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 2024 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 our website at ir.appliedmaterials.com. Before we begin, I have a calendar announcement. On Monday evening, February 26th, Applied will host a panel at the SPIE Advanced Lithography and Patterning Conference in San Jose. Joining us will be leading experts from NVIDIA, Intel, IMEC, and Siemens EDA. We'll also have demo stations with several new products and technologies we'll be introducing at the event. There won't be a webcast, so we hope you'll join us in San Jose. And with that introduction, I'd like to turn the call over to Gary Dickerson.

Thank you, Mike. Applied materials made a strong start to fiscal 2024 with first quarter revenue in the high end of our guidance and earnings that exceeded our guided range. Our inflection focused innovation strategy is delivering results. We have outperformed our markets for five consecutive years and believe we are in a great position as customers transition major new chip innovations to high-volume production over the next several years. The breadth of our technology capabilities combined with our deep customer relationships allows us to see inflections early and accelerate key technology innovations that are critical to scaling AI, IoT, electric vehicles, and renewable energy. We have reshaped and expanded our portfolio of solutions that enable next generation transistors, new interconnect schemes, including backside power delivery, high performance DRAM, including high bandwidth memory, and specialty applications in the ICAPS market. In my prepared remarks today, I'll provide some examples of how these inflections grow Applied's available market and are highly accretive to our share. I'll also talk about our long-term strategy to accelerate innovation and commercialization velocity through tighter collaboration with our customers and partners. But to begin, let me share our latest perspective on the market environment. In our discussions with customers, we're hearing that overall market dynamics are improving. There is a re-acceleration of capital investment by cloud companies, FAB utilization is increasing across all device types and memory inventory levels are normalizing. In terms of applied business in 2024, we see leading edge foundry logic being stronger year over year, even though some important projects are delayed. We're forecasting ICAPS demand to be slightly lower than 2023 with weakness and some end markets being offset by strong regional investments. We expect our NAND revenues to be up year on year, but NAND to remain less than 10% of total wafer fab equipment spending. And we see continued strength in our DRAM business driven by customers ramping production of high bandwidth memory. High bandwidth memory where high performance DRAM dies are stacked and connected to logic die with advanced packaging is a key enabler for the AI data center. The dies used in high bandwidth memory are more than two times larger than standard DRAM, which means that more than twice the capacity is needed to produce the same volume of chips. On top of this, the packaging steps needed for die stacking further increase our total available market. High bandwidth memory, or HBM, made up only about 5% of DRAM output in 2023, but is expected to grow at a 50% compound annual growth rate over the coming years. DRAM is a great example of how our inflection-focused innovation approach is working. By focusing on the critically enabling process and packaging steps for next generation technologies, applied has significantly increased our share of the DRAM market. In 2023, we estimate that our DRAM share was more than 10 points higher than it was a decade earlier. And our DRAM revenues were larger than our two closest process equipment peers combined. We're also best positioned for future growth thanks to our leadership and logic technologies that have been implemented for DRAM peripheral circuitry applications to enable significantly increased I-O speed, our strong position in DRAM patterning, our unique co-optimized hardmask solutions, which are critical for capacitor scaling, and advanced packaging, where we have strong leadership positions in micro-bump and through silicon VIA that will enable multiple generations of high bandwidth memory. In fiscal 2024, we expect our HBM packaging revenues to be four times larger than last year, growing to almost half a billion dollars. And across all device types, we expect revenue from our advanced packaging product portfolio to grow to approximately $1.5 billion. Looking further ahead, we see opportunities for this business to double again. as heterogeneous integration is more widely adopted and we introduce new products that expand our served market. Another key inflection that will transition to high volume production beginning this year is gate all around transistors in leading edge foundry logic. These complex 3D structures can provide a more than 30% improvement in a chip's energy efficiency. This is especially enabling for high performance AI data center applications. The shift from FinFET to gate-all-around grows Applied's available market by $1 billion for every 100,000 wafer starts per month of capacity. And we're on track to gain share and capture over 50% of the spending for the process equipment used in this new transistor module. Major advances in leading-edge Foundry logic and DRAM are also driving the need for more and better metrology and inspection to be integrated into the manufacturing flow. We have developed industry-leading cold field emission e-beam technology that enables highly sensitive 2D and 3D imaging at up to 10 times higher speeds. We expect our CFE systems revenue to grow by a factor of four in 2024 and represent 50% of our total eBEAM system sales. The incredible innovation we see in the industry today is not limited to the leading edge. In recent years, ICAPS customers have invested about 10% of their revenues, or about $30 billion annually, in research and development to accelerate the roadmap for IoT, communications, automotive, power, and sensor technologies. ICAPS technology depends less on shrinking device features, and customer investments are heavily weighted towards new structures, new materials, and new integration approaches playing to the core strengths of applied. ICAPS is another area where we saw market inflections early. And five years ago, we formed a dedicated team to focus on the needs of these customers. Since then, we've released more than 20 new ICAPS products that target the highest value device innovations in these markets, and we have a robust development pipeline of unit process and integrated solutions. While major in-market inflections such as AI and IoT, electric vehicles, and renewable energy are already driving semiconductor growth and innovation, it's important to recognize they are still in the early stages of adoption. For example, high-performance GPUs for AI data centers only represent 6% of leading-edge foundry logic wafer starts today. The full potential of technologies like AI cannot be unlocked without next-generation chips with better performance, power, and cost. The technology roadmap for semiconductors is rich with possibilities and opportunities but also incredibly complex. No company is better placed to address this complexity than Applied Materials. With the industry's broadest and deepest portfolio of capabilities and products, we have a unique ability to combine, co-optimize and integrate our technologies to develop highly differentiated solutions for our customers. To bring these advances to market faster, We're also innovating the way we innovate by driving earlier and deeper collaboration with our customers and partners. We are expanding our global innovation network that will connect into the Epic Center we're building in Silicon Valley. During the quarter, we announced an expansion of our long-term partnership with Leti, which is focused on accelerating ICAPS innovation, and we launched a new collaboration with MIT which is centered around next generation power electronics. As industry complexity rises, we're also delivering more value to customers with our advanced services that enable our customers to accelerate R&D, transfer new technology into volume manufacturing faster, and then optimize yield, output, and cost in their factories. AGS has delivered 18 consecutive quarters of year-on-year growth. Revenue for the first quarter was up 8% versus the same period last year, and the business is now at a $6 billion annual run rate. AGS has the opportunity for double digit growth this year, and we believe we can sustain this growth rate into the future. A significant portion of AGS revenue is generated from subscriptions. We have almost 17,000 tools under service agreements, up 8% year on year, and these agreements have a very high renewal rate, over 90%. Before I pass the call over to Bryce, I will quickly summarize. Applied Materials outperformed our markets in 2023 for the fifth consecutive year, and we delivered strong results in the first quarter of 2024. The positions we've established at key industry inflections will support continued outperformance as customers ramp next generation chip technologies into high volume production. We're strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity, improvements in mutual success rate, and R&D investment efficiencies. And we see growing demand for our advanced services that are helping customers manage increasing complexity in their business as the industry scales. Now, I'll hand over to Bryce.