about the expansion of spending for 2030. I don't know if that's going to hit now. I'm just kind of curious if you can comment on what you expect OpEx to be in October, and then just any perspective next year. I think EPIC rolls off, so I think the prior was that it would go down, but now with the strength of the business, I'm just curious how you're thinking about that spend.

Speaker #4: I'm just kind of curious if you can comment on what you expect OpEx to be in October, and then just any perspective on next year.

Speaker #4: I think Epic rolls off. So I think the prior was that it would go down. But now with the strength of the business, I'm just curious how you're thinking about that spend.

Speaker #2: Yeah, that's a great question because you're right. On the strength of the business, of course, we have more additions that we want to do.

Brice Hill: Yeah, that's a great question because you're right. On the strength of the business, of course, we have more additions that we want to do. This is a CapEx comment. We will be putting equipment inside EPIC as well as other investments. So what I would say about CapEx, it will still be a CapEx year that's higher than normal, but it will decline as a percentage of revenue as we go into 2027. So that's our perspective at this point.

Speaker #2: This is a CapEx comment. We want to we will be putting equipment inside Epic as well as other investments. So what I would say about CapEx, it'll still be a CapEx year that's higher than normal.

Speaker #2: But it will decline as a percentage of revenue as we go into 2027. So that's our perspective at this point.

Speaker #4: Thank you.

Blayne Curtis: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Jim Schneider from Goldman Sachs. Your question, please.

Operator: Thank you. Our next question comes from the line of Jim Schneider from Goldman Sachs. Your question please.

Speaker #6: Good evening. Thanks for taking my question. I was wondering if you could maybe comment, given the strength you're seeing across your focus areas, as you look into fiscal 2027 or calendar 2027, would you care to rank order where you see the incremental strength between foundry logic DRAM spending and advanced packaging?

James Schneider: Good evening. Thanks for taking my question. I was wondering if you could maybe comment, given the strength that you're seeing across your focus areas, as you look into fiscal 2027 or calendar 2027, would you care to rank order where you see the incremental strength between foundry logic, DRAM spending, and advanced packaging?

Jim Schneider: Good evening. Thanks for taking my question. I was wondering if you could maybe comment, given the strength that you're seeing across your focus areas, as you look into fiscal 2027 or calendar 2027, would you care to rank order where you see the incremental strength between foundry logic, DRAM spending, and advanced packaging?

Speaker #2: Yeah, Jim, this is Brice. I'll start. We actually don't distinguish between them. We think the system-level pull, you know, that AI provides is similar across those different end markets.

Brice Hill: Yeah. Jim, this is Brice, I'll start. We actually don't distinguish between them. We think the system level pull that AI provides is similar across those different end markets. So I wouldn't call the difference enough to distinguish between them. So it'll be strong for leading logic, it'll be strong for DRAM, it'll be strong for advanced packaging. And what's new for us now is that we also think that ICAPS will grow next year. So that's another difference from our previous 90 days.

Speaker #2: So, I wouldn't call the difference enough to distinguish between them. It'll be strong for leading logic, it'll be strong for DRAM, and it'll be strong for advanced packaging.

Speaker #2: And, you know, what's new for us now is that we also think iCAPS will grow next year. So that's another difference from our previous 90 days.

Speaker #5: Yeah, Jim, thanks for the question. I think we talked earlier about 80% of WFE growth in those three segments in 2026, and we see a similar profile—maybe even a better profile.

Gary Dickerson: Yeah. Jim, thanks for the question. I think we talked earlier about 80% of WFE growth in those three segments in 2026, and we see a similar profile, maybe even a better profile, but right now we'd say similar profile, in 2027. Those three segments, as Brice talked about, we see those as the fastest growing segments, in 2026 and 2027, and frankly, over the next several years.

Speaker #5: But right now, we'd say a similar profile in 2027. Those three segments, as Brice talked about, we see those as the fastest-growing segments in 2026.

Speaker #5: In 2027, and frankly, over the next several years.

Speaker #6: That's helpful, thank you. And then, just given the first half versus second half dynamic we're seeing in calendar 2026, is there any reason why, in calendar 2027, you wouldn't see an accelerating growth rate for overall revenue?

James Schneider: That's helpful, thank you. Then just given the H1 versus H2 dynamic we're seeing in calendar 2026, is there any reason why, in calendar 2027, you wouldn't see an accelerating growth rate for overall revenue? Is there anything you see on the horizon that would give you pause? Thank you.

Jim Schneider: That's helpful, thank you. Then just given the H1 versus H2 dynamic we're seeing in calendar 2026, is there any reason why, in calendar 2027, you wouldn't see an accelerating growth rate for overall revenue? Is there anything you see on the horizon that would give you pause? Thank you.

Speaker #6: Is there anything you would see on the horizon that would give you pause? Thank you.

Speaker #2: I think, you know, a lot of people ask Jim about what is governing growth. I think, you know, as you move into the longer term, what governs growth is cleanroom, from our perspective.

Brice Hill: I think, a lot of people ask, Jim, about what is governing growth. I think, as you move into the longer term, what governs growth is clean room from our perspective. Customers continue to add clean room projects, that's why we raised our forecast this year. Some of those will add incremental clean room space next year, and of course, it gets larger as the out years come into focus because those projects usually take a number of years. Anyway, I think, it will be the availability of clean room at a high level that will determine what we can all ship next year.

Speaker #2: So, customers continue to add cleanroom projects. That's why we raised our forecast this year. Some of those will add incremental cleanroom space next year.

Speaker #2: And of course, it gets larger as the out years come into focus because those projects usually take a number of years. But anyway, I think it will be the availability of clean room at a high level that will determine what we can all ship next year.

Speaker #1: Thank you. And our next question comes from the line of Mehedi Husseini from Sheshkuhana International. Your question, please.

Operator: Thank you. Our next question comes from the line of Mehdi Hosseini from Susquehanna International. Your question please.

Speaker #6: Yes, thanks for taking my question. One of the good ones I've been asked, I just have a couple of follow-ups really for Gary. Forget about the near-term trend.

Mehdi Hosseini: Yes, thanks for taking my question. Only good ones have been asked. I just have a couple of follow-ups, maybe for Gary. Forget about the near term trend, but I want to better understand how you are thinking about your targeted revenue growth and operating margin for a scenario where WFE will be $150 billion to $175 billion. Any color will be great.

Speaker #6: But I want to better understand how you're thinking about your targeted revenue growth and operating margin. For a scenario where WFE will be $150 to $175 billion, any color would be great.

Speaker #5: Oh, hi, Mehedi. Thanks for the question. Yeah, I think, you know, when we have the October investor event, we'll give more color relative to growth rates.

Gary Dickerson: Oh, hi, Mehdi. Thanks for the question. I think, when we have the October investor event, we will give more color relative to growth rates. What I would say is that if I look at the setup relative to compute demand going forward, we see this as a strong multi-year growth driver and the fastest growing segments of the market, what we talked about earlier, the most valuable parts of the market, leading edge foundry logic, DRAM, advanced packaging. We are number 1, and we are positioned to gain share going forward in those segments. So I think top line growth, we have a number of really great drivers that will enable us to outperform in 2026, and we look at very strong growth going forward. I also believe that really across the board, the value that we are delivering is also increasing.

Speaker #5: What I would say is that, if I look at the setup relative to compute demand going forward, we see this as a strong multi-year growth driver.

Speaker #5: And the fastest growing segments of the market, what we talked about earlier—the most valuable parts of the market—leading-edge foundry logic, DRAM, advanced packaging—we're number one.

Speaker #5: And we're positioned to gain share going forward in those segments. So, I think for top-line growth, we have a number of really great drivers that will enable us to outperform in 2026.

Speaker #5: And, you know, we look at very strong growth going forward. And I also believe that, really, across the board, the value that we're delivering is also increasing.

Speaker #5: We are we do have the most unique connected portfolio that's creating tremendous value for our customers for new chip and packaging architectures. That puts us in a good position to continue to drive our margins higher going forward.

Gary Dickerson: We do have the most unique connected portfolio that is creating tremendous value for our customers for new chip and packaging architectures. That puts us in a good position to continue to drive our margins higher going forward. I mentioned earlier about the innovations in yield and output, and as you can imagine, Mehdi, every single customer, they are focused on getting as many chips out per square meter as they possibly can. So that increases the value of our service business, and we are bringing innovations that really directly address those areas of focus for our customers. So I think relative to the top line growth, bottom line growth, I am very optimistic. But we will give more color, Mehdi, when we have our October investor meeting.

Speaker #5: And I mentioned earlier about the innovations in yield and output. As you can imagine, Mehedi, every single customer is focused on getting as many chips out per square meter as they possibly can.

Speaker #5: So that increases the value of our service business, and we're bringing innovations that really directly address those areas of focus for our customers. So I think, relative to the top-line growth and bottom-line growth, you know, I'm very optimistic.

Speaker #5: But we'll provide more details, Mehedi, during our October investor meeting.

Speaker #2: Yeah, I'll just do one add, Mehedi. You're really describing this year, and scenarios that people are talking about for this year. So I think we're giving you the ingredients for that, with greater than 20% services business for the calendar year, and something higher than greater than 30% for the semi business.

Mehdi Hosseini: Okay, great.

Brice Hill: I'll just do one add, Mehdi. You're really describing this year and scenarios that people are talking about for this year. I think we're giving you the ingredients for that with a greater than 20% services business for the calendar year, something higher than greater than 30% for the semi business. We talked about our gross margin outlook. We gave you the display item, and whatever that WFE number is, we've said we expect to gain share. I think you have the ingredients needed to have a perspective on that.

Speaker #2: We talked about our gross margin outlook. We gave you the display item. And then, whatever that WFE number is, we've said we expect to gain share.

Speaker #2: So I think you have the ingredients needed to have a perspective on that.

Mehdi Hosseini: Got it. Thank you. Just a quick follow-up. I think your NAND has been relatively the smallest part of your semi, and I think it's a reflection of more of an upgrade going on within a NAND than wafer capacity add. When do you think the industry would actually start adding some wafer capacity to offset some of these losses due to increase of migration to a 300 layer count?

Speaker #6: Got it. Thank you. Just a quick follow-up. I think your NAND has been relatively the smallest part of your semi. And I think it's a reflection of more of an upgrade going on within a NAND than wafer capacity had.

Speaker #6: When do you think the industry would actually start adding some wafer capacity to offset some of these losses due to increased migration to a 300-layer count?

Brice Hill: Hi, Mehdi. Yes, for the dynamic here, I think we've described in the past is wafer starts continued to decline in NAND. The projects you see are for upgrades, as you described, to get more layers. That we expect the environment to continue, the same dynamic for the next few years. The one place that'll be different is new projects in China, I believe. But for the larger customers, it's mostly increased space to afford those upgrades in layers that you described.

Speaker #2: Hi, Mehedi. Yeah, so for the, you know, the dynamic here, I think we've described in the past is wafer starts continued to decline in NAND.

Speaker #2: So the projects you see are for upgrades, as you described, to get more layers. We expect the environment to continue with the same dynamic for the next few years.

Speaker #2: The one place that'll be different is new projects in China, I believe. But for, you know, for the larger customers, it's mostly increased space to afford those upgrades in layers that you described.

Speaker #6: Got it. Thank you.

Mehdi Hosseini: Got it. Thank you.

Speaker #2: Yeah, thanks, Mehedi. And operator, we have time for one more question, please.

Michael Sullivan: Yeah, thanks, Mehdi. Operator, we have time for one more question, please.

Mike Sullivan: Yeah, thanks, Mehdi. Operator, we have time for one more question, please.

Speaker #1: Certainly. Then our final question for today comes from the line of Srini Pazhuri from Royal Bank of Canada. Your question, please.

Operator: Certainly. Our final question for today comes from the line of Srini Pajjuri from Royal Bank of Canada. Your question please.

Speaker #4: Thank you. Thanks for squeezing me in. Gary, a couple of questions on the technology front. You talked about panel-level packaging. I'm just curious as to when you see panel-level packaging becoming mainstream?

Srini Pajjuri: Thank you. Thanks for squeezing me in. Gary, a couple of questions on the technology front. You talked about panel level packaging. I'm just curious as to when do you see panel level packaging becoming mainstream, compared to your current position in advanced packaging, what sort of opportunities do you see in that market? Also, if you can touch on hybrid bonding. It seems like that's finally happening and what sort of opportunities you're seeing in that market.

Speaker #4: And, you know, compared to your current position in advanced packaging, you know, what sort of opportunities do you see in that market? And then also, if you can touch on hybrid bonding, you know, it seems like that's finally happening and, you know, what sort of opportunities you're seeing in that market.

Speaker #5: Yeah, thanks for the question. So, as I talked about earlier on the call, packaging is one of the most important areas in the industry relative to improving AI compute performance and power.

Gary Dickerson: Yeah. Thanks for the question. As I talked about earlier on the call, packaging is one of the most important areas in the industry relative to improving AI compute performance and power. Multi-chip connectivity, how you move the data, huge focus for all of our existing customers and new customers that are innovating with new architecture. So over 70% growth this year. We have by far and away the strongest portfolio of technologies. We have also talked about some acquisitions that we have done here recently that add to our strength in packaging. So I have very high confidence that we will continue to drive significant growth over many years in packaging. Relative to new substrates, all of our customers are really focused on connecting as many logic and memory chips together at the highest performance and power as they can.

Speaker #5: Multi-chip connectivity—how you move the data—is a huge focus for all of our existing customers and new customers that are innovating with new architectures. So, over 70% growth this year.

Speaker #5: We have, by far and away, the strongest portfolio of technologies. We've also talked about some acquisitions that we've done here recently that add to our strength in packaging.

Speaker #5: So I have very high confidence that we will continue to drive significant growth over many years in packaging. Relative to new substrates, you know, all of our customers are really focused on connecting as many logic and memory chips together at the highest performance and power as they can.

Speaker #5: And so we're in deep co-innovation relationships with companies. And there is a race for all of these companies to drive these new architectures to market because there's so much value in performance and power.

Gary Dickerson: We are in deep co-innovation relationships with companies, and there is a race for all of these companies to drive these new architectures to market because there is so much value in performance and power. So, I look at that as a great opportunity. When we model our share of those new architectures, we have a great opportunity to grow our share. We have new capabilities that will expand our available market as those new architectures are adopted. I do not want to give a specific forecast relative to timing, but what I would say is that we will see a pretty significant growth in next year in our panel revenue, and certainly it is going to ramp a fair amount after that going forward. Our positions there are stronger.

Speaker #5: So you know, I look at that as a great opportunity when we model our share of those new architectures we have a great opportunity to grow our share we have new capabilities that will expand our available market as those new architectures are adopted.

Speaker #5: And I don't want to give a specific forecast relative to the timing, but what I would say is that, you know, we will see a pretty significant growth in next year in our panel revenue.

Speaker #5: And certainly, it's going to ramp a fair amount after that going forward. But our positions there are stronger. And then, relative to hybrid bonding—hybrid bonding is a way that every customer, whether it's leading-edge foundry logic or DRAM or high-bandwidth memory, they're all wanting to shorten the wiring length to improve the performance and power. So it's a very important inflection for all of our customers. Again, Applied has strong technology in hybrid bonding.

Gary Dickerson: Relative to hybrid bonding, hybrid bonding is a way that every customer, whether it is leading edge foundry logic or DRAM or high bandwidth memory, they are all wanting to shorten the wiring length to improve the performance and power. So it is a very important inflection for all of our customers. Again, Applied has strong technology in hybrid bonding. We have also very big business in the adjacent steps around the hybrid bonding. We have the only integrated R&D facility working with our customers to enable those new architectures for packaging. This will be a meaningful growth driver over time, in addition to all the other technologies that we have in advanced packaging. So I am very optimistic. Over 70% growth this year and very strong growth in 2027 and going forward.

Speaker #5: We also have very big business in the adjacent steps around hybrid bonding. We have the only integrated R&D facility working with our customers to enable those new architectures for packaging.

Speaker #5: So this will be a meaningful growth driver over time, in addition to all the other technologies that we have in advanced packaging. So I'm very optimistic.

Speaker #5: Over 70% growth this year, and very strong growth in '27 and going forward.

Speaker #4: Thanks, Gary. Then one quick follow-up for Brice. Brice, I understand you don't want to give us FQ1 guidance, but you did call out that it's a 14-week quarter.

Srini Pajjuri: Thanks, Gary. Then one quick follow-up for Brice. Brice, I understand you do not want to give us a FQ1 guidance, but you did call out that it is a 14-week quarter. I am just wondering what sort of impact, if any, that will have on your revenue sequential. Thank you.

Speaker #4: I'm just wondering what sort of impact, if any, you know, that'll have on your revenue sequentially. Thank you.

Speaker #2: Sure. What we've seen in prior years, when we had a 14th week in the quarter, was you get close to a ratable performance on the services side of the business.

Brice Hill: Sure. What we have seen in prior years when we had a 14th week in the quarter was, you get close to ratable performance on the services side of the business and not so much on the equipment side. Most of the planning is done at a quarterly basis on the equipment side. Yeah. From a spending perspective, as you might imagine, everybody wants to be paid, so most of the spending will occur in the quarter. Thanks, Srini.

Speaker #2: And not so much on the equipment side. Most of the planning is done on a quarterly basis on the equipment side. So, yeah. And then from a spending perspective, as you might imagine, everybody wants to be paid, and so most of the spending will occur in the quarter.

Speaker #2: Thanks, Srini.

Speaker #4: Thanks, Brice.

Srini Pajjuri: Thanks, Brice.

Michael Sullivan: Great. Thank you, Srini, for your questions. Brice, would you like to give a little summary before we close the call?

Mike Sullivan: Great. Thank you, Srini, for your questions. Brice, would you like to give a little summary before we close the call?

Speaker #2: Great. So thank you, Srini, for your question. And Brice, would you like to give a little summary before we close the call?

Speaker #3: Thanks, Mike. We're excited that Applied's unique portfolio and strategy are enabling us to grow faster than the market and increase margins. We look forward to an even stronger second half and to seeing many of you at our upcoming events.

Brice Hill: Thanks, Mike. We are excited that Applied's unique portfolio and strategy are enabling us to grow faster than the market and increase margins. We look forward to an even stronger H2 and to seeing many of you at our upcoming events. I will be attending the Citi conference in New York, and Gary will be at the Goldman conference in San Francisco. The whole team looks forward to seeing you at the EPIC Center in October and giving you our longer-term outlook at our investor breakfast at SEMICON West. Mike, please go ahead and close the call.

Speaker #3: I'll be attending the City Conference in New York, and Gary will be at the Goldman Conference in San Francisco. The whole team looks forward to seeing you at the Epic Center in October.

Speaker #3: And giving you our longer-term outlook at our investor breakfast at SEMICON West. Mike, please go ahead and close the call.

Speaker #2: All right. Well, thank you, Brice. And we'd like to thank everybody for joining us today. A replay of today's call will be available on the IR page of our website by 5:00 p.m. Pacific Time.

Michael Sullivan: Well, thank you, Brice, and we would 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 5:00 PM Pacific Time. We would really like to thank you for your continued interest in Applied Materials.

Mike Sullivan: Well, thank you, Brice, and we would 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 5:00PM Pacific Time. We would really like to thank you for your continued interest in Applied Materials.

Speaker #2: And we'd really like to thank you for your continued interest in applied materials.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.