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 first quarter of Fiscal 2021 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 8K 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. Before we begin, I have a calendar announcement. On April the 6th, Applied plans to host a virtual investor meeting to discuss our markets, strategies, and financial targets. We hope you'll save the date. And now I'd like to turn the call over to Gary Dickerson.

Thanks, Mike. I'm very pleased to report another quarter of record performance for Applied Materials. Since the beginning of our fiscal year, we've seen a continued acceleration of demand in our semiconductor business as major macro and industry trends fuel increasing consumption of silicon across a wide range of markets and applications. 2020 was an excellent year for Applied as we outperformed our markets while growing our earnings nearly twice as fast as revenue. We carry this strong momentum into 2021. Our broad portfolio and exposure to technology inflections, combined with the traction of our new products, put us in a great position to substantially outgrow our markets again this year and into the future. I want to thank our employees and suppliers for everything they are doing to deliver for our customers and shareholders. Our operations and field teams are doing an incredible job as we run the company at record levels and successfully overcome significant logistics and other challenges created by the pandemic. In R&D, our teams are working in new ways to accelerate the time to market of critical innovations for our customers. And we're doing all of this while maintaining a relentless focus on keeping our colleagues and families safe. As Mike outlined, we plan to hold an investor meeting in early April. At that event, we will provide our in-depth analysis of the major growth drivers and inflections that will shape our markets over the next five to ten years and describe our strategy to deliver innovative new technologies to enable our customers' power, performance, and cost roadmaps, accelerate their time to market, and drive applied long-term profitable growth. In today's call, I will focus my comments on the near term, first covering the dynamics we currently see in the market, and then highlighting some of our recent accomplishments that illustrate the momentum we have across the business. Starting with a high-level view of our markets, we are seeing a diverse combination of macro and technology factors fueling very strong and sustainable demand for semiconductors. As the world continues to navigate the current challenges, and prepares for a post-pandemic era, the digital transformation of the economy is being accelerated. Companies are rethinking and reengineering the way they operate, and there's an immense pull for advanced technology. In addition, consumers are making different choices about the way they spend their time and the products and services they buy. I strongly believe many of the changes we're seeing today are irreversible. since new ways of working offer compelling advantages in terms of time and productivity. Within the electronics ecosystem itself, key technology inflections are driving increasing silicon consumption. I'll highlight three examples. Cloud service providers are forecasting data center CapEx growth of more than 15% this year, on top of record spending in 2020. With the broader adoption of 5G handsets, silicon content in smartphones is growing at double-digit rates. And in automotive, where there are known supply shortfalls, total semi-consumption is expected to expand more than 15% this year. Translating these factors to industry investments, in FoundryLogic, leading-edge investments are very strong and have been well articulated by our customers. On top of that, our ICAPS business that serves the IoT, communications, auto, power, and sensor markets is expected to grow even faster and is on track to exceed $3 billion of revenue for the fiscal year. In NAND, 2020 was a strong recovery year with spending up more than 30%, and in 2021, we expect customers to invest at modestly higher levels. In DRAM, supply-demand fundamentals look more favorable than NAND, and as a result, we still expect DRAM investments to outgrow NAND this year. All of this adds up to a very strong demand environment for wafer fab equipment, and we believe this strength is sustainable well beyond 2021. Digital transformation touches every sector of the economy and is non-discretionary for many industries. In addition, industry investments appear disciplined. When you look at wafer fab equipment intensities, that's wafer fab equipment revenues as a percentage of semiconductor industry revenues, they are well below recent peaks in all three of the device segments, Foundry Logic, NAND, and DRAM. Turning to Applied's business performance, our semiconductor systems revenues for the first fiscal quarter were up 26% compared to the same period last year. At the midpoint of our Q2 guidance, semi-systems will be up around 50% year-on-year, and based on our current outlook, we expect to again grow faster than the market for the year as a whole. There are a number of factors contributing to this outstanding performance. First, Our business is very well balanced across devices and customers. Second, we have the broadest portfolio of products and capabilities, spanning materials creation, modification, removal, and analysis. These technologies, combined with our ability to connect them in unique ways, are fundamental to enabling our customers' power, performance, and cost roadmaps. And third, we have an incredible pipeline of new products and integrated solutions that are winning applications, expanding our served opportunities, and reducing the time it takes our customers to bring important new innovations to market. Node-over-node opportunity growth in both foundry logic and memory favors applied leadership businesses, including EPI, thermal processing, CMP, and PVD. In fact, we believe our PVD business can grow more than 40% this year and generate more than $3 billion of revenue. Our latest generation products have strong momentum, and more than 25% of our 2021 revenues will come from critical applications that we've targeted and won since 2018. Some highlights include CBD, where we grew revenues 30% in 2020 and have strong customer pull for new, differentiated material solutions that are highly enabling for advanced patterning. Conductor Edge, where we're winning new applications in DRAM and Foundry Logic that contributed to our 32% revenue growth in this market last year. Process diagnostics and control, where we believe we can grow more than 25% this fiscal year on top of the 45% growth we delivered in 2020, thanks to new optical wafer inspection and e-beam products that are still in the early stages of adoption. And packaging, where we expect revenues to be up 50% year-on-year on top of strong growth in 2020. Also... Over the past few years, we've started introducing a new class of highly differentiated products that we call Integrated Material Solutions, or IMS. Our IMS products can combine multiple process technologies with onboard metrology and sensors within a single system that are capable of enabling unique films, structures, and devices. We have numerous IMS engagements with our leading customers, and this year we will generate meaningful revenues from our initial IMS products. Moving to service, AGS delivered another record quarter. Over the past five years, we've grown our services business at a compound annual growth rate of 12%, which is twice as fast as our installed base growth. In this period, we've increased the percentage of service and parts revenue generated by service agreements from around 40% to more than 60%. These long-term agreements enable us to deliver more value to customers with our advanced service products while providing us with stickier and more predictable recurring revenue streams. Our renewal rates for these agreements are also very high at over 90%. Finally, in display, our outlook remains consistent with the view we shared in November. We expect 2021 revenues to be similar to 2020 as we continue to manage through the current market trough. We do see encouraging leading indicators of future growth, including higher OLED adoption in the smartphone market, with the vast majority of 5G handsets being equipped with OLED screens. and increasing OLED consumption beyond phones in TVs and IT applications. We still believe OLED is a compelling technology, and this inflection is a great catalyst for the display market that will create expanded opportunities for Applied. Before I hand the call over to Dan, I want to again thank all our employees for their outstanding contributions to Applied's success. 2021 is off to a great start with record results and outlook. We see strong and sustainable demand in our semiconductor business, fueled by a combination of macro and technology drivers. We have great momentum thanks to our broad market exposure and differentiated portfolio of new products. And we believe we're in a great position to outperform our markets again this year. Finally, we're looking forward to sharing our long-term vision for the industry and applied materials at our investor event in April. Now Dan will give his perspective on the business environment and provide more color on our financial results and operational performance. Dan?