Applied Materials, Inc. Q3 FY2025 earnings call

• Applied delivered record performance in Q3 2025, but expects Q4 revenue and earnings to be sequentially lower due to uncertainties in China business. - Long-term growth drivers include AI leadership, government incentives for advanced manufacturing, and major device architecture inflections in areas like leading-edge logic, DRAM, advanced packaging, etc. - Invested over $200 million in Arizona to establish a state-of-the-art facility for manufacturing specialized components. - Service business has grown for 24 consecutive quarters, with over 2/3 of service revenue from subscriptions. - EPIC Center in Silicon Valley on track to begin operations in spring 2026.

Semiconductor Systems: Q3 2025 revenue was $5.43 billion, up 10% year-over-year. Foundry/logic grew due to customer investments in gate-all-around nodes but was partially offset by decreases in ICAPS nodes. DRAM was better than expected, up year-over-year as customers focused on AI-enabling advanced DRAM. NAND was up significantly due to sales to multinational customers in China. Non-GAAP operating margin was 36.4%, up 140 basis points year-over-year. Applied Global Services: Q3 revenue was $1.6 billion, up 1% year-over-year. Core services grew approximately 10% year-over-year, bolstered by healthy utilization rates in leading-edge foundry logic and high-bandwidth memory. Non-GAAP operating margin was 27.8%, down 180 basis points year-over-year. Display: Q3 revenue was $263 million with a non-GAAP operating margin of 23.6%.

• Q4 2025 expected total revenue ~$6.7 billion, down 4.9% year-over-year midpoint. Non-GAAP EPS ~$2.11, down 9% year-over-year midpoint. - Semiconductor Systems revenue expected ~$4.7 billion, down ~9% year-over-year. - Applied Global Services revenue expected ~$1.6 billion, down 2% year-over-year. - Display revenue expected ~$350 million, driven by OLED screen expansion. - Non-GAAP gross margin expected ~48.1%, non-GAAP operating expenses ~$1.31 billion, tax rate modeled at 12.6%.

• Uncertainties in China business, including digestion of capacity and backlog of export license applications. - Nonlinear demand from leading-edge customers linked to market concentration and fab timing. - Macro factors like trade and tariffs increasing uncertainty and lowering visibility.

Q: Jim Schneider from Goldman Sachs asked about the incremental source of weakness in the outlook, specifically China visibility and leading-edge weakness.

A: Brice Hill responded that China business was expected to be lower due to digestion of 2023-2024 investments, and leading-edge weakness was due to uneven ramp as customers delayed capital commits amid uncertainties.

Q: Stacy Rasgon from Bernstein Research inquired about China's revenue percentage and relative strength.

A: Brice Hill stated China's revenue percentage was as expected, with less leading-edge growth than modeled but stronger ICAPS spending.

Q: Vivek Arya from Bank of America Securities asked about Q1 guidance and fiscal '26 outlook.

A: Brice Hill said Q1 guidance was uncertain due to customer delays, but leading-edge and DRAM trends remained strong.

Q: Christopher Muse from Cantor Fitzgerald asked about China shipments, foundry visibility, and HBM.

A: Brice Hill explained China business played out as expected, foundry visibility was due to customer delay in capital commits, and HBM was steady.

Q: Harlan Sur from JPMorgan asked about advanced packaging growth and impact of leading-edge weakness.

A: Brice Hill said advanced packaging growth was steady, not impacted by leading-edge weakness. Gary Dickerson added on packaging's high market share and growth plans.

Q: Others followed with questions on China licensing, leading-edge DRAM growth, ICAPS business, etc., with responses from Brice Hill and Gary Dickerson addressing visibility, share position, and business trends.