Applied Materials, Inc. Q4 FY2025 earnings call

Key Points

• Applied Materials delivered fiscal fourth quarter results above the midpoint of guidance, completing a record year with sixth consecutive year of growth. Revenue and earnings grew at annualized rates of ~12% and 20% respectively.
• Fiscal 2025 growth was tempered by trade restrictions and unfavorable market mix; China declined to 28% of total systems and service revenues in fiscal 2025 and 25% in Q4. 2026 expects lower wafer fab equipment spending in China with no significant market restriction changes.
• AI computing fuels secular growth in semiconductors and wafer fab equipment. Key technology inflections in 5 areas: leading-edge logic, high-performance DRAM, DRAM stacking, advanced packaging, and power electronics.
• Inflection-focused innovation strategy: partnering with customers to see technology inflections early, focusing R&D on critical challenges, and creating differentiated solutions via connected capabilities. New products launched at SEMICON West: Xtera epitaxy system, Kinex integrated die-to-wafer bonder, PROVision 10 eBeam metrology system.
• Fiscal 2025 results: revenue grew 4% to $28.4B; non-GAAP gross margin increased 120 basis points to 48.8%; non-GAAP earnings per share increased 9%; cash from operations ~$8B; free cash flow $5.7B; Q4 revenue and non-GAAP EPS above guidance midpoint; China revenue 29% of total; Display revenue up 68% YOY.
• Reporting changes: Display business moved to corporate and other; 200-millimeter equipment business moved from AGS to Semiconductor Systems; corporate support costs fully allocated to businesses.

Semiconductor Systems revenue was up 4% to $28.4 billion, with growth across all segments despite trade restrictions reducing access to the China market. Applied Global Services revenue grew 3% to a record $6.4 billion, with the recurring parts, services, and software portion growing double digits, while the 200-millimeter equipment business declined. Display revenue grew 20%. China revenue declined to 29% of total company revenue, in line with longer-term average and well below a peak of 45% in Q1 fiscal 2024.

Guidance

• Q1 fiscal 2026 guidance: company revenue $6.85B ±$500M, non-GAAP EPS $2.18 ±$0.20; Semiconductor Systems revenue ~$5.025B, AGS ~$1.52B, corporate and other ~$305M; non-GAAP gross margin ~48.4% in Q1; non-GAAP operating expenses ~$1.33B; tax rate ~13%.
• Expect growth in second half of 2026 driven by leading-edge foundry/logic, DRAM, and advanced packaging as next-generation technologies ramp.

Risks

• Trade restrictions significantly reduced access to the China market, with the impact more than doubling from fiscal 2024 to 2025. Competition from domestic China companies in certain product segments like PVD, CVD, CMP, and etch.

Q: C.J. Muse asked about how conversations with clients have evolved and supply chain preparation for growth.

A: Gary Dickerson said AI is the biggest focus for customers, with high visibility and co-innovation relationships in leading-edge foundry/logic and DRAM, and over 1-year visibility with customers for supply chain readiness. Brice Hill mentioned Q1 spend in guide doesn't have typical Q1 pay raise and share-based comp uplift, with plan to add back skills needed for future demand.

Q: Krish Sankar asked about competition in leadership products and 200-millimeter movement.

A: Gary Dickerson said Applied has strong positions in gate-all-around and backside power, performing well across products, and PVD is doing great with innovation. Brice Hill said the 200-millimeter movement from AGS to semi is ~$125M in Q1 and Q4.

Q: Vivek Arya asked about WFE growth and Applied's positioning.

A: Brice Hill said strong growth in 2026 led by leading edge and DRAM but with digestion in China; Gary Dickerson said Applied is clear #1 in leading-edge foundry/logic and DRAM, gaining share in gate-all-around and HBM.

Q: Stacy Rasgon asked about first half vs second half demand and gross margin trajectory.

A: Brice Hill said semi business will be flattish until second half growth, with AGS growing low double digits; Gary Dickerson said will drive sustainable margin improvements via innovation and customer profitability.

Q: Timothy Arcuri asked about China affiliate bans and add-back of headwind.

A: Brice Hill said $110M in Q1 from affiliate rule, balance to be spread through the year; Gary Dickerson said PVD will continue to ramp with unique technologies and integrated platforms.

Q: Atif Malik asked about China spending and memory constraints.

A: Brice Hill said China spending may move back but hard to anticipate; Brice Hill also said factory capacity not limiting ramp at macro level; Gary Dickerson added on memory growth and technology inflections.

Q: Charles Shi asked about China share vs U.S. peer.

A: Brice Hill said lost share in China due to increased restrictions but competing well in accessible accounts; Gary Dickerson added on DRAM and NAND mix impacts.

Q: Joseph Quatrochi asked about advanced packaging size and growth.

A: Brice Hill said advanced packaging business lower than 2024 due to HBM shipments; Gary Dickerson said Applied is #1 in HBM and well positioned for growth in advanced packaging.

Q: Shane Brett asked about DRAM share gains and 2026 tracking.

A: Brice Hill said DRAM strengthened in 2025 without China business and expects growth in 2026; Gary Dickerson cited areas like HBM, FinFET, capacitor scaling, and etch as share gain areas.

Q: James Schneider asked about leading-edge logic vs DRAM growth and gross margin initiatives.

A: Brice Hill said leading-edge expected to be strongest grower with DRAM second; Brice Hill also mentioned gross margin improvements driven by pricing process improvements and cost reductions to continue in 2026.