Earnings report sharing/Semiconductor equipment giant Applied Materials (AMAT) ends revenue decline! Stock price falls?

$Applied Materials(AMAT.US) announced its Q2 2024 earnings after the market closed on May 16th. The data showed that its revenue was higher than the market expectation of $6.646 billion, and EPS was also higher than the market expectation of $1.99. After the earnings release, the stock price fell 1% in after-hours trading! So what other data is worth paying attention to? Let's take a look together with Dolphin Research!

AMAT refers to Applied Materials, a US-based multinational company founded in 1967. It is one of the leading suppliers of semiconductor manufacturing equipment and materials for semiconductors, flat-panel displays, solar cells, etc.

The company's products include thin-film deposition equipment, chemical mechanical polishing equipment, ion implantation equipment, etc. These equipment play an important role in manufacturing chips and other electronic components. AMAT has business and R&D centers worldwide and is a key player in the semiconductor industry.

Q2 2024

Revenue increased 0.2% YoY to $6.646 billion, compared to $6.71 billion last quarter, higher than the market expectation of $6.54 billion;

Revenue breakdown by three major segments:

Semiconductor Systems segment revenue was $4.901 billion, compared to $4.909 billion last quarter;

This segment accounted for 74% of total revenue and can be further divided into three businesses:

Foundry, Logic and Other Systems, which accounted for the highest proportion of revenue at 65%, compared to 62% last quarter and 84% in the same period last year;

DRAM business accounted for 32%, down from 34% last quarter;

Flash memory business accounted for 3%, slightly down from 4% last quarter;

Global Services segment revenue was $1.53 billion, compared to $1.476 billion last quarter. Despite the impact of export bans, it still hit a record high, with over 66% of revenue coming from long-term subscriptions and a renewal rate of over 90%;

Display and Related Markets segment revenue increased 7% YoY to $179 million, compared to $244 million last quarter;

EPS increased 4.5% YoY to $2.09, compared to $2.13 last quarter, higher than the market expectation of $1.99;

Gross margin increased 0.7 percentage points YoY to 47.5%, compared to 47.9% last quarter, higher than the expected 47.3%;

Future Expectations

Revenue for the next quarter is expected to be $6.65 billion, plus or minus $400 million, and EPS is expected to be $1.83-$2.19. Both indicators' YoY growth rates are higher than last quarter and also higher than the market expectations of $6.59 billion and $1.98, while gross margin is expected to rise to 47%;

By segment, Semiconductor Systems may end the decline, with a 3% YoY increase, Global Services segment is expected to grow 7% YoY, and Display and Related Markets segment is expected to grow 4% YoY;

Summary

This quarter's revenue and EPS growth rates both reached the upper-middle range of previous forecasts, and gross margin was higher than expected YoY. In addition, next quarter's guidance is also higher than market expectations. By region, China contributed the most revenue at 43%, with revenue of $2.86 billion this quarter compared to $3 billion last quarter. South Korea and Taiwan ranked second with a combined 15% revenue share, while the US ranked third with 13%. By segment, the most outstanding performer was the DRAM business, which saw a significant surge due to the continued recovery of the memory industry, with a YoY growth rate of 186%. The decline in the Flash memory business also narrowed compared to last quarter, while the Foundry segment's decline expanded;

In the memory field, the continued recovery is mainly due to the strong demand for HBM in the DRAM business. Regarding the recent surge in HBM market demand, AMAT stated that the HBM market will grow at a 50% CAGR. Since HBM is composed of multiple stacked DRAMs, this will bring more demand for semiconductor equipment. HBM packaging revenue is expected to increase nearly 6x in 2024 to over $600 million, compared to the previous quarter's forecast of 4x;

Regarding the semiconductor manufacturing equipment market, Applied Materials indicated strong market trends, with cloud computing companies' capital expenditures reaccelerating and fab capacity utilization increasing across all equipment types. Inventory levels are beginning to normalize, and these factors will drive semiconductor market expansion and overall demand to maintain steady growth. As semiconductors are the foundation of reshaping the global economy, the demand for high-performance and efficient chip manufacturing capabilities will benefit Applied Materials in the long term due to its technology and position. In addition, they are optimistic that the data center and AI megatrends will drive the semiconductor market, and cloud service providers' Q1 earnings reports have mostly increased capital expenditure plans. Therefore, data centers are expected to replace PCs and smartphones as the driving force in advanced process technology in the coming years. Revenue from GAA processes is expected to exceed $2.5 billion this year and potentially double next year. Meanwhile, revenue from advanced packaging technology has grown to $1.7 billion this year and is expected to double in the coming years;

Furthermore, AMAT remains optimistic about long-term development. The semiconductor market is expected to grow faster than overall GDP, and as chip designs become more complex, the WFE market will grow at least as fast as the semiconductor market. Applied Materials has the best and broadest solutions in the semiconductor market, which will drive its growth to continue outpacing the overall market, leading to its Global Services segment growing faster than the Semiconductor Systems segment;

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