Applied Materials(US:AMAT)2024-02-16 00:55Financial Data and Key Metrics Changes - Applied Materials reported Q1 2024 revenue of $6.7 billion, slightly down year-over-year, but non-GAAP gross margin increased by 110 basis points to 47.9% [24][25] - Non-GAAP operating expenses grew by 5.6% to $1.23 billion, while non-GAAP EPS increased nearly 5% to $2.13 [24][25] - The company generated $2.3 billion in operating cash flow and $2.1 billion in free cash flow, distributing $966 million to shareholders, including $266 million in dividends and $700 million in buybacks [26] Business Line Data and Key Metrics Changes - Semiconductor Systems revenue was strong at $4.91 billion, with record DRAM and edge system sales, and a non-GAAP operating margin of 35.7% [25] - Applied Global Services (AGS) revenue increased approximately 8% year-over-year to nearly $1.8 billion, marking its 18th consecutive quarter of growth, with a non-GAAP operating margin of 28.3% [25][17] - Display segment revenue was $244 million, with a non-GAAP operating profit of 10.2% [25] Market Data and Key Metrics Changes - The company expects NAND revenues to increase year-on-year, but it will remain less than 10% of total wafer fab equipment spending [7] - High-bandwidth memory (HBM) is projected to grow at a 50% compound annual growth rate, with HBM packaging revenues expected to reach almost $0.5 billion in fiscal 2024 [9][11] - The DRAM market share for Applied has increased significantly, with revenues larger than its two closest process equipment peers combined [10] Company Strategy and Development Direction - The company is focused on an inflection-focused innovation strategy, aiming to accelerate key technology innovations critical for AI, IoT, electric vehicles, and renewable energy [6][7] - Applied Materials is enhancing collaboration with customers and partners to drive innovation and commercialization velocity [16][18] - The company is expanding its global innovation network and has formed partnerships with organizations like Leti and MIT to accelerate ICAPS innovation [16] Management's Comments on Operating Environment and Future Outlook - Management noted that overall market dynamics are improving, with increased capital investment by cloud companies and normalizing memory inventory levels [7] - The company anticipates continued strength in DRAM and leading-edge foundry-logic, despite some project delays [7][8] - Management expressed optimism for 2025, citing improvements in inventory and utilization across the semiconductor market [48] Other Important Information - The company has increased its estimated useful lives of plant and equipment, which positively impacted non-GAAP EPS by $0.03 [27] - The company refined its allocation of stock-based compensation, enhancing visibility over costs without impacting overall operating profit or EPS [27] Q&A Session Summary Question: DRAM performance in China - Management noted high shipments of DRAM from China, expecting normalization from current elevated levels to around 30% over the year [31][34] Question: WFE environment in 2024 - Management expects DRAM to remain strong, NAND to improve slightly, and leading logic to grow as new investments ramp up [36][37] Question: Outperformance expectations for 2024 - Management anticipates continued outperformance due to exposure to fast-growing markets and major inflections [41][43] Question: Advanced foundry-logic program delays - Management acknowledged that delays are affecting schedules but does not expect changes in the ultimate destination of projects [67] Question: ICAPS business growth - Management indicated that ICAPS grew approximately 40% in 2023 and remains a strong market for the company [70]