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 2023 Earnings Call. Joining me are Gary Dickerson, our President and CEO, and Bryce Hill, 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 10-K filing 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. Later this month, Applied Materials is participating in the SPIE Advanced Lithography and Patterning Conference. For those who aren't traveling to San Jose for the conference, we plan to hold a new product launch event on our IR website on Tuesday, February 28th at 9 a.m. Pacific time. We hope you'll join us. And with that introduction, I'd like to turn the call over to Gary Dickerson.

Thank you, Mike. Applied materials executed well in our first fiscal quarter, delivering results towards the high end of our guidance range. We also grew our backlog for the ninth consecutive quarter. Going forward, we expect backlog to start declining as we move through 2023. Overall, we are making good progress closing our supply versus demand gap. However, very recently, one of our major suppliers encountered a disruption that will impact our second quarter shipments. Bryce will provide more details about this when he shares our guidance. In my prepared remarks, I will cover three main topics. Our current outlook for 2023, our longer-term growth thesis for the industry, and how Applied is positioned to grow faster than our markets overall, and finally, a brief overview of the investments we are making to productively scale the company and accelerate our customers' roadmaps. Let me begin with our near-term perspective on the market. In this environment of mixed macroeconomic signals, our customers are facing a variety of demand dynamics. Consumer-driven markets, including PCs and smartphones, are clearly weaker while inflection-driven markets remain more resilient, especially high-performance computing and AI, automotive, industrial automation, and clean energy. In terms of wafer fab equipment investments, 2023 will be a down year for memory spending as customers rebalance inventories and defer capacity additions in both NAND and DRAM. We expect DRAM to pick up ahead of NAND potentially beginning to recover later this calendar year. We now see leading-edge Foundry logic spending being slightly down year on year. While near-term demand headwinds are causing customers to trim capacity additions, they remain firmly committed to strategic investments in advanced nodes to win the battle for next-generation technology leadership. Our view of ICAPS, chips for IoT, communications, auto, power, and sensor applications, is incrementally more positive than it was last quarter, and we now see spending being up year on year. Leading ICAPS companies are investing in both technology and capacity to serve growing demand across a wide range of verticals. In addition, there is strong government support around the world to build resilient, regionalized ICAPS supply. Based on what we're seeing in our business and hearing from our customers, we believe Applied Materials is well positioned to outperform the market in 2023. The resilience in our business is driven by several contributing factors. First, our balanced market exposure, which allows us to perform well in a variety of spending mix environments. Second, our position with technology leaders who remain focused on investing in their long-term strategies. We have strong positions at all the key technology inflections in advanced foundry logic, ICAPS, DRAM, and advanced packaging. Third, our record backlog, of which a significant percentage is made up of our most differentiated products, including metal deposition, that is uniquely enabling for critical next-generation wiring resistance improvements. And finally, our services business, which is on track to grow in 2023, even after the impact of current U.S. export control regulations. More than 60% of our service revenue is generated from subscriptions in the form of long-term agreements. These agreements have an average tenure of 2.6 years and a high renewal rate of more than 90%. While we are cognizant of near-term volatility in our markets and ready to respond to both upside or downside, our long-term outlook remains highly positive. Semiconductors are the foundation of the digital economy, making them more strategically and economically important than ever before. Around the world, governments are incentivizing the industry to build regional manufacturing capacity and accelerate investments in strategic next-generation technologies. The semiconductor industry remains on track to grow from approximately $600 billion in 2022 to a trillion dollars or more by the end of this decade. Technology complexity of chips is increasing significantly As traditional 2D Moore's Law scaling slows and the industry transitions to a new PPAC-T playbook to drive improved performance, power, area cost, and time to market. In addition, as 2D Moore's Law decelerates, we are seeing average die sizes in advanced foundry logic grow. This drives the need for additional wafer capacity while also accelerating the transition to chiplets and heterogeneous designs. Beyond advanced packaging, major technology inflections in transistor, wiring, and patterning are also enabled by new materials and materials engineering. These inflections increase the size of applied available markets. As we have been investing in these inflections for multiple years, we are now well positioned to capture a larger share of our available market. We have a deep pipeline of solutions to enable new wiring innovations, gate all-around transistors, backside power delivery, heterogeneous integration, and hybrid bonding. Our broad portfolio of products enables us to offer customers traditional unit process equipment all the way to integrated material solutions, or IMS, that combine multiple process technologies with onboard metrology and advanced data analytics in a single platform. We are very confident about the growth trajectory of the industry and applies outperformance within that environment. To support this growth, we are making strategic investments in new manufacturing, logistics, and R&D infrastructure. The scale, speed, and location of these investments will be dependent on receiving government support, some of which we have already secured. Beyond simply expanding capacity, we see these infrastructure investments as a catalyst to change the way we collaborate with customers, suppliers, and research partners. For example, in the coming months, we expect to break ground on our next generation R&D center in Silicon Valley. We believe this new high velocity platform will increase innovation and commercialization speed while reducing the overall cost of bringing new manufacturing technologies to market. As the industry and applied materials scale, we need to do so productively and efficiently. This is a major strategic theme for us And across the company, we are focused on driving up productivity and implementing new ways to work that are better and faster. Before I hand the call over to Bryce, let me summarize. While the economy and semiconductor industry are facing challenges in 2023, we remain confident that Applied is well positioned to outperform our markets this year. Our resilience is underpinned by our large backlog of differentiated products, growing service business, and strong positions with leading customers at key technology inflections. Our longer-term outlook remains highly positive as secular trends create opportunities for Applied to outgrow the semiconductor and wafer fab equipment markets by enabling the PPAC-T roadmap with our differentiated portfolio of materials engineering solutions. In line with this view, we are making strategic investments in R&D and infrastructure while driving improvements in productivity and speed across the organization. Now, Bryce, it's over to you.