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Presentation

Applied Materials, Inc. beats earnings expectations. Reported EPS is $2.39, expectations were $2.31.

Operator: Welcome to the Applied Materials Second Quarter Fiscal 2025 Earnings Conference Call. During the prepared remarks, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. I would now like to turn the call over to Liz Morali, Vice President of Investor Relations. Liz, you may begin. Thank you.

Liz Morali: Thank you. Good afternoon and thank you for joining us for today’s call. With me today are Gary Dickerson, President and CEO; and Brice Hill, CFO. Before we continue, let me remind you that today’s discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections, or other statements about future events. Actual results may differ materially from those mentioned in these forward-looking statements, as a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent Form 10-K,10-Q and 8-K filings with the SEC. We do not intend to update any forward-looking statements. During today’s call, we will also reference non-GAAP financial measures.

Reconciliations of GAAP to non-GAAP results can be found in today’s earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at ir.appliedmaterials.com. I will now turn the call over to Gary.

Gary Dickerson: Thanks, Liz. In our second fiscal quarter of 2025, Applied Materials delivered strong results across the board, including record earnings per share. These results reflect great execution by our teams around the world, as well as the agility and flexibility we have in our global operations and supply chain. While we are paying close attention to a highly dynamic macro environment, we have not seen significant changes in market demand. Our customers remain focused on winning the race to be first-to-market with transformative new technologies. Applied is working closely with our customers and partners to accelerate the industry’s roadmap. We are very well-positioned at major technology inflections in fast-growing areas of the market, which supports our multi-year growth trajectory.

In my prepared remarks today, I’ll provide our latest market outlook, I’ll explain how Applied’s innovative products and services are enabling fundamental advances in semiconductor technology, and I’ll describe how we are translating these innovations into sustainable, profitable growth across our business. Starting with our perspective on the market: the major technology trends reshaping the global economy, including IoT, automation and robotics, electric and autonomous vehicles, and clean energy, are all built on top of advanced semiconductors. Central to our future market outlook is AI, which is the most transformative technology of our lifetimes and has almost limitless potential use cases. While we are seeing remarkable progress in AI capabilities, we are still in the early phases of a multi-decade build out of applications and infrastructure.

Large scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack. These requirements are reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. The impact of AI datacenter innovation and investments is apparent in the wafer fab equipment market, where there are significant shifts in the spending mix this year. We see investment in leading edge foundry-logic growing substantially in 2025, and we also expect spending for leading-edge DRAM to be up significantly. We see lower spending in China with investments in both DRAM and mature logic down for the year. And, finally, we are seeing an uptick in NAND investment, albeit from the very low levels seen over the past several years.

Against this market backdrop, Applied is well positioned for 2025 and beyond. In 2024, we under-performed the market in China, due to the market access restrictions imposed on U.S. companies. At the same time, outside of China, we grew faster than our peer group thanks to our strength in leading edge foundry and DRAM. Trade restrictions have also had an impact on our service business. Despite these headwinds, we grew our core parts and services revenues in the low double-digit range last year, and we are on track to deliver a similar growth rate in 2025. On top of our growing installed base, we are successfully increasing the portion of those systems in the field covered by higher-value, advanced services, and comprehensive service agreements.

More than two-thirds of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. At a company-level, through 2024, Applied Materials has grown revenues for five consecutive years. This momentum continues in 2025. If we take our first half results plus our third quarter guide, revenues are up 7% year-to-date. Looking further ahead, we also believe we are in a great position for the future given the direction of the industry roadmap, our strong leadership positions at key device architecture inflections, and the unique portfolio of solutions and capabilities we provide to our customers. Customers are racing to be first-to-market to deliver major architecture innovations in logic, compute memory, packaging, and power devices including next generation gate-all-around transistors, backside power delivery, 4F2 and 3D DRAM, advanced packaging, compound semiconductors for power electronics, and silicon photonics.

These technology inflections grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies, and provide opportunities for Applied to gain market share. Advanced foundry-logic is a great example of this. If we compare an advanced fab using integrated gate-all-around and backside power delivery architecture to the last generation of FinFET technology, Applied’s revenue opportunity is approximately 30% higher for the equivalent fab capacity. In advanced DRAM, we are focused on addressing the most-critical steps for next-generation technologies and this has enabled us to establish a strong leadership position in this market. In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR-5 and high-bandwidth memory.

Across advanced foundry-logic and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market. One example is our Sym3 Magnum etch system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February 2024. Another example is our breakthrough Cold Field Emission eBeam technology that has strong momentum in gate-all-around and high bandwidth memory, and supported record revenues for our Process Diagnostics and Control business this past quarter. As we look at how the industry’s roadmap is evolving, we see our broad capabilities and connected product portfolio as a major leadership strength. This gives us earlier visibility and a more holistic view of the industry’s most valuable technical opportunities, it allows us to develop solutions to address those high-value opportunities faster, and most importantly, it means we can deliver unique solutions by co-optimizing and combining our innovations.

With the pace of technology accelerating, being first to market has incredible value for our customers and Applied Materials. For this reason, another key pillar of our strategy is high-velocity co innovation. Our goal is to increase the speed of developing and commercializing next-generation technologies through earlier and deeper collaboration with customer and partners. Applied’s global EPIC platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources. Construction of our new flagship R&D facility, the EPIC Center in Silicon Valley is progressing on schedule, and we expect the center to start operations in Spring 2026.

Before I hand over to Brice, I’ll quickly summarize. First, while we recognize that the macro environment is highly dynamic, Applied continues to deliver strong financial performance. We are not currently seeing significant changes in customer demand, and we have agility in our global operations to adapt to a range of scenarios. Second, the race to deliver high-performance, energy-efficient AI computing remains the dominate driver of the semiconductor industry’s roadmap. Applied is best positioned at the major device architecture inflections that will enable that roadmap to be realized. And third, we are seeing strong traction with our high-velocity co-innovation strategy where earlier and deeper collaboration with our customers and partners is enabling us to bring next-generation technology to market faster than ever before.

Now, I’ll turn the call over to Brice.

Brice Hill: Thanks, Gary, and thank you to everyone joining us for today’s call. We delivered another strong quarter in fiscal Q2, with robust year-over-year revenue growth, gross margin expansion and record earnings per share. These excellent results were driven by increased leading-edge foundry-logic investments, given the strong end-market demand for AI-enabling semiconductors. This performance was achieved within the rapidly evolving economic and trade policy environment of the past several months, and we leveraged our global supply chain and diversified manufacturing footprint to successfully navigate the dynamic commercial landscape. With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2, with approximately $2 billion in dividends and share repurchases, and bought back approximately 1.4% of shares outstanding.

Turning to the details for Q2, our results were largely in line with our expectations, with total net revenue of approximately $7.1 billion, up 7% year-over-year, with growth across all our business segments. Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year, and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments. Non-GAAP operating expenses were $1.3 billion, down slightly as a percentage of revenue on a year-over-year basis, with growth in R&D partially offset by decreases in G&A, as we focused on funding critical technology inflection-related research. Non-GAAP earnings per share was a record $2.39, up 14% year-over-year, given the revenue growth, better profitability and share repurchases.

Moving to the segments, Semiconductor Systems revenue was $5.26 billion for Q2, up 7% year-over-year, with growth in foundry-logic, as customer investments at the leading edge more than offset declines for the ICAPS nodes that serve the IoT, Communications, Automotive, Power and Sensor markets; and growth in NAND upgrades more than offsetting year over-year declines in DRAM. Non-GAAP operating margin of 36.4% was up 150 basis points year-over-year. Moving to Applied Global Services, AGS delivered revenue of $1.57 billion in Q2, up 2% year-over- year, as healthy growth in services more than offset the expected decline in sales of 200-millimeter equipment. Non-GAAP operating margin of 28.5% was flat year-over-year. Lastly, our Display business delivered revenue of $259 million, with non-GAAP operating margin of 26.3%.

Moving to the balance sheet and cash flows. We ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion, and cash from operations in the quarter was approximately $1.6 billion, or 22% of revenue. Capital expenditures were $510 million, up from the year-ago period, and driven by the buildout of Applied Materials’ equipment and process innovation and commercialization center, EPIC, the largest and most advanced facility of its type globally. Free cash flow for Q2 was approximately $1.1 billion. As I mentioned earlier, we increased capital allocation in Q2, with total shareholder distributions of approximately $2 billion, with dividends paid of $325 million and share repurchases of approximately $1.7 billion.

As previously announced, during the quarter, our Board of Directors approved a 15% increase to our dividend per share. This marks another year of healthy growth for our dividend, one of our key capital allocation priorities, and as I like to point out, the dividend and its growth are closely correlated with the recurring revenue and profits in our Services business. We also announced that our Board approved an additional $10 billion share repurchase authorization, and as of the end of the quarter, approximately $15.9 billion, in total, remains available to us for future share repurchases. Turning to our outlook, as we contemplate the year-over-year performance we expect in Q3, we are seeing acceleration from our leading-edge foundry logic products, which are key enablers in the ongoing gate-all-around build out, and which will more than offset a lower level of investment in the ICAPS nodes, following two years of strong spending by these customers.

We also expect a stable and healthy DRAM market and growth in NAND, driven by upgrades. Factoring in these views, for fiscal Q3, we expect total revenue of $7.2 billion, plus or minus $500 million, representing a 6% increase year-over-year at the midpoint, and non-GAAP EPS of $2.35, plus or minus $0.20, representing an 11% increase year-over-year at the midpoint. We expect Semiconductor Systems revenue of approximately $5.4 billion, up approximately 10% year-over-year and AGS revenue of approximately $1.55 billion, down 2% year-over year, with growth in core services impacted by the trade restrictions previously disclosed and declines in demand for 200 millimeter equipment. Rounding out the business segments, we expect Display revenue of approximately $250 million.

Lastly, given our business mix in Q3, we expect non-GAAP gross margin of approximately 48.3% and non-GAAP operating expenses of approximately $1.3 billion, and we are modeling a tax rate of approximately 13%. In closing, while the trade environment continues to evolve, our global supply chain and diversified manufacturing capabilities provide us with significant agility and flexibility to respond to changing conditions. In the near term, we see overall demand and customer investments continuing at the expected rate and pace, even in the current environment, and the long-term secular drivers for growth in our business remain intact. We are positioning ourselves to benefit from the opportunities that will emerge as the equipment industry invests to support a $1 trillion-plus semiconductor market by the end of the decade, and we are investing for the growth that we expect in our business over that time.

Thank you and we are now ready to begin the Q&A session. Liz?

Liz Morali: Thanks Bryce. To help us reach as many people as we can on today’s call, please limit yourself to one question. If you have an additional question, please re-queue and we’ll do our best to come back to you later in the session.

Operator: Thank you. [Operator Instructions] And our first question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.

Stacy Rasgon : Yeah, guys. Thanks for taking my question. I wanted to dig into services in China. So last quarter, you talked about like the incremental hit from the China restrictions across equipment and services. But you — and we saw the hit, particularly on the AGS segment. But you’d said that you returned to sequential growth in Q3. But this is not sequential growth. This is kind of flattish to maybe even down a little bit sequentially. I guess, what’s going on there? Is that just like a bigger hit than expected on 200-millimeter? Or is China worse? And what is our — how should we be thinking about growth for this business, I guess into the end of year? Do you think it resumes like sequential growth in Q4?

Brice Hill : Hi, Stacy, thanks for the question. So on the AGS, you’ve got a lot of those elements correct. So what we would say is the core business in Q2 had a record. And we expect the core to grow at low double digits during the year, just like you would expect for that part of the business, even with the impacts we’ve seen from lower China business due to those trade restrictions. In the quarter, our Q2 and Q3, that’s where you have the effects of some of those accounts becoming restricted. So the year-over-year growth — we just made year-over-year growth for the quarter on AGS. And you are right, it’s really the 200-millimeter equipment that slows down significantly during that quarter that makes that look weaker from a performance perspective.

So I think the key things that we want our investors to think about is AGS will grow at low double digits going forward, as we digest these trade rules. With our Q3 guidance, you can see that it’s marginal quarter-over-quarter in total, where we’ll have the full effect of all of those rules. But the core will be growing year-over-year, and we’ll see that low double-digit growth for the core for the full year. Going forward, after Q3, you should expect to see the sequential type of growth that you would expect to deliver that low double digit going forward. And then I would just point out just for investors to remember that, yes, we do connect our dividend to the recurring profits for that business. And it is largely a recurring revenue business.

So about 90% at this point is recurring revenue with high renewals of multiyear contracts, and about 66% of the business is under those subscription agreements. So pretty strong from a recurring revenue and profit perspective. Thanks for the question.

Stacy Rasgon : But it does seem like the 200-millimeter is weaker than you thought. Like is that correct?

Brice Hill : Yes. I think that is one factor. It might be a little bit less than we thought. And then the second is we expected a little bit more in utilization for the quarter, and utilization stayed about flat for the quarter. So the spares side of the business was also probably not right up to what we expected.

Stacy Rasgon : Got it. That’s helpful. Thank you.

Gary Dickerson : Stacy, on 200-millimeter, a lot of that business is tied to power electronics. And long-term, we think that’s going to be mid-to-high single-digit growth. But in the near-term, that business is down from where it was at previously. So again, that’s one of the things that’s causing that business to be weaker in the near-term. But in service, we’re driving a lot of service innovation. We have 8,000 tools connected in the field, and I think high confidence that will grow at low double digit going forward.

Stacy Rasgon : Got it. Thank you.

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

Vivek Arya : Thanks for taking my question. So if I contrast the sales growth you have versus peers, right, many of them are expecting to grow double digit. You guys are more consistent at this 7%-or-so growth rate. And the perception is your higher ICAPS exposure. So could you help us size what ICAPS is now as a percentage of sales? Do you think it has bottomed? Can it continue to be a headwind? And if you could give us some trends on China versus non-China ICAPS demand for the rest of the year. Thank you.

Brice Hill : Hi, Vivek, thanks for the question. So I guess I would start. Mature logic, ICAPS — with the ICAPS end-markets, IoT, communication, auto power sensors for us, first thing we would say is we expect mid-to-high single-digit growth across the horizon heading to that $1 trillion to $1.3 trillion market by 2030 from a semi perspective. And when you look inside our business, we’re expecting right now — if you look at semis and AGS, we would say mid-20s percent will be about the share of the China business for us, if that gives you a perspective there. And when we think about China specifically, we are restricted from competing with some — in some accounts. But for the accounts that we’re able to sell to, we think we’re performing very well from a share perspective.

We expect those markets to grow. And we see that market investing more and more in 28-nanometer going forward. They kind of built out the 50-plus nanometer capacity, is now focusing on 28-nanometer. And we feel like we are very well positioned on 28-nanometer. We’ve got the world-leading foundry positions in that node. So we are confident that, that 25% for the business is probably a good number to think of without display, and that should grow over time looking forward.

Gary Dickerson: Yes. Vivek, maybe just to clarify, the mid-20s as a percentage of our total company revenue is China semi, including equipment and service. So that’s kind of that number. And I’m sure you know and other people on the call know, we have a display business that adds a few percent to overall Applied revenue. And what I would add, certainly, we are extremely well-positioned in the big drivers for AI. If you look at high-performance logic, DRAM compute memory, high-bandwidth memory, packaging, power electronics, all of those areas are the fastest-growing areas of the market, very well-positioned there. And as Brice said, in ICAPS, we expect, over time, that will grow kind of mid-to-high single digits. The 28-nanometer investment, as Brice said, is increasing significantly as a percentage of the total in China.

And our share there is higher. So that will help us in ’25 and also going forward. The other thing I’d say about ICAPS, this has been a focus for us for more than 5 years. We have new products in ICAPS that will enable us to expand into large new segments. We have new products where we have significant cost innovations to better compete in cost-sensitive areas of the market. So I’m optimistic that with all of those different factors, we are going to continue to see strong growth. We’ve grown 5 years previous to this year. We’re growing in the first 3 quarters of ‘25 and I think really well positioned for these key inflections.

Vivek Arya : Thank you.

Operator: Thank you. And our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question please.

CJ Muse : Good afternoon, and thank you for taking the question. I guess, Brice, I wanted to focus on gross margins. I think a quarter ago, you talked about 48.2% as kind of floor reflecting China normalizing, but that would kind of trade tensions or whatnot. It might now be 48%. Was hoping you could kind of update on that. And then longer term, into ’26 and beyond can you kind of speak to how you see value-based pricing, cost reductions and balancing manufacturing across both Austin and Singapore and where the trajectory for margins could go? Thank you.

Brice Hill : Thanks, C.J. Good to hear from you. Yes, 48.2%. So obviously, we had 49.2% in the quarter. And we talked about a very — in the Q2, we talked about a very favorable mix. And our guide is 48.3%. And you are right, we highlighted — investors might remember last year, we were in the 47s, mid-47s, and we were hoping that we could get it into the 48s. And we’ve done — we’ve made good progress on pricing, cost management and logistics improvements. And so I do feel like the low-48s, probably right around 48.2% to 48.3% is the right level where the company is operating at this point. And that has modest impact from tariffs. So in Q2, very small impact from tariffs because we had inventory positions that were pre-tariff.

And then in Q3, in our guidance, also modest effective tariff because you pointed out, we have a very flexible manufacturing operation with a global footprint. We have a global supply chain. We’ve worked for years since COVID on duplicating sources across the globe. And we’ll be making price adjustments for the things that cannot be managed from a tariff perspective. So our guidance for Q3 really reflects being able to manage that environment very well and having the flexibility to manage it very well. Then the last thing to say on the pricing, we do feel like we are making very good progress with value-based pricing and cost management. And I would just say that our expectation is we’ll continue to make improvements to that level of margin as we go forward.

Gary Dickerson : Hi, C.J., this is Gary. One thing I would say, aligned with what Brice talked about, we’ve been driving these cost improvements. We’ve made a lot of progress there. We’re also driving better value capture as we go forward. We’re enabling many of these really critical inflections for the industry. And I think the thing that I would focus on here is sustainable margin improvement. We made progress this year. We’ve been making progress over the last few years. But I really believe that the initiatives that we’re driving in cost improvements, the initiatives we’re driving in value capture, all of those things will assist going forward. And we’ll continue to see progress this year and in future years.

Operator: Thank you. And our next question comes from the line of Melissa Weathers from Deutsche Bank. Your question please.

Melissa Weathers : Hi guys. Thank you for taking my question. On the DRAM side of things, it seems like HBM has really helped put a floor in DRAM WFE spending since cyclically, we’re still kind of bouncing along the bottom. But HBM does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those 2 dynamics going forward? Like how do we think about the cyclical piece of DRAM compared to the HBM upside that you’re seeing?

Brice Hill : Okay, Melissa. Yes, thinking about the HBM component, so from a wafer starts perspective, I think in this year, HBM as a component of DRAM should reach 16%. And what we would highlight there is it’s growing at a 40% rate, similar to the AI data center-type components on the data center side. So that has put DRAM in total, including HBM equipment, really continuing to operate at very high levels. So at least on our side, I wouldn’t say cyclical low. I’d actually say maybe last year was a record year, this year will be close to a record year or it could be a record. DRAM is very strong. And the way we think of it is it’s being pulled by that AI leading-edge. And all the compute memory that’s needed for that and the HBM is a great example of that. So hopefully, that gives you a perspective. From our side, that business is operating very strongly across all those end technologies.

Gary Dickerson : Yes. Melissa, this is Gary. I would add that — if you look over — a little over a decade, we’ve gained 10 points of market share in DRAM. And this — the compute-memory is going to be one of the fastest-growing areas of the market over time. So if you look at, especially in the AI data center, that business is growing very quickly. And we talked about with DDR5 and HBM, 40% growth with our top three leading customers. So that business is growing at a high rate, and we are very strongly positioned. If you look at what we’ve been able to achieve in terms of share gains in DRAM and where the DRAM architectures are going to the future, the next big inflection is 4F2. That architecture is a great opportunity for Applied.

We are deeply engaged with all of those different customers. And we will outperform with all of our innovations as that new architecture is adopted. So again, very strong growth in DRAM for Applied, outperformance in the past and well positioned going forward.

Melissa Weathers : Thank you.

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

Harlan Sur : Good afternoon. Thanks for taking my question. Last couple of earnings calls, you guys have been articulating a leading-edge, foundry-logic and leading-edge memory spending acceleration as we move through the year, which implies that calendar second half spending on leading-edge technologies will be higher versus the first half spend. Is that still the team’s view? And then kind of tied to that, right, advanced technology drives more penetration of your integrated system solutions. I think you guys exited last year with integrated solutions representing about 30% of your overall systems business. Where do you anticipate that mix exiting this fiscal year?

Brice Hill : Great. Harlan, good to hear from you. So on the leading edge, definitely accelerating. And what we were highlighting in previous quarters as we sort of were thoughtful about the slower investment rate in ICAPS in the mature technologies after two years of very rapid growth, we were all hoping that leading-edge would begin to accelerate after a lesser year in ’24 and ’23. And that’s exactly what we’re seeing. So you see a pickup through the course of the year. That should be matched hopefully by all the things that you see in the market. If you look at the cloud service providers’ CapEx, those numbers have only been going up. We’ve seen recent announcements of new factories and spending from the leading logic companies.

So yes, I think we expect that trend to be enduring. When we think about all the technologies that are packed around AI data center, so DRAM, HBM, advanced packaging, and of course, leading logic where there is 100% utilization on the front end there, that is accelerating. And then on the integrated equipment, we’re still averaging approximately 30% so you can look at that as growing at the 7% rate — almost 7% rate that we see the business growing at this point in time.

Harlan Sur: Okay, perfect. Thank you.

Operator: Thank you. And our next question comes from the line of Timothy Arcuri from UBS Securities. Your question please.

Timothy Arcuri: Thanks. I had a clarification and a question. So Brice, I just wanted to clarify what this is for the entire year this year. So I think you were talking about low double-digit growth, but I would assume that the back half is up like 30% half-on-half. So is that really the message where you keep talking about the core part of service? That’s what’s going to grow low double digit? So can you just tell us what you think the total business will grow for this year? And then my question is, most of the other companies expect WFE to be pretty first half-weighted this year. I know you don’t talk about the market as a whole, but can you give us a sense of whether you would also say that markets first half-weighted this year? Thanks.

Brice Hill : Okay, Tim. Thanks. So on the services, yes, when we think about core, we are stripping out the 200-millimeter equipment sales for that. So if you had an estimate in prior years of what those components were, for our core, we’re hitting a record in this quarter. We’ll have a record next quarter, and we’re saying for the whole year, even despite losing — not being able to serve some of those accounts in China, we will have low double-digit growth in the core business, so without that 200-millimeter. The 200-millimeter will make the overall AGS business growth look much smaller for the year. And so we’ll have to see where that lands. But it’ll be much smaller for the year. And then for first half, second half, we are talking about three quarters for Applied that are growing almost 7%.

And what we would say is the trends that are pulling the business seem fairly durable to us. And we’ve talked about leading-edge accelerating. So without filling in two more quarters, we’ll have to see where that goes. But we haven’t seen really a change in the trajectory of demand or the trajectory of those trends in the last 90 days.

Timothy Arcuri: Okay. So you have to say that the back half will be pretty flat with the first half? Is that the message?

Brice Hill : It’s not really the message. Like I said, we won’t fill in those last two quarters. Probably when you’re thinking calendar year, that would be our Q4 and part of our Q1. So we are not giving specific guidance for that. But what we would say is almost 7% year-over-year so far, year-to-date for the company. And the trends that are pulling on the market seem fairly durable. So hopefully, that helps.

Timothy Arcuri: Okay, guys. Thank you.

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

Krish Sankar: Thanks for the question. I also had a question and a clarification. Gary, just had a longer-term question for you. You are clearly gaining traction in new technologies like gate-all-around, backside power delivery. But when I look at your leadership products more on a unit process specification level, it feels like TBD is moving to ALD. On CVD, Etch and CMP you always had the U.S., Japanese competition, but you have some legit Chinese competition, too, in the segment. So I’m just kind of wondering how to think about your leadership product momentum over the next one year to three years, some of these shifts in competition. And also, can you give any color or rationale on the 9% BESI stake. Thank you.

Gary Dickerson : Sure, Krish. Thanks. So the way I would think about it, if you look at our leadership products, they’re really targeted at the biggest inflections that are being driven by AI. And so in high-performance logic, what we’ve said is that we will — for gate-all-around and backside power distribution, those are the two big inflections that are going forward, we’ll gain share. And we are extremely well-positioned to capture more than 50% of the available opportunity in those inflections. So again, very strongly positioned there. In compute memory and DRAM, again, that’s another one that’s being driven by AI. And I mentioned that earlier, we gained in a little over a decade about 10 points of share in DRAM. And we’re, again, very well positioned in DRAM on the last 6F-Squared nodes.

And also for 4F-squared, we’re even better positioned. I met in the last month, I think pretty much all of those DRAM CEOs and most of the high-performance logic CEOs, very strong positions, very deep engagements. And then if you look at high-bandwidth memory, we have high share there. Advanced packaging is another one, where there are tremendous architecture inflections. And we’re just very, very well positioned. So Krish, again, I have high confidence that we will gain share as those inflections happen. And we have visibility because we have such deep relationships with all of these different customers. And one of the things that everybody is focused on is this theme of high-velocity co-innovation. Everybody is racing to be first to market with those new architecture inflections.

Whoever gets there first wins big. Everybody else is left behind. So I think what that’s driving is earlier and deeper collaborations with those customers. And so again, we have very high visibility on our positions going forward for all of those major architecture inflections.

Brice Hill : Yes. I got it. And Krish, on BESI, so 5-year relationship with BESI. We recently extended our collaboration agreement, working very well with them. I think you know our perspective on energy-efficient compute is their solution, combined with our solutions for die-to-wafer bonding will be very important for that energy road map going forward. And so we felt — as we extended the collaboration agreement, we felt that we wanted to make an investment in their company at the same time. And on the 9%, no specific information to share there. We had a lot of investments during the quarter in addition to that with our EPIC facility that we’re building, the world-class fab in Sunnyvale and then also the share buybacks that we mentioned. So that was — that’s our — the information that we have to share there.

Gary Dickerson : Yes. Krish, what I would say also, I’ve personally been involved working with BESI for many years. They are the leader in die-to-wafer and die-to-die bonding. And our teams have developed an integrated hybrid bonding product with six technologies integrated together. There was a question about integrated products earlier on the call. So in this case, this is a really important innovation for the most advanced in AI memory chips, where again, we have an Applied platform with the BESI bonder along with 5 other technologies. And we think this is going to be a meaningful growth driver going forward and contribute to a very strong growth rate in our advanced packaging business going into the future.

Krish Sankar: Thanks Gary, thanks Brice.

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

Mehdi Hosseini : Yeah, thanks for taking my question. This is for the team. What are the key assumptions embedded in the low and the high end of your July quarter revenue guide of $6.7 billion to $7.7 billion?

Brice Hill : Thanks, Mehdi. That’s a student observation. We widened our range by $100 million at this point. So it’s plus or minus $500 million for the quarter. We had been doing plus or minus $400 million. And it Was really 2 things. We hadn’t changed that in the last few years. And so the business is obviously larger. So we typically ask ourselves whether we should increase the range. And then certainly, during this period, as we saw during the quarter, there was a lot of volatility in the macro, in the market, in geopolitical, in trade, et cetera. And so we felt there’s a number of scenarios that are being thought about, and so we thought it was a good time to widen the range. So there is nothing algorithmic or mathematical in this selection. We just thought we would indicate that there’s more volatility in the environment than typical.

Mehdi Hosseini : And I assume that’s more impacting the ICAP business than the leading-edge, which is more strategic, right?

Brice Hill : Could you say again, please?

Gary Dickerson : Yes. Mehdi, I think it really is the revenue size is larger. And there are changes that are happening from a regulatory standpoint, tariffs, those things that create more uncertainty. And so it’s really a combination of those two things. But it was a very small change in range. But again, it’s just those factors.

Mehdi Hosseini: Got it. Thank you guys.

Gary Dickerson : Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Srini Pajjuri from Raymond James. Your question please.

Srini Pajjuri: Thank you. My question is on the NAND business. I know it’s a relatively small business for you, but it’s up nicely. And I think you are guiding for growth again. On one hand, your customers are talking about taking utilization down. And on the other hand, you and your peers are talking about spending improving. So if you could talk to the sustainability of the NAND growth and what exactly is driving it, I think that would be helpful. Thank you.

Brice Hill : Sure, Srini. This is Brice. Thanks for the question. So on the NAND business, it has ticked up both in our Q2 and in our Q3, obviously, coming from lower levels. But yes, I think for that business, agree that utilization is lower, but most of those investments are made to upgrade process technologies and upgrade factories to the latest nodes. We see low 20s percent bit demand from a growth rate perspective going forward. And the way that the customers have been supplying that is by improving their technologies and advancing those nodes. So most of the business is upgrades, and I would say they don’t really change their plans on upgrades. With a change in utilization, they’ll focus on having the density advancement they need from a tech perspective. So really, I think it is just that, that these are investments they make with the lead time and they’re thinking about upgrading the technology.

Srini Pajjuri: Thank you.

Operator: Thank you. And our next question comes from the line of Timm Schulze-Melander from Redburn Atlantic. Your question please.

Timm Schulze-Melander: Hi, thanks so much for taking my question. So I had a question on advanced packaging. And I guess it’s a question for Gary here, which is around kind of Applied Materials’ appetite for risk. So it’s an emerging application. It’s obviously growing very fast. But also maybe the technologies that are going to be needed on a 2-year, 3-year, 4-year view in advanced packaging may evolve, may change. And I just maybe wanted to ask kind of what is Applied’s appetite for risk for maybe trying new things, new technologies to serve that market. Thank you.

Gary Dickerson : Hi, Tim, so in advanced packaging, this is going to be one of the most important inflections of the industry. How you connect together all of the different high-performance logic, the compute memory, DRAM, high-bandwidth memory, all of those different chiplets and different components, there is going to be tremendous innovation in advanced packaging. So Applied, we’ve been investing and we’re the leader in that market. We’ve been investing for a number of years with new capabilities. We have an advanced packaging lab in Singapore, a full flow lab, where some of our leading customers are working with us there on these new architectures. So I think we have — a good thing for us is that we have very high visibility in where the industry is going.

And I talked about this concept of high-velocity co-innovation. We are working with our customers to shape the industry road map, I think more than anyone else. And so when we are placing those bets, you talked about appetite for risk, we have pretty high visibility where to place the bets because we are in such deep and connected relationships with the customers. And we have this broad, unique and connected portfolio. So we’re in deep relationships with our customers and even our customers’ customers as they’re looking at inflections in packaging, AI connectivity, those areas. So again, I have very high confidence there, innovations that we are driving that will expand our total available market in packaging. And we’re extremely well-positioned.

We’ve grown significantly over the last few years in packaging, 4 times revenue in the last 5 years. And I have high confidence that we’ll continue a very high growth rate going forward.

Timm Schulze-Melander: Great. Helpful, thank you.

Operator: Thank you. And our next question comes from the line of Charles Shi from Needham & Company. Your question please.

Charles Shi : Hi, good afternoon. Thanks for taking my question. I have a question more on China. I think maybe two months ago at SEMICON China, there’s a new company called Scaria. They launched 30 new tools, I believe lots of overlap with AMAT’s portfolio. But I think the common perception based on what I’m hearing is Applied probably has likely the greater downside and a lot of the peers with all these new companies emerging in China. Wanted to ask if any thoughts you can provide on that particular competitor. And what could be the implications for — in Applied’s market share, especially, I think the team just talked about actually gaining more share in China as the customers more transitioning from 55-nanometer, 40-nanometer to 28-nanometer? Thank you.

Gary Dickerson : Hi, Charles, thanks for the question. So again, just to remind you, China-semi is in the mid-20s, including equipment and services, as a percentage of total company revenue. And as we talked about earlier, 28-nanometer, where the investment is increasing, we have higher share. And I think the most important thing for us is we have a great innovation pipeline in ICAPS. We formed this group more than six years ago. It was actually April 12, 2019, is when we formed the group. And we are driving significant innovations with new products that will expand our markets, new TAM for Applied Materials, new products that have significant cost innovations for cost-competitive areas of the market. So I feel really good about the pipeline that we have going forward, expanding our available market and our ability to compete.

And so I think in any of these different industries, the key thing is you have to run faster than competitors. And we have a great team in ICAPS. They’ve delivered great results. And I would say that I’m pretty positive about the pipeline that we have going forward and our position to drive growth in the ICAPS market into the future.

Operator: Thank you. And our next question comes from the line of Brian Chin from Stifel. Your question please.

Brian Chin: Hi, good afternoon. Thanks for letting us ask a question. Gary and Brice, you clearly remain confident on your positioning for the upcoming key technology inflections in Advanced Logic. I think generally, there’s some anticipation that 2-nanometer and 16-angstrom nodes can represent at least a few hundred thousand of wafer capacity expansion. I don’t imagine your thoughts around significance has changed. However, given the current level of geoeconomic uncertainty, what’s your view on pacing here and whether this could cause these investments perhaps to spread out over a longer horizon?

Brice Hill : I guess I’ll start, Brian, and thanks for the question. The way we always think of the market is what’s driving demand from a wafer perspective. And you look at PCs and smartphones, they’ve been growing at low single digits. So those are fairly stable markets. But when you look at data center, it’s growing at 20%. And if you look at the — if you carve out the wafers inside that, that are associated with accelerators, graphics, et cetera, so the AI-component of data center, it’s growing at 40%. When we look at the leading-edge factories across the industry, they are at 100% utilization. And we all have thought about the gate-all-around technology, especially with backside power delivery, and thought, well, that’s a significant improvement in power performance and density for the chip.

So it looks like a really good node. That technology looks like a strong node. So we think the trends from a demand perspective are very strong. And we’re expecting a significant build-out of that technology. And I think if you look at recent announcements, either cloud service provider CapEx or even the largest foundry, you’ll see — I think you’ll see a lot of energy around the road map.

Operator: Thank you. And our next question comes from the line of Chris Caso from Wolfe Research. Your question please.

Chris Caso : Yeah, thank you, good evening. I guess the question we’ve gone through a lot with your — how you’re kind of shaping up this year and know that it’s too early to start talking quantitatively on next year. But I wonder if you could kind of address a little bit about qualitatively next year, kind of where you are feeling better about growth for next year. What are the things that we should be looking for as we build out our WFE models into next year? And what’s your level of conviction that next year is indeed a growth year?

Brice Hill : Hi, Chris, great question. So the way we think about it is we kind of set that anchor $1 trillion to $1.3 trillion in 2030 for the semi industry. And you can use a range of assumptions for what the equipment intensity might be associated with that. And that will give you a pretty significant growth in the equipment business over the next 5 years. And so probably just like you, when you model, we don’t try to pick the uneven growth that one-year might describe. We have — we modeled pretty smooth growth from here to 2030, riding AI, riding the AI data center, all the key technologies that we are describing when we think about robotics and large language models and all those types of things. We think those are strong demand drivers.

So what we would say is those are enduring trends, and you can see the industry making the investments right now. You look at the cloud service providers, you look at the foundries, you look at us with the investment we are making in our lab here in Sunnyvale and our platform for innovation across the world. So I think those are the signals that you should look for is are the companies making those investments? And do we expect that trend to continue. I know people always want to know if after five years of growth for Applied, and we are growing at 7% so far this year, year-to-date everybody wants to know if the next quarter after this one will be down or if next year will be down. We really don’t model it that way. We just have kind of a smooth growth to that 2030, and we understand it will be uneven.

Liz Morali : And we have time for one last question. Thanks.

Operator: And our final question for today is a follow-up from the line of Stacy Rasgon from Bernstein Research. Your question please.

Stacy Rasgon : Apologies. Thank you for taking me again. Appreciate it. Brice, I wanted to go back to your commentary just very quickly to make sure I have it on the segment growth for next quarter. I think you said that — I thought these were year-over-year statements. Foundry and logic, you have leading-edge more than offsetting the ICAPS clients. It sounds like you think foundry-logic grows year-over-year. You said DRAM stable. So DRAM kind of flattish year-over-year? And then you said NAND growing, I guess, year-over-year. But within the full guide, would that not imply that NAND is down sequentially? Just can you sort of confirm that I have that commentary on the segments correct?

Brice Hill : Yes. Stacy, I think you’ve got all those right. And it was a year-over-year commentary that we were providing. So NAND has ticked up. Leading logic is definitely accelerating. I think we’ve shared that mature logic is down, but we expected that after the 2 years of rapid growth. And so to the extent that that’s a little lower, it’s being filled in by leading and just sort of continued strength on the DRAM. And what’s happened in the DRAM business, depending on which quarter you are looking at. The first couple of quarters last year, we had the shipments to China customers. This year, that business is still very strong. And it’s all that leading-edge — those leading-edge customers that are making those investments. So I think you have those puts and takes correct.

Stacy Rasgon : Got it. Okay. So based — I’d have DRAM down — I guess, DRAM down sequentially, NAND could be up sequentially and then foundry and logic will be up pretty decent sequentially if I tie up those year-over-year statements?

Brice Hill : Yes, that’s fair.

Stacy Rasgon : Okay, thank you appreciate it.

Brice Hill : Thank you.

Operator: This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Brice Hill for any further remarks.

Brice Hill : Thank you. In summary, we’re pleased to be operating at record levels. We are well equipped to navigate the dynamic conditions in the economic environment, and we are investing in significant industry collaborations to accelerate innovation, all of which position us to grow our business over the coming years. Thank you. Liz, please close the call.

Liz Morali: Great. Thank you, Bryce, and thanks to everyone for joining the call today. I’d like to call your attention to 2 upcoming investor events. First, Gary will attend the Bernstein Strategic Decisions Conference on May 29. And then on June 4, Brice will be at the BofA Global Technology Conference. Lastly, a replay of today’s call will be available on the Investor Relations website by 5 p.m. Pacific Time today. 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.