Applied Materials, Inc.

Welcome to the Applied Materials Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. I would now like to turn the conference over to Michael Sullivan, Corporate Vice President. Please go ahead, sir.

Good afternoon, and thank you for joining Applied Second Quarter, a fiscal 2020 earnings call, which is being recorded. Joining me are Gary Dickerson, our President and CEO, and Dan Dern, our Chief Financial Officer. Before we begin, I'd like to remind you that today's call contains forward-looking statements which are subject to risks and uncertainties that could cause our actual results to differ. Information concerning the risks and uncertainties is contained in Applieds Form 10-Q and 8-K filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures are found in today's earnings press release and in our quarterly earnings presentation, which are available on the IR page of our website at AppliedMaterials.com. And now I'd like to turn the call over to Gary Dickerson.

Thanks, Mike. I'd like to start today's call by addressing the topic at the forefront of everyone's mind, the COVID-19 pandemic, which has created unprecedented challenges around the world. My thoughts and best wishes go out to all of you, and especially those whose families have been directly affected by the illness. As the situation has evolved over the past several months, our actions and applied materials have been guided by two key principles. First, maintaining the trust of our employees, customers, suppliers, and partners. And second, focusing on driving initiatives that will allow us to emerge stronger over the longer term. As always, our number one priority is the health and well-being of our employees and their families. Our workforce remains highly productive. Many are working effectively from home, and for those working on site, we've implemented strict safety protocols in close collaboration with our medical advisors, customers, and suppliers. In our factories, labs, and logistics centers, we've changed physical layouts to allow for social distancing, introduced enhanced cleaning and sanitation procedures, implemented health screenings, and mandated the use of personal protective equipment. All our employees and contingent workers have continued to receive full pay, and we've introduced additional incentives and benefits for employees supporting our critical operations. While we've been working through certain supply chain constraints, we have remained laser focused on the needs of our customers and doing what it takes to keep their factories running smoothly and their R&D programs on track. Across the company, I see amazing examples of our manufacturing, logistics, and field operations teams going above and beyond to keep our customers and the industry moving forward in a difficult set of circumstances. We're also defining new ways of working with customers that not only provide solutions today, but will also create significant benefits over the long term. Finally, in line with Applied's long-held values to make a positive contribution to the communities where we live and work, we've created a global charitable COVID fund. The purpose of this fund is to address immediate humanitarian needs and combat long-term effects on local communities and the nonprofit sector. We've also donated masks and equipment to medical facilities, and in addition, there have been numerous employee-driven initiatives across the company. It's inspiring to see these employees stepping forward to help, volunteering their time, skills, and resources to demonstrate our shared passion to make a difference. Now let me turn to the agenda for today's call. I'll begin with a summary of our second quarter performance and near-term outlook. Then I'll provide a longer-term perspective on our markets. And I'll finish with a summary of our strategy, highlighting some of our recent accomplishments. Later, Dan will give more color on our financial results, operational performance, and business environments. Starting with our near-term business outlook, demand from our semiconductor customers remains strong. In fiscal Q2, our financial performance was negatively affected by our ability to ship systems to customers as shelter-in-place and lockdown orders impacted some of our suppliers' operations, particularly in the Bay Area and Malaysia. However, we're in a much better position today, thanks to the flexibility in our global operations footprint we've been able to make adjustments and we continue to work closely with our suppliers to ensure they can meet our needs. Our supply chain remains a critical area of focus as we enter our third quarter with record orders and a record backlog for our semiconductor and service businesses combined. In terms of the semiconductor industry environment, I will focus my comments on what we currently see in the market and what we're hearing from customers. In FoundryLogic, demand at the leading edge remains very healthy with a strong commitment from these customers to build out their factories and push forward with their development roadmaps. However, we're seeing some pockets of weakness in specialty markets, mainly as a result of a pullback in the automotive and industrial sectors. In memory, there are no major changes to the outlook we provided last quarter. We continue to see a positive progression in the market with inventory levels approaching normal and improvements in pricing trends. As a result, we're seeing incremental strength in investment by memory customers as we move through the year. Based on the visibility that we have today, underlying demand for semiconductor equipment is robust. And even when COVID-related effects are taken into account, we still believe that our semiconductor business can deliver strong double-digit growth for our fiscal year. In display, we expect our FY20 revenues to be close to FY19 as the industry navigates the bottom of this spending cycle. Our display business remains solidly profitable even as we invest in next-generation products ready for when the market picks up. Looking further out, we're well aware of global economic concerns. While I'm not going to speculate on possible macro scenarios, I will share some of the key assumptions that we're using to guide our strategy, which are based on carefully monitoring market indicators and staying very close to our customers. Clearly, consumer spending is a potential headwind for many sectors, including the electronics industry. At the same time, the global pandemic is acting as an accelerator for key technology inflections that were already underway. Working from home, learning from home, and e-commerce are driving investments in cloud data centers and communications infrastructure. We expect companies to build stronger business continuity plans, which will include geographic redundancy and increased use of automation and IoT technologies. and the adoption of AI and big data remains non-discretionary for many companies. As I've said before, these game-changing technologies will transform entire industries, and there will be big winners and losers through the transition. My personal view is that we will see significant and permanent changes in the way companies operate and prioritize their investments. In fact, this is already happening in our business and the ways we are working with customers. Over the past several years, we made significant investments in state-of-the-art digital infrastructure, sensors and metrology, data science, machine learning, and simulation. The combination of these technologies enables us to reduce product development cycles, speed up transfer of new technologies from lab to fab, and optimize cost output and yield for our customers in volume production. In the past few months, our field and R&D teams have been working with customers to further expand secure data sharing to enhance remote support and accelerate the deployment of these powerful new tools. In our own labs, we also have many examples of R&D teams increasing utilization and productivity of lab assets by applying creative new strategies for remote operations. While near-term actions are being driven by necessity, The long-term benefits of working this way are compelling as they provide significant time to market and cost advantages for applied and our customers. Our long-term perspective about AI and big data shaping the next decade is unchanged, and we see strong potential for certain elements of these inflections to scale faster than previously expected. As I've said before, to enable these new computing systems, and unlock the potential of AI technologies, major advances in the power, performance, and area of cost, or PPAC, of semiconductor devices are needed. Based on recent input from customers, we've updated our PPAC framework to PPAC-T, where T stands for time to market, acknowledging the enormous value of speed. Applied has by far the largest broad portfolio of technologies and products to accelerate the PPACT playbook, which spans creating, shaping, modifying, analyzing, and connecting structures and devices. We're the only company with process and metrology under one roof, and we have highly differentiated silicon and packaging lab capabilities. As a result, We have a significant advantage in our ability to accelerate new PPACT innovations for the semiconductor ecosystem. The capabilities we have built and the multi-year investments we have made are yielding results. According to VLSI Research's recently published report, we outperformed the market in both semiconductor equipment and services last year. Our performance in deposition technology was especially strong. with our PVD business gaining seven points of share. We also have great momentum in metrology and inspection. Our process diagnostics and control group delivered record revenue in the first half of the year. One of the key contributors to this record performance is our new optical inspection system that we will be officially launching later this year. Before I hand the call over to Dan, I will quickly summarize. First, As we navigate the challenges created by COVID-19, we've rallied the company around two guiding principles. Maintain the trust of employees, customers, suppliers, and partners, and focus on driving actions that ensure applied materials emerges stronger over the long term. Second, while we're mindful of potential macroeconomic headwinds, based on what we see and hear today, semiconductor equipment demand remains robust and our supply chain is getting healthier. Third, we remain fully committed to our strategy to accelerate the PPACT playbook, and our pipeline of new innovative products and integrated processes has never been better. Now I will turn the call over to Dan.