Applied Materials (AMAT) Q2 2025 Earnings Call Transcript

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

Liz Morale, Vice President of Investor Relations, Applied Materials: Thank you. Good afternoon, and thank you for joining us for today’s call. With me today are Gary Dickerson, President and CEO, and Bryce 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 ks, 10 Q, and eight ks 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, President and CEO, Applied Materials: Thanks, Liz. In our second fiscal quarter of twenty twenty five, 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’re 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 road map and changing the way chips are designed and manufactured. The impact of AI data center 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 underperformed the market in China due to the market access restrictions imposed on US 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’re on track to deliver a similar growth rate in 02/2025. 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’re 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, 4F squared and three d 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’re focused on addressing the most critical steps for next generation technologies and this has enabled us to establish a strong leadership position in this market. In 02/2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR5 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 SIM3 Magnum Etch System for advanced patterning, which has generated more than $1,200,000,000 of revenue since we launched the product in February 2024. Another example is our breakthrough cold field emission e beam technology that has strong momentum in gate all around and high bandwidth memory and supported record revenues for our process diagnostic 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 customers 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 and D resources.

Construction of our new flagship R and D facility, the EPIC Center in Silicon Valley, is progressing on schedule, and we expect the center to start operations in spring twenty twenty six. Before I hand over to Bryce, 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 dominant driver of the semiconductor industry’s roadmap.

Applied is best positioned as a major device architecture inflection that will enable that road map 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.

Bryce Hill, CFO, Applied Materials: to Bryce. 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 successfully navigate the dynamic commercial landscape.

With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2 with approximately $2,000,000,000 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 $7,100,000,000 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 two thousand. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments. Non GAAP operating expenses were $1,300,000,000 down slightly as a percentage of revenue on a year over year basis, with growth in R and D partially offset by decreases in G and A as we focused on funding critical technology and Flexion 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 $5,260,000,000 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 iCAPPS 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 $1,570,000,000 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 $259,000,000 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 $6,200,000,000 and debt of $6,300,000,000 and cash from operations in the quarter was approximately $1,600,000,000 or 22% of revenue. Capital expenditures were $510,000,000 up from the year ago period and driven by the build out of Applied Materials Equipment and Process Innovation and Commercialization Center, EPIC, the largest and most advanced facility of its type globally. Free cash flow for Q2 was approximately $1,100,000,000 As I mentioned earlier, we increased capital allocation in Q2 with total shareholder distributions of approximately $2,000,000,000 with dividends paid of $325,000,000 and share repurchases of approximately 1,700,000,000 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.

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 $10,000,000,000 share repurchase authorization and as of the end of the quarter, approximately $15,900,000,000 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 $7,200,000,000 plus or minus $500,000,000 representing a 6% increase year over year at the midpoint and a non GAAP EPS of $2.35 plus or minus $0.20 representing an 11% increase year over year at the midpoint.

We expect semiconductor system revenues of approximately $5,400,000,000 up approximately 10% year over year and AGS revenue of approximately $1,550,000,000 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 $250,000,000 Lastly, given our business mix in Q3, we expect non GAAP gross margin of approximately 48.3% and non GAAP operating expenses of approximately $1,300,000,000 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 $1,000,000,000,000 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’re now ready to begin the Q and A. Liz?

Liz Morale, Vice President of Investor Relations, Applied Materials: 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.

Conference Operator: Thank you. Ladies and gentlemen, if you do have a question at this time, please press 1, 1 on your telephone. And our first question comes from the line of Stacy Raskin from Bernstein Research. Your question, please.

Stacy Raskin, Analyst, Bernstein Research: Hi, guys. Thanks for taking my questions. 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’d return 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? What is our how should we be thinking about growth for this business, I guess, the end of the year? Do you think it resumes like sequential growth in Q4?

Bryce Hill, CFO, Applied Materials: 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 have 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.

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 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 multi year contracts and about 66% of the business is under those subscription agreements. Pretty strong from a recurring revenue and profit perspective. Thanks for the question.

Stacy Raskin, Analyst, Bernstein Research: But it does seem like the 200 millimeter is weaker than you thought. Is that correct?

Bryce Hill, CFO, Applied Materials: Yeah. I think that’s 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 Raskin, Analyst, Bernstein Research: Got it. That’s helpful. Thank you.

Gary Dickerson, President and CEO, Applied Materials: Yes. 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 Raskin, Analyst, Bernstein Research: Got it. Thank you.

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

Vivek Arya, Analyst, Bank of America Securities: Thanks for taking my question. So if I contrast the sales growth you have versus peers, many of them are expecting to grow double digit. You guys are more consistent at this, you know, 7% or so growth rate. And the perception is, you know, 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? You know, 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.

Bryce Hill, CFO, Applied Materials: Hi Vivek, thanks for the question. So I guess I would start, mature logic, ICAPs with the ICAPs end markets, IoT communications, 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 to $1,300,000,000,000 market by 02/1930 from a semi perspective. And when you look inside our business, we are 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, you know, we are restricted from competing in some accounts, but for the accounts that we are able to sell to, we think we are performing very well from a share perspective. We expect those markets to grow, And, you know, we see that market investing more and more in 28 nanometer going forward.

They kind of built out the 50 plus nanometer capacities, 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 25% for the business is probably a good number to think of without display and that should grow over time looking forward.

Gary Dickerson, President and CEO, Applied Materials: 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’re 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 Bryce said, in ICAPs, we expect over time that will grow kind of mid to high single digits. The 28 nanometer investment, as Bryce 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 five 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’re going to continue to see strong growth. We’ve grown five years previous to this year. We’re growing in the first three quarters of twenty five. And I think really well positioned for these key inflections.

Bryce Hill, CFO, Applied Materials: Thank you.

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

C.J. Muse, Analyst, Cantor Fitzgerald: Good afternoon. Thank you for taking the question. I guess, I wanted to focus on gross margins. I think a quarter ago, talked about 48.2% as kind of the floor reflecting China normalizing, but that would kind of trade tensions or whatnot. It might now be 48%.

I was hoping you could kind of update on that. And then longer term into ’twenty six 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.

Bryce Hill, CFO, Applied Materials: Thanks, CJ. Good to hear from you. Yeah, 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’re right, highlighted, you know, might remember last year we were in the 40 seven’s, mid 40 seven’s and we were hoping that we could get it into the 40 eight’s and we’ve done, we’ve made good progress on pricing, cost management and logistics improvements. And so I do feel like the low 40 eight’s, probably right around 48.2, 40 eight point three 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 tariffs because you pointed out we have flexible manufacturing operation with a global footprint. We have a global supply chain. We have worked for years since COVID on duplicating sources across the globe and we will 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 will continue to make improvements to that level of margin as we go forward.

Gary Dickerson, President and CEO, Applied Materials: Hi C. J, this is Gary. One thing I would say aligned with what Bryce 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’ve 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 sustain going forward and we’ll continue to see progress this year and in future years.

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

Liz Morale, Vice President of Investor Relations, Applied Materials: Hi there. Thank you for taking my question. On the DRAM side of things, it seems like HPM has really helped put a floor in DRAM WP spending since cyclically we’re still kind of bouncing along the bottom. But HPM does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those two dynamics going forward?

How do we think about the cyclical piece of DRAM compared to the HBM upside that you’re seeing?

Bryce Hill, CFO, Applied Materials: Okay, Melissa. Hi. Yeah, 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, you know, maybe last year was a record year, this year will be close to a record year, or could be a record. You know, 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 HPM 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, President and CEO, Applied Materials: Yeah, 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 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 for the future. The next big inflection is 4F2. That architecture is a great opportunity for Applied. We’re 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 very well positioned going forward.

Liz Morale, Vice President of Investor Relations, Applied Materials: Thank you.

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

Harlan Sur, Analyst, JPMorgan: 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?

Bryce Hill, CFO, Applied Materials: 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 and 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 are 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, you know, those numbers have only been going up. You know, we’ve seen recent announcements of, you know, new factories and spending from the leading logic companies. So yeah, I think we expect that trend to be enduring when we think about all the technologies that are packed around, you know, AI data center, so DRAM, HBM, advanced packaging, and of course, leading logic where there’s 100% utilization on the front end there. That is accelerating. And then on the integrated equipment, we’re still averaging approximately 30% so that you can look at that as growing at the 7% rate, you know, almost 7% rate that we see the business growing at this point in time.

Harlan Sur, Analyst, JPMorgan: Perfect, thank you.

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

Timothy Arcuri, Analyst, UBS Securities: Thanks. I had a clarification and a question. So Bryce, I just wanted to clarify what the message is for services 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?

Or you keep talking about the core part of service, that’s what’s going to grow low double digits. 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 some sense of whether you would also say that market’s first half weighted this year? Thanks.

Bryce Hill, CFO, Applied Materials: Okay, Tim. Thanks. So on the services, yes, when we think about core, we’re stripping out the 200 millimeter equipment sales for that. So if you had an estimate in prior years of what those components 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, you know, 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. That 200 millimeter will make the overall AGS business growth look much smaller for the year and so we’ll have to see where that lands, but it will be much smaller for the year.

And then for first half, second half, you know, 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 ninety days.

Stacy Raskin, Analyst, Bernstein Research: Okay. So you have to

Timothy Arcuri, Analyst, UBS Securities: say that the back half will be pretty flat with the first half. Is that the message?

Bryce Hill, CFO, Applied Materials: It’s not really the message. Like I said, we won’t fill in those last two quarters. Probably when you thinking of 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, Analyst, UBS Securities: Okay, guys. Thank you.

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

Krish Sankar, Analyst, TD Cowen: Hi, thanks for the question. I also had a question and a clarification. Gary, just had a longer term question for you. You’re 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 seems like PVD is moving to ALD.

On CVD, H and C and P, you always had U. Japanese competition, but you have some now you have some legit Chinese competition too in those segments. So I’m just kind of wondering how to think about your leadership product momentum over the next one to three years, some of these shifts in competition. And also, you give any color or rationale on the 9% BESE stake? Thank you.

Gary Dickerson, President and CEO, Applied Materials: 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 six F squared nodes and also for four F squared, we’re even better positioned. I’ve met in the last month, 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 Chris, 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’s racing to be first to market with those new architecture inflections. Whoever gets their first wins big, everybody else is left behind. So I think what that’s driving is earlier and deeper collaborations with those customers. So again, we have very high visibility on our positions going forward for all of those major architecture inflections.

Bryce Hill, CFO, Applied Materials: Yeah, got it. Krish, on Bessie, so five year relationship with Bessie, 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 Died Away for bonding, be very important for that energy roadmap going forward. And so we felt as we extended the collaboration agreement, we felt that we wanted to make an investment in their company at the same time. 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 are building, the world class fab in Sunnyvale, and then also the share buybacks that we mentioned. So that was, you know, that’s the information that we have to share there.

Gary Dickerson, President and CEO, Applied Materials: Yeah, Chris, what I would say also, I have personally been involved working with BESE 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 Bessie Bondar along with five other technologies.

And we think this is going to be a meaningful growth driver going forward and contribute to very strong growth rate in our advanced packaging business going into the future.

Krish Sankar, Analyst, TD Cowen: Thanks Gary, thanks Abbas.

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

Liz Morale, Vice President of Investor Relations, Applied Materials0: Yes, 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 revenue guide of 6,700,000,000.0 to 7,700,000,000.0

Bryce Hill, CFO, Applied Materials: Thanks, Mehdi. You know, that’s a astute observation. We widened our range by 100,000,000 at this point, so it’s plus or minus 500,000,000 for the quarter. We had been doing plus or minus 400,000,000, and it was really two things. As we, you know, 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, you know, in the macro, in the market, in geopolitical, in trade, etcetera. And so we felt there’s a number of scenarios that are, you know, being thought about, and so we thought it was a good time to widen the range. There’s nothing algorithmic or mathematical in this selection. We just thought we would indicate that there’s more volatility in the environment than typical.

Liz Morale, Vice President of Investor Relations, Applied Materials0: And I assume that’s more impacting the ICAP business than the leading edge which is more strategic, right?

Bryce Hill, CFO, Applied Materials: Can you say again, please?

Gary Dickerson, President and CEO, Applied Materials: Manny, 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.

Timothy Arcuri, Analyst, UBS Securities: Got it, thank you guys.

Liz Morale, Vice President of Investor Relations, Applied Materials1: Thank you.

Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Srini Prasjuri from Raymond James. Your question please.

Gary Dickerson, President and CEO, Applied Materials: 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’re 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, think that would be helpful.

Thank you.

Bryce Hill, CFO, Applied Materials: Sure, Srini. This is Bryce. 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 yeah, 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’s just that, that these are investments they make with a lead time and they’re thinking about upgrading the technology.

Conference Operator: Thank you. Thank you. And our next question comes from the line of Tim Schultz Meilander from Redburn Atlantic. Your question please.

Liz Morale, Vice President of Investor Relations, Applied Materials2: Yeah, hi. Thanks very 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 two, three, four year view in advanced packaging may evolve, may change.

And I just maybe wanted to ask kind of what is applied appetite for risk for maybe trying new things, new technologies to serve that market? Thank you.

Gary Dickerson, President and CEO, Applied Materials: Hi Tim. So in advanced packaging, this is going to be one of the most important inflections of the industry. You know, how you connect together all of the different, the high performance logic, the compute memory, DRAM, high bandwidth memory, all of those different chiplets and different components, there’s 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 roadmaps, I think more than anyone else. And so when we’re placing those bets, you talked about appetite for risk, we have pretty high visibility where to place the bets because we’re in such deep 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, have very high confidence there are innovations that we’re 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 for x revenue in the last five years and I have high confidence that we’ll continue a very high growth rate going forward. Very helpful. Thank you.

Conference Operator: Thank you. And our next question comes from the line of Charles Hsieh from Needham and Company. Your question please.

Liz Morale, Vice President of Investor Relations, Applied Materials1: Hey, good afternoon. Thanks for taking my question. I have a question more on China. I think maybe two months ago, I’m standing on China. There’s a new company called the site carrier.

They launched 30 new tools. I believe lots of overlap with AMAT 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. I wanted to ask if any thoughts you can provide on that particular competitor and what could be the implications for a market share, especially I think the team just talked about actually gaining more share in China as the customers more transitioning from 55, 40 nanometer to 28 nanometer? Thank you.

Gary Dickerson, President and CEO, Applied Materials: 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.