Applied Materials, Inc. (NASDAQ:AMAT) is a global leader in the semiconductor equipment manufacturing industry, providing a wide range of innovative solutions that enable the fabrication of advanced semiconductor devices. With a strong focus on materials engineering and a deep understanding of the industry's evolving landscape, Applied Materials is well-positioned to capitalize on the growing demand for semiconductors across various end markets.

Financials

In the fiscal year 2023, Applied Materials reported impressive financial results, with annual net income of $6.86 billion and annual revenue of $26.52 billion. Applied Materials' annual operating cash flow reached $8.70 billion, while its annual free cash flow stood at $7.59 billion, showcasing its robust financial performance and ability to generate substantial cash flows.

Looking at the quarterly data, Applied Materials' second quarter of fiscal 2024 saw net revenue of $6.65 billion, a slight increase compared to the same period in the prior year. Gross margin for the quarter was 47.5%, up 70 basis points year-over-year, driven by lower material, freight, and logistics costs, as well as favorable changes in customer and product mix.

Segment Performance

The Semiconductor Systems segment, which accounts for the majority of Applied Materials' revenue, generated $4.9 billion in the second quarter, remaining strong despite some headwinds. The Applied Global Services (AGS) segment, which provides integrated solutions to optimize equipment and fab performance, reported a 7% year-over-year increase in revenue to $1.53 billion, reflecting the growing demand for Applied Materials' services and solutions.

The Display and Adjacent Markets segment, which encompasses products for manufacturing liquid crystal and OLED displays, saw revenue of $179 million, up 7% compared to the same period in the prior year. This increase was primarily driven by higher customer investments in display manufacturing equipment for IT products, including laptops, monitors, and tablets.

Business Overview

One of the key drivers of Applied Materials' growth is its focus on enabling and winning major device architecture inflections in the semiconductor industry. Applied Materials has made significant investments in developing a broad and connected portfolio of materials engineering solutions that are critical to enabling the industry's roadmap, from advanced logic transistors and interconnects to high-performance DRAM and high-bandwidth memory (HBM) technologies.

In the advanced logic segment, Applied Materials is well-positioned to capture the transition to gate-all-around transistor technology, which is expected to drive significant growth. Applied Materials forecasts revenue from gate-all-around nodes to exceed $2.5 billion in fiscal 2024 and potentially more than double in 2025 as the technology ramps up to high-volume manufacturing.

Applied Materials' leadership in DRAM technology is also a key strength, with Applied Materials gaining over 10 percentage points of market share in the DRAM segment over the past decade. The increasing complexity of DRAM architectures, including the integration of logic technologies in the peripheral circuitry, plays to Applied Materials' strengths in materials engineering and co-optimization.

In the critical area of advanced packaging, Applied Materials has seen its revenue grow to approximately $1.7 billion in fiscal 2024, and Applied Materials believes this business could double again as heterogeneous integration becomes more widely adopted beyond the AI datacenter market.

Applied Materials' focus on providing more complete and connected solutions to its customers is also paying dividends, with the portion of revenue generated by integrated solutions growing from approximately 20% in 2019 to 30% in 2024. This approach helps customers accelerate major device inflections and transfer new technologies into high-volume manufacturing faster, supporting the double-digit growth of the Applied Global Services segment.

Geographic Distribution

Geographically, Applied Materials' revenue is well-diversified, with approximately 83% of its revenue generated from customers outside the United States in the second quarter of fiscal 2024. China remains a significant market, accounting for 43% of Applied Materials' revenue in the quarter, followed by Korea at 15% and Taiwan at 15%.

Outlook

Looking ahead, Applied Materials provided guidance for the third quarter of fiscal 2024, expecting revenue of $6.65 billion, plus or minus $400 million, and non-GAAP earnings per share of $2.01, plus or minus $0.18. Within this outlook, Applied Materials expects Semiconductor Systems revenue of around $4.8 billion, AGS revenue of about $1.57 billion, and Display revenue of around $245 million.

Conclusion

Applied Materials' strong financial performance, innovative product portfolio, and strategic focus on enabling the semiconductor industry's roadmap make Applied Materials a compelling investment opportunity. With its deep customer relationships, materials engineering expertise, and ability to capture value across the industry's value chain, Applied Materials is well-positioned to continue its growth trajectory and deliver long-term value for its shareholders.