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 second 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-Q 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 Tuesday morning, July 9th, from 7.30 to 9 a.m., Applied will host a technology breakfast event at Semicon West in San Francisco. Joining us will be Dr. Prabhu Raja, president of Applied Semiconductor Products Group, along with Mark Fusile, who is senior vice president of technology and product engineering at AMD. After Mark shares AMD's AI computing technology vision, Applied's experts will share our advanced materials engineering roadmap for making future AI chips. We'll outline device architecture inflections in logic, including transistors, frontside wiring, and backside power, along with DRAM, high bandwidth memory, and other forms of advanced packaging. We hope you'll join us. And with that introduction, I'd like to turn the call over to Gary Dickerson.

Thank you, Mike. With second quarter revenue and earnings toward the high end of our guided range, Applied materials continues to deliver strong performance in 2024, and we're in a great position to benefit from secular growth trends over the longer term. Semiconductors are the foundation of huge technology trends reshaping the global economy. These trends are driving demand for more chip manufacturing capacity, as well as better chips with higher performance and improved energy efficiency. Key inflections that underpin the semiconductor roadmap are enabled by applied materials and will support our ongoing outperformance as next generation chip technologies move into high volume production. In addition, the complexity of implementing the industry's roadmap and bringing new semiconductor technologies to market is driving earlier, deeper, and broader collaboration with customers as well as supporting double-digit growth for our service business. In my prepared remarks today, I'll provide some examples of how Applied's innovations are helping to enable multi-trillion-dollar technology inflections, including AI. I'll explain how this translates to our performance in the near term and our future growth potential. I'll also describe how we're working with our customers and partners to accelerate major semiconductor inflections all the way from research and development to high volume manufacturing, and by doing this, how we are capturing more value in our service business. I'll start with a big picture perspective. Tectonic shifts in technology, including AI, IoT and automation, electric and autonomous vehicles, and clean energy will transform virtually every area of the economy over the next several decades. And they all have one thing in common. They are built upon semiconductors. As these new technologies are deployed, they are driving growth and innovation across the semiconductor ecosystem. In terms of impact and scale, I believe AI will be the biggest technology inflection of our lifetimes, and at the heart of AI are some of the world's most sophisticated chips. In simple terms, the advanced chips that power AI data centers are enabled by four key semiconductor technologies, leading-edge logic, compute memory, or high-performance DRAM, DRAM stacking technology, referred to as high bandwidth memory, or HBM, and advanced packaging to connect the logic and memory chips together and create a system in a package. Applied has process technology leadership in all four of these areas, and we have made significant investments in next generation solutions to make possible the key device architecture inflections that are essential for our customers' future roadmaps. In advanced logic, Applied has long-standing leadership in the materials engineering processes for both transistors and interconnects. The first nodes that use gate-all-around transistors are now transitioning to high-volume manufacturing. These new transistor process flows are considerably more complex. And the shift from FinFET to Gate All-Around grows Applied's available market for the transistor module from around $6 billion to approximately $7 billion for every 100,000 wafer starts per month of capacity. With the Gate All-Around transition, we are also gaining share and we're on track to capture over 50% of the process equipment spending for transistor steps. We also have very strong market share in interconnect or the wiring used to transmit data at high speed and low power. Our available market for the wiring steps is approximately $6 billion for each 100,000 wafer starts per month and we expect it to grow by $1 billion when backside power delivery is introduced into volume manufacturing. Overall, we expect to generate more than $2.5 billion of revenue from gate all-around nodes this year and potentially more than double that in 2025. In DRAM, one of the key approaches that memory makers are using to improve performance and power consumption is to implement logic technologies in the peripheral circuitry. Our deep capabilities in logic combined with our strong position in DRAM patterning and our unique co-optimized hard mask solutions for capacitor scaling makes us the clear leader in process equipment for DRAM today and best positioned for future growth. In the critical die stacking technologies used in high bandwidth memory, we also have strong leadership positions, including in micro bump and through silicon via. Last quarter, we said that we expected our HBM packaging revenue to be four times larger in 2024 than in 2023. As we have recently seen customers accelerate their capacity plans for HBM, We now believe that our revenue could be six times higher this year, growing to more than $600 million. Across all device types, we now expect revenue from our advanced packaging product portfolio to grow to approximately $1.7 billion this year. Looking further ahead, we see opportunities for this business to double again as heterogeneous integration is more widely adopted beyond the AI data center and we introduce new products that expand our served market. AI data center is just one example that illustrates how the major inflections that underpin the next generation of semiconductors are enabled by applied materials. Material science and materials engineering are increasingly important to the industry's roadmap. Applied has invested early to develop a broad, unique, and connected portfolio of materials engineering solutions that are critical to enable major semiconductor inflections from AI high-performance computing to ICAPS edge computing. We are translating those investments into consistent outperformance. Recent Tech Insights data confirms that in 2023, applied grew faster than the wafer fab equipment market for the fifth year in a row. We accomplished this despite headwinds created by trade rules that we estimate restricted us from more than 10% of the China market during that period. While we have gained share overall, we are growing share within our served market even faster. This is important because as logic devices become more three-dimensional, future generations of DRAM come to market, and advanced packaging becomes more prevalent, we expect materials engineering to become an even larger portion of overall wafer fab equipment. Another key component of applied strategy is to address the increasing complexity faced by the industry. First, we are driving earlier, deeper, and broader collaboration with customers and partners. We are changing the industry's innovation model with the goal to accelerate mutual success rates and increase investment efficiencies. Our global EPIC platform that we will build out over the next several years is specifically designed to support high velocity innovation and commercialization of next generation technologies. Second, we are able to provide more complete and connected solutions that accelerate major device inflections. The portion of our revenue generated by integrated solutions has grown from approximately 20% in 2019 to 30% today. We expect demand for these fab-in-a-fab type solutions to continue growing both at the leading edge and from our ICAPS customers who are serving specialty IoT, communications, auto, power, and sensor applications. And third, we are helping customers transfer new technology into high-volume manufacturing faster and then optimize performance, yield, output and cost in their factory operations. This is supporting double-digit growth of our service business. AGS delivered a new record for revenue this quarter, $1.5 billion, with a significant portion of this coming from subscriptions in the form of long-term service agreements. Before I hand over to Bryce, I will quickly summarize. Applied Materials continues to deliver strong performance in 2024, and we are in a great position to benefit from secular growth trends over the longer term. Tectonic shifts in technology, including AI, IoT, EVs, and clean energy that are reshaping the global economy are built on semiconductors, driving demand for more chips and new chips with higher performance, and better energy efficiency. Key device architecture inflections that underpin the semiconductor roadmap are enabled by applied materials. We expect this to support our ongoing outperformance as next-generation chip technologies, including gate-all-around logic nodes, high-performance DRAM and HBM, and advanced packaging move into high-volume production. And finally, The increasingly complex industry roadmap is driving earlier, deeper, and broader collaboration between applied materials and our customers and partners, accelerating demand for our most advanced, co-optimized, and integrated solutions, and supporting double-digit growth in our service business. Now, I'll hand over to Bryce.