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, everyone, and thank you for joining Applied's fourth quarter of Fiscal 2020 Earnings Call. 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 Applied's most recent Form 10Q and AK 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 materials, 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'm very pleased to report that Applied Materials delivered record revenue in our fourth fiscal quarter and earnings hit an annualized run rate of $5 per share for the first time. For the fiscal year, we grew revenues 18% and earnings 37% while making significant strategic investments in new technologies and products, to address the industry's highest value problems and position the company for sustained long-term success. These results are all the more impressive considering the unprecedented disruptions we've navigated this year. I really want to thank all our employees, suppliers, and partners for their resilience and adaptability. Our teams have switched to new ways of working, delivered on our commitments to customers and investors, and kept our technology and product development on track. While our actions to date are driven by a need to protect the health and safety of our employees while keeping our company strong, I'm very excited about the long-term benefits of working in new ways especially remote support in R&D. In today's call, I'll begin by sharing our current view of the market environment. Then, as this is the end of our fiscal year, I'll highlight some of our major accomplishments in 2020 before describing the growth drivers and inflections that will shape our markets over the next several years. I'll conclude by outlining our strategy and investments that will drive Applied's long-term profitable growth. As we adapt to the challenges created by COVID-19 and prepare for the post-pandemic era, we are seeing fundamental changes in many areas of our lives, and the world is depending on semiconductors more than ever. Investments in IT and communications infrastructure, combined with the accelerated digital transformation of companies and the economy as a whole, are driving very robust semiconductor and wafer fab equipment demand. In Foundry Logic, we see leading-edge customers building out their fabs and aggressively driving advanced R&D. This gives us confidence that current investment levels are sustainable into 2021 and beyond. In addition, specialty markets underperformed in 2020 due to headwinds in industrial and automotive, and therefore represent an upside for 2021 as these sectors rebound. In memory, spending is growing faster than Foundry Logic this year as customers push forward with their technology roadmaps. We see NAND outgrowing DRAM in 2020 and then DRAM growing significantly faster than NAND in 2021. Consistent with the perspective we shared on the August call, our outlook remains very positive. We are outperforming the market and we are demonstrating we can grow independent of the spending mix. This quarter, semiconductor systems revenues were an all-time . The midpoint of our guidance will be up another 12% next quarter. For the fiscal year, semi-systems revenue grew 26% with broad-based strength across products and device types. Our traditional leadership businesses that provide solutions for creating and modifying materials and structures are benefiting from innovations that enable leading-edge transistors and interconnects. For example, our metals deposition business, technology that is critical to interconnect performance, grew revenues 42% in fiscal 2020 to nearly $2.2 billion. In our businesses that focus on shaping and analyzing materials and structures, we have significant opportunities to grow our share and we're demonstrating our strong momentum. In fiscal 2020, our etch business generated record revenues, growing nearly 30% year-on-year. We're gaining share in Conductor Etch as we win new applications in DRAM and Foundry Logic. Our inspection business also delivered record performance as systems revenues increased 46% for the year. We have significant traction with leading-edge customers and are winning share in optical wafer inspection and e-beam with new products that are still in early stages of adoption. As the benefits of traditional 2D Moore's Law scaling slow down, leading companies are describing how the industry, is transitioning to a new playbook to drive performance, power, area cost, and time to market of new devices. This PPAC-T playbook includes new architectures, new structures, new materials, new ways to shrink geometries, and new packaging technology. Applied is uniquely positioned to accelerate this playbook. The breadth of our product portfolio is a key advantage because it allows us to combine technologies in innovative new ways. For example, in patterning, where we generated nearly $1.1 billion of revenue in fiscal 2020, we have been winning new applications across multiple customers with a new product that delivers a novel hardmask material combined with a co-optimized etch solution to open the hardmask. This is a great example of a new class of highly differentiated products we call integrated material solutions, or IMS. We have numerous IMS engagements with our leading customers, and I'm very excited about the IMS products we'll be bringing to market in the next several years. Another area where we are creating value using our broad capabilities is advanced packaging that enables chips to be connected in new ways. Our packaging business is scaling, generating record revenues of a half a billion dollars for the year, up over 20% from fiscal 2019. We're also expanding our ecosystem footprint through a combination of organic investments and partnerships. Moving to service, AGS also delivered record revenues for the quarter and the year. The portion of AGS revenue generated from subscription-style business also grew to record levels. In fiscal 2020, we increased the number of tools covered by long-term service agreements by 13%. As a result, 60% of our service and spare parts business now comes from the stickier and more predictable recurring revenue streams. Our renewal rates for long-term agreements are also very high at more than 90%. This illustrates the value customers see in our advanced service products. Rounding out our portfolio with display, we hit our 2020 revenue target in a challenging market. Our outlook for 2021 is similar to this year, with no significant changes to the view we shared in our last call. However, we're starting to see some encouraging leading indicators in of future growth that we'll be watching closely in 2021. These include increasing adoption of organic LED displays, OLED, for IT applications, higher OLED adoption in the smartphone market with more than 70% of the 5G handsets launched to date equipped with OLED screens, and foldable OLED handsets approaching a price point that could spur volume adoption. As I've said before, we're optimistic about the long-term opportunities for Applied in the display market as we focus on addressing the OLED inflection and expanding our available market. Finally, as I look back on our accomplishments this year, I'm also very proud of our new 10-year roadmap for environmental and social responsibility that we announced over the summer. This roadmap lays out the detailed actions behind our vision to make possible a better future for everyone. We've taken a holistic approach to these plans that considers our operations, how we work with customers and suppliers, and how our technology can be used to advance sustainability on a global scale. We call our framework 1X, 100X, 10,000X, and we've used it to rally the company around challenging new goals and commitments. Before I conclude, I'll take a few minutes to describe the longer-term growth drivers we see for Applied. As I look ahead to the next decade, our opportunities have never been better. There are numerous trillion-dollar inflections that can be enabled by advances in materials engineering. from next generation displays and AR, VR, to electrification of transport and personalized healthcare. However, the one inflection that really stands out is AI. AI has the potential to change everything, and it will touch every major industry and area of the economy. AI also has major implications for the electronics and semiconductor ecosystem. First, we're moving from an application-centric to a data-first world where almost all data will be generated and consumed by machines. This means that the industry's growth will no longer be limited by humans' ability to create or consume data. Second, The new computing approaches needed to make sense of the massive volumes of data available will work best with workload-specific hardware built from customized and entirely new types of silicon. This diversification of designs and devices is great for the industry. And third, training neural networks for AI computing is incredibly power-intensive. So there's a huge imperative for the industry to drive improvements in the performance per watt of computing solutions. The advances in technology needed to unlock the potential of AI create tremendous opportunities for applied materials. We've aligned our strategy and investments around this vision for the future, and we're uniquely positioned to accelerate the industry's new PPAC-T playbook to advance power, performance, area costs, and time-to-market of next-generation semi-devices. Before I hand the call over to Dan, let me quickly summarize. Despite the unprecedented challenges of 2020, Applied is delivering record performance. We're outperforming the market overall and have strong momentum in key growth areas like etch and inspection. The demand for semiconductors remains very strong, driven by IT infrastructure, digital transformation of businesses, and an acceleration of longer-term technology trends, especially AI. Our future opportunities have never been better. We've been investing in next-generation technologies that are critical for the AI ecosystem and laying the groundwork for applied future growth. Our strategy to accelerate the PPAC-T playbook is already yielding results for our customers and applied. And as I look ahead, I'm very excited about the innovative new products and integrated solutions we will bring to market in 2021 and beyond. Now, I will turn the call over to Dan.