Applied Materials at Bernstein Conference: Strategic Growth Insights

On Thursday, 29 May 2025, Applied Materials (NASDAQ:AMAT) presented its strategic vision at the Bernstein 41st Annual Strategic Decisions Conference 2025. CEO Gary Dickerson outlined the company’s growth strategies, highlighting both opportunities and challenges in the semiconductor industry. While emphasizing the potential of AI and robotics, Dickerson also addressed geopolitical hurdles impacting operations in China.

Key Takeaways

• Applied Materials reported a 7% year-on-year revenue growth in the first three quarters of FY2025.
• The semiconductor business is expected to grow by 10% in the upcoming quarter.
• The service business is experiencing double-digit annual growth, currently valued at $6 billion.
• Export controls in China have posed challenges, but growth in other regions offsets this impact.
• Strategic partnerships and co-innovation are central to Applied Materials’ future growth.

Financial Results

Applied Materials has demonstrated consistent revenue growth over the past five years. In FY2025, the first three quarters saw a 7% year-on-year increase. The semiconductor business is anticipated to expand by 10% in the guided quarter, while the service business, valued at $6 billion, is experiencing double-digit compound annual growth. The company achieved a gross margin of 49.2% last quarter, with aspirations to maintain margins above 50% in the future.

Operational Updates

Applied Materials is focusing on high-velocity co-innovation with customers, enhancing development speed and efficiency. The establishment of the Equipment Process Innovation Center (EPIC) in Silicon Valley aims to bolster co-innovation and R&D efforts. The company remains committed to leading-edge logic and memory technologies, alongside strategic partnerships with BE Semi and Kokusai Electric to strengthen its integrated platforms. Supply chain resilience and cost innovations are prioritized to ensure operational agility.

Future Outlook

The AI data center market, projected by TSMC to grow at a 40% compound annual rate over the next five years, offers significant opportunities for Applied Materials. The company is well-positioned to benefit from increased materials intensity due to its expertise in materials innovation. Growth in the compute memory segment, including DRAM and high bandwidth memory, is expected to continue, alongside mid to high single-digit growth in the ICAPS market. Expanding the total available market (TAM) through new products and technologies remains a strategic focus.

Q&A Highlights

During the Q&A session, Dickerson addressed the positive outlook for the wafer fabrication equipment (WFE) market, expected to reach or exceed $100 billion. While export controls in China have limited competition in certain segments, Applied Materials compensates with growth in other regions. The company is committed to sustainable cost innovations to improve margins and has made gains in the DRAM market over the past decade. The service business continues to grow robustly, driven by subscription contracts and remote connectivity.

For a detailed account, readers are encouraged to refer to the full conference transcript.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Stacy Rasgon, Analyst: Our guest today, Gary Dickerson, the President and CEO of Applied Materials. Before I start, I wanna mention, if you have questions that you’d like to get asked during the presentation, you should have a link to the pigeonhole form where you can submit those. We’ll have time for q and a at the end. So as many as you many of you know, semi cap is a is a sort of an area that’s sort of near and dear to my heart. My in a prior life, that’s what I did.

I I love this space, and I think Gary loves it too. You can you can tell. The industry has really been enjoying a renaissance, I think, over the last, you know, o five plus years. I I think it’s it’s really coming into its own now. It’s still cyclical.

We all all know that. But I think both the underlying industry growth and and it seems industry capital intensity have inflected materially higher. I think the contributions from companies like AMAT have become more important than ever as materials driven innovation moves to the forefront of process technology development. And to that end, the semi cash has really been top of mind for for many of my clients. You know, there’s all the questions on near term, you know, lagging versus leading edge demand and China dynamics and competition, and now it’s tariffs and geopolitics.

But I’m also increasingly getting people looking at the longer term potential of this industry to start to view it more on sec secular rather than purely cyclical terms and and and looking at our at those new technology inflection points where companies like AMAT are key enablers and and and and beneficiaries. And to tell us all about it, gives me great pleasure to welcome Gary. So thank you. Thank you so much for being

Gary Dickerson, President and CEO, Applied Materials: Oh, thank you, Stacy. And I wanna say I do love this. I mean, this is so much fun. What we do in this industry, we always make the nearly possible possible, and what we do is just like magic. I tell everybody, in your smartphones, you have an application processor chip that has tens of billions of transistors and 60 miles of wiring in that one single chip.

So you think about it, a wire is 60 miles long. You’re moving data lightning fast with almost no resistance. That’s pretty damn close to magic. I mean,

Stacy Rasgon, Analyst: I always say, I’m amazed any of this stuff works at all. Like, it it really shouldn’t swipe. It keeps me getting up in the morning. So, like, here, I wanna talk I I wanna start maybe at at a at a high level. So, you know, everybody’s always concerned about, like, what what’s WFE outlook and this now.

But I I’d say over the last couple of years, things have shaped up far better than anticipated for the industry. And everybody used to have this sort of aspirational hundred billion dollar kind of WFE. You know? We’re we’re there. We’re we’re we’re we’re kinda there.

And things look pretty good. And I was just wondering if you could maybe talk a little about over the last several years some of the historical contributors that have taken this industry to to where it is. I mean, it wasn’t that long ago we were talking trough numbers that could have been 20 to 30,000,000,000. You know, we’re we’re clearly way above that now. I I mean, like, what what’s been driving it?

Whether whether it’s leading edge versus innovations, lagging edge demand, China, packaging, you know, memory inflections, and and and how AMED has actually been contributing to those and to, I guess, to help those WFE numbers drive higher.

Gary Dickerson, President and CEO, Applied Materials: Yeah. I think for Applied, we’ve actually grown revenue five consecutive years coming into ’25. The first three quarters of our FY 2025 year were up about 7% year on year. Our semiconductor business in the quarter we guided is up 10%. We’re growing our service business at a double digit compound annual growth rate.

That’s a $6,000,000,000 business today that’s growing at a decent rate. And I think that if I look at my time over the semiconductor industry, I’ve been fortunate to be at at three different companies that all achieved, incredible growth. There’s been a major change. You went from, mainframes to PCs to mobile social media. Everybody has a PC or a computer and camera in your pocket.

And, you know, where we’re going with, AI and robotics, these are the biggest productivity drivers of our lifetimes. If you think about aging workforces around the world, US productivity has been growing at about 1% over the last several years. Again, AI is by far and away, but robotics, I would say, is another one that, are going to drive tremendous growth going forward, significant increase in computing demand. And so and and computing innovation. We’ll talk about that later.

But what I’ve seen is just this increase in pervasiveness of semiconductors in every aspects of our lives. And, really, where we’re going, is is going to be way more significant than anything we’ve ever seen. I think, TSMC is one of our largest customers. They talked about 40% compound annual growth rate, over the next five years in the AI data center. Data center wafer starts will pass PCs and smartphones as a driver.

Those are very large chips. And then AI When do you think that happens, by the way? That’s in a few years. Very soon. It’s gonna happen.

And then AI is really driving their the four key technologies, the leading edge foundry logic, compute memory with DRAM, high bandwidth memory, and packaging. And Applied is the leader in all of those different areas, significantly larger than our next closest competitor in in all of those different areas. We’ve been gaining share in all of those different areas. And, you know, we can talk about it. You know, what is needed for computing innovation going forward is more significant in performance and power than anything we’ve seen in the past.

Mhmm. But I think, Stacy, it’s really this pervasiveness of semiconductors in everything around us.

Stacy Rasgon, Analyst: That that’s true. And, you know, everybody sort of talks about this, you know, trillion dollar semiconductor by by twenty third. I’ll I’ll be I I don’t know if we get there by 2030, but we will get there. And we’re we’re not that far off. I think we did $630,000,000,000 or something last year in in overall semis.

Have you guys ever sort of given you you you talk about, semi cap, I think, outgrowing the market. You talk about AMAT outgrowing semi cap. I was wondering if you could maybe give us a little more color on how you you view those drivers of outperformance. Like, where do you see capital intensity actually? We’re probably in the upper teens right now.

Gary Dickerson, President and CEO, Applied Materials: Yeah. I’d say mid mid teens. Uh-huh. So I think if you have, you know, people forecast the semi market to be a trillion or higher by 02/1930. And I really do believe if you look at computing demand Mhmm.

Again, these drivers are more pervasive all the way from the AI data center with the 40% compound annual growth rate. Everything around us to feed the AI. You know, there’s more innovation, more content, thousands of chips in an automobile. You know, all of that is driving, significant innovation going forward. And and, really, for more and more of that innovation is coming from materials Mhmm.

And materials innovation. So I would say kind of capital intensity mid teens is kind of the right way to think about it. But when we’re working with our customers, I’ve met four of the top five customer CEOs in the last six weeks. Mhmm. We’re in very deep relationships that are very different than the way they worked, you know, five or ten years ago.

So it’s really focused on high velocity co innovation. And for our customers, what they care about are design wins for those future architecture inflections. And for design wins, all of their customers will run test chips. They care about performance, yield, and reliability, altogether. And if they don’t have that, cost or price doesn’t matter.

Mhmm. And and if you look at the value, I mean, everyone understands that, you know, AI is consuming so much power. There’s tremendous value in the race for AI leadership for power and performance. Mhmm. And, you know, there’s we could talk more about that, but but materials intensity is rising.

If you look at big inflections like gate all around the next generation transistor to process the data or backside power distribution where you take the power lines from the front of the wafer to the or the front of the chip to the back of the chip, you get 30% area savings, up to 30%, better power, better performance, no change in feature size. Same feature size. In DRAM, compute memory, that’s growing. I think the top three leading companies, were up something like 40% growth. So the compute memory is growing very, very quickly.

The next architecture inflection there, four f squared or some people call a vertical channel transistor, again, it’s much more materials innovation rich versus lithography. So, you know, the percentage of spending for materials innovation is going up in all of those different markets. In advanced packaging, where Applied is also the leader, it’s a $1,700,000,000 business for us, we said that’s going to more than double Mhmm. Over the next few years. So I think that that materials intensity will remain in that mid teens range.

But I think the great thing for Applied is that when we’re working with our customers, we’re working a decade out in the future, and we have integration innovators inside Applied Mhmm. That are working with those customers to shape those future architectures in power and performance. And for every one of those technology nodes, there’s something like five or 10 absolutely crucial innovations for those architectures, and Applied, is the leader in those key innovations. So that puts us in a really great position.

Stacy Rasgon, Analyst: Got it. No. That’s that’s great. Let’s let’s take into each of those. You know, you listed three or four kind of things that are that you seem really about.

Now let let’s start with, like, leading edge logic and gate all around. And you’ve given some some numbers for how big that was and how big that’s going and and and where it is. When I’m I’m curious with that. I’m also curious just what are the innovations within, like, gate all around and leading edge logic that AMAT is bringing to the table right now that others are not?

Gary Dickerson, President and CEO, Applied Materials: So when you’re building these, whether it’s a new transistor or wiring, there are really hundreds of process depths that are needed. And as I mentioned, you know, Applied has by far if you look at Applied versus the next closest company, you know, by far, the largest percentage of those steps and especially the critical enabling steps. And what’s happening as you go to these future innovations, you know, some of these films are a few atoms thick, and it’s really amazing. You have to control the interfaces. They’re interface engineering, So there’s innovation in the materials.

There’s innovations in how you shape the structures. There’s innovations where we have billions of dollars in materials modification. So, again, those are areas where Applied has clear leadership, and we are very unique that, you know, when we’re working on those innovations with customers, you know, we’re in with their integration teams, shaping those innovations in super high velocity relationships. I mentioned in the wiring on the backside power, Applied has very, very high share in wiring. We have one platform that Applied about 30% of our revenue comes from integrated technology where we have multiple capabilities on a single platform.

So that 50% reduction in wiring resistance, there are seven technologies, selective ALD, PVD, CVD, copper reflow, metrology, a number of different things under vacuum. And the reason you have it under vacuum is because when you go to air, the interface will oxidize. Again, it’s only some of these films are a few atoms, and this is increasing. All of this co optimization, as you move through these process flows, it’s harder and harder, more complex. That means we have deeper relationships with these customers.

And, again, just very it’s very different than the way the industry worked in the past. And then, really, our goal is to work with every one of our customers, whether it’s in logic, DRAM, you know, NAND Mhmm. ICAPs, packaging, to enable their competitiveness, it puts us in a very differentiated strategic relationship with all of those different companies.

Stacy Rasgon, Analyst: Got it. So you’re gonna force me to jump the gun on something, but I but something that make makes me wanna wanna go there now. We can come back to some of the stuff in a in a minute. But, on the integrated processing, so there there’s two things I heard there. One one is clearly you’re selling a a value based solution.

Right? You’re not selling a process. You’re selling you know, I I wanna make a film that’s this thick with this interface and out of these and seven seven processes under vacuum. So two questions. One is how do you price for that sort of value add?

And you said 30% of your revenue is coming from these these integrated types of process. How do you price for that? Are you capturing think about capturing the integrated value from that? And and the second question, just in general on how you work with the customers as these things are getting more and more complex, and and it and it brings up, the the epic center that you’re building

Gary Dickerson, President and CEO, Applied Materials: Yeah.

Stacy Rasgon, Analyst: And some of the other stuff you’re building around the world, like, to do this, like like, cut customer, co development and customer integration. I’d love you to touch touch on those. Sure.

Gary Dickerson, President and CEO, Applied Materials: Sure. And and, again, we have you you talked about how you love this. I absolutely love this. I work every single day, with our teams on all of these different kinds of innovations. But those integrated platforms are accretive to our margins.

And I think that even beyond that, if you’re enabling power and performance and design wins, whether it’s in memory or high performance logic or power electronics and ICAPs, it puts you in a different strategic relationship with the customer. So, you know, we’re able to capture more value because these are the key tipping points for design wins for them. And then it also enables us so that when we’re having discussions with customers, you know, we’re allocating our innovations, our innovators for them. It enables you to win ties in many other parts of your business. So we’re innovating with these enabling technologies that are absolutely crucial for these future architectures.

We’re also driving and there’s billions and billions of dollars of new products in our pipeline that strengthen our ability to enable the architectures, expand our total available market. We have products in the pipeline that are significant cost innovations so that I’m in the ZIP code where I can win the ties, you know, for those, other parts of our portfolio. And then to the EPIC, center in Silicon Valley, the equipment process innovation center, The concept there is all of these businesses are a race for leadership, and the race for AI is the biggest race of our lifetimes. Everyone understands that power and performance is absolutely crucial. And so we have been, as I mentioned, over the last, I’d say, seven years, building capability inside Applied where we have integration innovators across all device segments that are very unique, world class, and we’re co innovating with all of our different customers.

And then, a real real important strategy we’re driving is high velocity co innovation where, you know, we have our innovators, co located with customer innovators so that we move at higher velocity in parallel versus a serial type of process. So your facilities or in theirs? So we do it, you know, both ways. Uh-huh. But today, in our current technology center, we do have customers coming, whether it’s in Silicon Valley or we have the the really only full flow packaging, line, r and d line in the world in Singapore.

So we have leading customers coming to those, locations. But the concept with Epic is really to innovate the way we innovate, to drive even higher velocity because that’s what determines winning and losing in any of those different markets. So we’ll have top innovators from our leading customers located inside the epicenter. We have all of the capability. When we’re in, you know, in those types of facilities, we’re running short loops where you have, test vehicles for transistors, test vehicles for wiring, test vehicles for, new patterning applications, test vehicles for new new DRAM architectures.

And so we run at very high velocity, and it’s all about learning rate. And the customers are co located in will be co located inside that facility. The great thing for them is that it accelerates their time to market for design wins in power and performance. They’re spending an enormous amount of money for every R and D technology node, so it makes their if they can bring the the device to market faster, it gives them higher r and d efficiencies. And, of course, for Applied, it enables us to design in their new architectures, our equipment, and our advanced services.

So, you know, when we when we came up with this concept for Epic, this was really in alignment with our leading customers and help helping to shape that platform. So we’ll have innovators there. We have customer space where we could have, certain key innovations that we’re codeveloping with certain customers, and then we have other partners that are part of that innovation network with Epic. But it’s really the focus is innovate the way we innovate, go to even higher velocity, and improve r and d efficiencies.

Stacy Rasgon, Analyst: How far ahead are the customers running in in, say, Epic or or in the Maiden Center versus when they’re actually delivering those products to market?

Gary Dickerson, President and CEO, Applied Materials: So we’re working with people, really, maybe four technology nodes out in the future. So, you know, obviously, there’s an enormous amount of focus on n plus one and n plus two because that’s life and death. Mhmm. You know, when they’re thinking about design wins and power and performance for every one of those technology nodes, we’re engaged with leading customers every week. We have, again, a list of prioritized innovations that we’re driving, and those are the critical tipping point innovations for them.

But then, you know, when you’re thinking about materials innovations, three or four technology nodes out in the future, CFAT technology, for instance, where you’re you’re going vertical, again, more materials intensive.

Stacy Rasgon, Analyst: This is stacking transistors on top

Gary Dickerson, President and CEO, Applied Materials: stacking the transistors vertically. Again, there’s tremendous innovations. This stuff is so complex in creating those materials, shaping those structures, modifying those structures to end up with the right electrical performance and power. So, again, you know, it takes time. It takes a long time to bring those innovations to market.

The earlier you start working, you know, the earlier you’re going to bring those technologies to market and then co locating innovators. I mean, again, Applied is coming up with innovations that people don’t know are possible. And we’re doing the same thing in power electronics. Power electronics are really important for electric vehicles, renewable energy, the grid, and we’re bringing to market major new products that expand our TAM in power and also innovating in new power architectures. And, again, this is going out several years into the future to bring those technologies to market faster for the innovation and then also the commercialization because just because you have the power and performance, if you can’t yield or you don’t have the reliability or you can’t build it at the right cost, you can’t insert that technology.

Got it. You know, maybe your comments

Stacy Rasgon, Analyst: on on power there are a good segue into your ICAPS business. ICAPS is industrial comm It’s IOC communication auto power system. Okay. Got it. And and, you know, investors tend to think of that as as just your your trailing note or lagging edge.

Although, I think it’s a lot more complex than than that, and you’re you’re even still well, you’re still innovating in there. It’s not just like it’s old. But maybe you could talk about this clearly been a a key focus area for AMAT. And, you know, it it’s in a bit of a trough right right now after some very strong years, and there’s some of the China dynamics that we could talk about. But but maybe just talk a little bit about, like, why that was such an important initiative for AMAT.

What what got you focused there, and and where are you focused now?

Gary Dickerson, President and CEO, Applied Materials: So if you look at this the the business, about one third is leading edge foundry logic. One third is memory, more weighted towards compute memory versus storage memory. One third of the market is ICAPs.

Stacy Rasgon, Analyst: This is this is the market, not not AMAT necessarily?

Gary Dickerson, President and CEO, Applied Materials: Well, it’s it’s it’s yeah. It’s the a it’s the market overall. Uh-huh. The the set the wafer fab equipment market is split in those different, categories. And then, so 04/12/2019, I still remember, was the day we formed our ICAPS group.

So, you know, we we could see that this market was going to be a significant market. And, you know, if you think about it, I mentioned how, you know, AI, robotics, industrial automation, all of these things are going to be transformative, drive dramatic productivity for every country, We’ll be at the foundation for competition for every industry. And the content the computing content is increasing in all of those AI edge devices going forward. So, again, we we knew this was going to grow at a very high rate going forward. So we just like we have on the leading edge, we brought into the company some outstanding integration innovators, for Applied.

And we have, again, this is really very largely enabled by materials innovation in this particular space. And there is tremendous innovation still. I mentioned in power, if you look at what’s happening in automotive or, you know, what’s happening in the grid, there’s gonna be tremendous innovation that’s happening there. And then in CMOS image sensors and and and a number of these different markets. So this has been a focus for us for a number of years.

And we have, again, just like we do on Leading Edge, we have these deep strategic relationships with customers. Since we formed the group, we brought 20 major new products to market. We’ve gained several points of share, in that ICAP space. And I would say that our innovation pipeline going forward is actually stronger than ever. You know, we’re continuing to bring new technologies to market that will expand significantly expand our total available market in ICAPs, enable, new chip architectures.

And, again, in terms of that strategy of winning the ties, we’re also driving significant cost innovations in major products within that space. So this year, if you look at ICAPs, it is lower, you know, as a percentage of our total revenue being offset. You know, we’re still growing with the leading edge foundry logic and memory business. But going forward, we believe that ICAPs will grow. Again, this is all the edge computing types of applications at a five or mid to high single digit Mhmm.

Growth rate, going forward. And then for us, how we compete inside of that market, whether it’s inside China or outside China, again, same playbook. We’re innovating with new capabilities. We’re expanding our total available market with significant new products that don’t exist today. We’re bringing those cost innovation products to market and innovating with new chip architectures inside of ICAPs.

Got it. So let let’s talk about China.

Stacy Rasgon, Analyst: So and there’s two areas I wanna hit. One is, you know, clearly the geopolitical environment and export controls and tariffs and everything else. So what has been the impact of of of that, number one? And then number two, I I really wanna get your opinion on some of the local Chinese players who are taking share because they have no choice. Right?

I mean, they’re you know, you you’re impaired in terms of what you can sell and what they can buy. And but how do you view, I guess, the state of local Chinese competition? And, like, how do you deal with that in in the wake of, like, the, you know, the regulatory headwinds that, for better or for worse are are on you?

Gary Dickerson, President and CEO, Applied Materials: Lot lot inside of that question. Yeah. So, let me start with export controls. So the export controls have

Stacy Rasgon, Analyst: were waves, by the way. Yeah.

Gary Dickerson, President and CEO, Applied Materials: Yeah. So several waves and have been largely focused on leading edge technologies and especially technologies that are focused on winning the race for AI. So, you know, that has restricted some part of our ability to compete inside China. So if you look at leading edge foundry logic, you know, we really can’t sell into any of those technologies. In memory, we really can’t also sell into the memory market inside China.

And again, despite the really significant decline in memory in China, we offset that by significant growth in leading companies outside of China. So that those restrictions certainly have helped the local Chinese companies because there, we just can’t compete Yeah. In those segments of the market. But, again, you know, our strategy in every one of these device verticals is to really work I always want to run the fastest with the leading companies. I wanna know who’s moving fastest on any innovation, and then I wanna partner and be ahead of them.

So the same thing is true with ICAPs. We have very deep partnerships. We will be expanding some of those partnerships soon, in terms of ICAPs innovations and then bringing these new products to market, cost innovations and architecture innovations in those in those businesses. So I have high confidence. You know, ICAPs will grow at a kinda mid to high single digit growth rate, and I have high confidence in being able to compete where we can compete.

Stacy Rasgon, Analyst: Mhmm.

Gary Dickerson, President and CEO, Applied Materials: You know, in terms of the Chinese companies, again, they are filling the gaps in the areas where we can’t compete. They’re coming out with products not so much in the critical enabling technologies, more in noncritical technologies. But, again, that’s why we have a playbook where we have what is absolutely crucial for companies to achieve design wins in their business, crucial to how they compete, and and that enables us, along with cost innovations, to compete across our entire portfolio. So that’s the strategy there. Relative to tariffs, you know, during the COVID time frame, I kinda felt like I was the chief supply chain officer in Applied because even though we made the equipment that makes the chips Yeah.

We also had trouble getting chips into our supply chain. So I was calling many of those companies, CEOs, accelerating chips for our equipment. But it also, during that time period, we focused on really innovating in our operations, in our supply chain at all tiers within our supply chain so that we could remain the most trusted partner for our customers and have supply chain resilience. So Applied has a platform where in our operations, we can manufacture in The United States, we can manufacture in Asia. And regardless of what happens with tariffs, the key thing for us is to really optimize our agility so that we can remain a trusted partner for all of our customers.

So there’s lots of things we’ve driven. We’re we’re driving sustainable cost innovations that is helping us to drive our margins to the highest level in twenty five years, but also tremendous innovation or tremendous agility in our supply chain so that, you know, I can’t anticipate, exactly how all of this is going to play out. It seems like it changes on a pretty rapid basis. But the main thing for us is we want to be agile no matter what scenarios emerge. Got it.

You know, on the margin front,

Stacy Rasgon, Analyst: like, I ask you this question every year, but, you know, is is there any reason your margins have to start with a four forever? I always wonder why I would say the

Gary Dickerson, President and CEO, Applied Materials: answer to that is no.

Stacy Rasgon, Analyst: I’m not I’m not asking for a time

Gary Dickerson, President and CEO, Applied Materials: frame or anything. But, you know, last quarter, we hit, 49.2, which was the highest in, since February, within Applied Materials. We are driving sustainable cost innovation inside the company. And then also from a value capture standpoint, again, as we’re bringing these enabling technologies to market, you know, we’re our our customers are in a position where these innovations that they’re delivering really shape competitiveness of industries. They shape overall productivity growth, and they’re highly valuable.

And so, you know, we are focused on being the most valuable partner for all of those customers, that enables us to capture more value with those companies. So it’s really two things, sustainable innovations in cost and then innovations in value capture. And I I do believe that’s sustainable, and I do believe there’s no reason, that the margins won’t start with a five going forward. Mhmm.

Stacy Rasgon, Analyst: Got it. I wanna ask about DRAM. This is a market that’s that’s been really good for you. I can’t remember. 10 points of share over the last ten years, whatever the time frame is.

Gary Dickerson, President and CEO, Applied Materials: Yeah. 10 points in a little over a decade. Okay. We’ve gained in terms of DRAM share. Overall spending for from DRAM customers.

Stacy Rasgon, Analyst: So, yeah, can you tell us a little bit, like, like, how has that happened? And, like like, what what gets you excited in that space going forward? Is is it all about, you know, compute memory in HBM? Is there like, what are the innovations?

Gary Dickerson, President and CEO, Applied Materials: Yeah. I think there’s a difference between compute memory and storage memory. If you look at AI servers and the demand drivers for compute memory, you know, I mentioned, you know, from our leading, three customers, our business is up dramatically, strong double digit growth year over year. When your high bandwidth memory is an increasing part of the, wafer starts in DRAM, you need to start three or four times more wafers for HBM because chip sizes are larger, yields are lower. So we think that that part of the market is going to have, along with high performance logic, very healthy growth rates.

And then, you know, for us, we have, in the memory cell, a lot of strength, in enabling customers to continue to scale those technologies. And, also, high speed IO for memory chips is incredibly important, especially for AI. You know, you’re moving the data on and off those chips, and you want to move that as fast as you possibly can. So DRAM has been adopting logic processors processes in the periphery of those chips. And we have, for transistors, tremendous leadership.

We have leadership in wiring. So how you’re moving the data on and off the chip is an area where Applied has clear leadership. That’s enabled us to grow our share. And as you go forward, they’re going to continue to innovate in the CMOS, the IO portion of their chips, and they’re gonna go to these this new architecture, four f squared, in just a few years. That architecture is more materials intensive.

And what we’ve said for the next architecture, we’ll capture over 50% share. We’ll gain even more share as they go to the higher speed IO, the new vertical channel transistor, you know, that positions us for additional growth there. And then in HVM, you know, that’s another part of compute memory where Applied is the clear leader and we have clear strength. So you’re right. A little over a decade, we’ve gained 10 points of share, positioned for many points of share gains going forward to enable those architecture inflections.

Stacy Rasgon, Analyst: Too early still to talk about three d DRAM? Or

Gary Dickerson, President and CEO, Applied Materials: Yeah. I think 4F2 is the next big architecture inflection. That will happen in a few years. Typically, what happens is that when someone brings a new architecture to market, you go at least two or three technology three d DRAM would be after that. And that really it’s different than when you went from two d to three d NAND because the materials are not dielectric materials.

They’re they’re materials that were applied has clear leadership when you move to that structure. There are incredible innovations. This is where we I talk about, you know, working a decade out in the future. You know, some of these processes to enable that chip architecture, you have to improve by an order of magnitude. And it is it’s nearly impossible.

I’m highly confident we will make it happen. But, again, it’ll be after the four f squared inflection.

Stacy Rasgon, Analyst: Got it. And, you know, just to touch on the storage memory on the NAND space. You know, you you don’t play as much in, like, in dielectric etch, which is more important in in in in that space. But at at the same time, like, that that market in the near term is starting to pick up. It looks like more upgrades, maybe all upgrades versus capacity.

But what are your thoughts on on that NAND upgrade cycle, and and where does AMET benefit? Because you’re actually benefiting more than I even expected you to. You had a pretty, at least in the near term, a pretty sizable inflection in, NAND this this this quarter on the back of that.

Gary Dickerson, President and CEO, Applied Materials: Yeah. I think, you know, in DRAM, also in conductor etch, we’ve grown a lot. We’ve grown in, you know, many different areas. I talked about that. In the patterning for NAND and then also, you know, you have the CMOS bonded to the array, so those are packaging process steps where Applied, again, is the leader in in packaging technologies.

So those are areas where we are benefiting. But you’re right. I think that storage memory doesn’t have the same drivers that you have with compute memory. So when we think about what the industry looks like going forward and their percent spending, we think memory still remains about a third of the total spending but more heavily weighted towards compute memory versus storage memory. But, you know, the areas for us that business did grow for us is growing for us this year Mhmm.

A fair amount, but it’s off a very low base Mhmm. Of where it was before. And and and in NAND, you don’t have the big architecture inflection like you have in some of these other markets. So, you know, the the the industry went many years ago from two d NAND where, again, it was litho enabled scaling, but you ran out of electrons in the cell. That was hitting both technical and cost barriers, and then you went vertical, just like you’re going vertical in a lot of these other segments going forward.

But as you said, the, you know, the most enabling technology is how you drill that memory hole in dielectric etch. We made a decision years ago to focus more on conductor etch, so we didn’t play as much in that part of the market. But the patterning, the hard mask films, packaging for CMOS under array, those are the areas where we have strength.

Stacy Rasgon, Analyst: Got it. Got it. Be remiss if we didn’t touch on services. Right? And you talked about it a little bit.

How do you view growth in that business? And in particular, I’d I’d like to hear your thoughts on like, you you talked a lot about the move to, like, subs subscription contracts with with customers, service contracts. And I guess how does that both, I guess, drive growth and maybe smooth volatility as well as, like, what does it mean for margins?

Gary Dickerson, President and CEO, Applied Materials: Yeah. So service our core service business is growing at a double digit compound annual growth rate. And since I’ve joined Applied a little over a decade, we went from about 40% of our service revenue coming from long term agreement subscription revenue to about two thirds today. Two thirds. And that’s still growing.

And I’m actually very optimistic that we’re going to continue strong double digit growth in services going forward. If you think about these architecture inflections, you know, I mentioned that, you know, performance, power, yield, reliability, you know, for customers to ramp these very complex integrated platforms to ramp these new architectures, we have tremendous service innovation that enables them to ramp to high yield faster with our service technologies. So, you know, when you when you’re developing a process, it’s incredibly complex in terms of the optimization. And then you wanna transfer that to hundreds of chambers in high volume manufacturing. So being able to go from one golden chamber to all of them golden is very, very challenging, very difficult.

Time to ramp is important. How you can hit the high yield, high performance, low cost. There’s tremendous service innovation in our pipeline. And then, also, we’ve increased the number of tools that we have connected remotely. We have thousands of tools today connected remotely so that we can deliver these advanced services, immediately versus putting someone on a plane and going to a customer site.

That is growing at a significant rate. So then you have off off of these tools a tremendous amount of data. We’re innovating with sensor technologies. All of this will enable us to help customers ramp these new technologies at much higher velocity, higher yields, better performance than what they’ve had in the past.

Stacy Rasgon, Analyst: Got it. Well, we’re under ten minutes left. Do you wanna go to the lightning round? I’m happy

Gary Dickerson, President and CEO, Applied Materials: to do it. Whatever you want.

Stacy Rasgon, Analyst: Got it. Here’s a good all semi cap companies always say that they’re gonna outgrow WFE. I’m surprised. How, I guess, is is that? I mean, you you believe the same, I

Gary Dickerson, President and CEO, Applied Materials: for for AMAT. Well, I would say

Stacy Rasgon, Analyst: I always wonder about that.

Gary Dickerson, President and CEO, Applied Materials: I did take advanced math. I don’t think it’s possible for everybody to outgrow, you know, in terms of a market share standpoint. I think the key thing for us is that we have this unique and connected portfolio. I mentioned that we we’re four technology nodes out. We have deep engagements with customers.

We have extremely high visibility on those architectures, enabling the architectures. We’re designed in with our equipment and our services. So, you know, we certainly look across the entire portfolio and all the innovations that we’re driving. But as I said, the thing that is really different than the way the industry worked a few years ago is that the way we engage with customers. For them, it’s life and death to bring those architectures to market ahead of others, and materials intensity is going to increase going forward, that puts us in a good position.

We have, by far, the biggest engagement and most strategic engagements with our customers. And so I don’t know about the other people, but I have high confidence that we will outperform going forward. Got it.

Stacy Rasgon, Analyst: Among the technology areas you’re investing in today, which have the greatest potential to open entirely new product categories for AMAT?

Gary Dickerson, President and CEO, Applied Materials: You know, I I have a lot of excitement around a number of different areas. AI, I would say, is the biggest driver overall. So I mentioned in high performance logic, you know, that business is going to grow at a very fast pace. And if you look at, the combination of Gate All Around and Backside Power, we said we’d capture over 50% of those inflections. That will grow our total available market about 30% or our revenue 30% for an equivalent number of wafer starts.

So we’re really well positioned there. DRAM, you know, compute memory, I said that’s another area along with HBM. We’re really well positioned there to outperform as we go forward, and there are incredible innovations that are critical for four f squared and future generations of high bandwidth memory that are gonna be needed for AI. And then I’m also extremely focused on packaging. You know, if you think about an AI server, you have 72 GPUs, connected together that, consume about one megawatt of power.

There’s going to be tremendous innovation in how you connect all of those compute components together and apply, I said, that’s a $1,700,000,000 business, and we will double that in a few years, but it’s going to keep going. Because the way you move the data at high speed and low power is absolutely crucial to the way you connect all of those chip technologies together. And so Applied has a number of innovations that are in the pipeline that strengthen our ability to enable those architecture inflections, expand our total available market, and really reshape some of these architectures.

Stacy Rasgon, Analyst: How do you think about a natural ceiling for service intensity?

Gary Dickerson, President and CEO, Applied Materials: I think, you know, we’ve grown our, subscription revenue from about 40% to two thirds. It’s gonna keep going. You know, I think that

Stacy Rasgon, Analyst: Your services revenue per tool has been going

Gary Dickerson, President and CEO, Applied Materials: Our service revenue per tool, that’s a key metric that we look at. Our ability to connect these tools, that’s going to keep growing at a very, very high rate. We have several thousand, that are connected today. And our ability to create value for service, again, ramping these architectures really hard to high yield, maintaining high yield, you know, and high volume manufacturing, that’s also very difficult. So we’ve been growing at a double digit compound annual growth rate.

I’m actually even more optimistic with what we’re doing going forward. And I mentioned also AI. We’re using AI in a number of different areas within Site Applied, and there’s some tasks within our service organization we can improve that consume a lot of hours, a lot of manpower. We can improve in order of magnitude. So that gives us the ability to deliver higher value services at much higher productivity, but I have high confidence in that double digit compound annual growth rate.

Stacy Rasgon, Analyst: I’m gonna ask this one anyways. Maybe I shouldn’t, but I’m gonna ask it. You recently personally purchased Be brave, Stacy. Go ahead. You recently personally purchased $7,000,000 of shares.

What does this equate to your conviction level?

Gary Dickerson, President and CEO, Applied Materials: Well, we we, purchased, oh, me personally. You personally. Yeah. You know, look. I, I think Applied is in a great position, and, you know, I look at the market opportunity.

There’s we talked about computing, computing demand. We’re at a point, and I look at my career over decades in the semiconductor industry, you know, computing demand going forward is really at the foundation of how every company, every industry competes, and I am highly confident that this will be the biggest productivity accelerator with AI that we’ve ever seen, and it’s really important for competitiveness of every single, country. So I’m I’m I’m very optimistic on edge AI and, you know, content growth in all of those different kinds of applications. And then, you know, again, I I’m in deep partnerships with all of these different companies. I mentioned I met four of the top five CEOs in the last six weeks.

We’re working a decade out in the future to enable their new chip architectures, which, you know, are absolutely crucial for them in how they compete. So I can see very clearly the market growth. We can see very clearly our position in those markets, and, you know, that, you know, gives me conviction to, put my own money into applied stock, because I think it’s gonna be a great return.

Stacy Rasgon, Analyst: Got it. Maybe we have time for one more. Why did you need to invest equity in BE Semi and Kokusai? What what do you get for those what do those investments provide for you?

Gary Dickerson, President and CEO, Applied Materials: So I think, you know, I talked about these integrated platforms and and co optimizing for architectures. You know, when you’re when you’re innovating with these new architectures, it’s incredibly difficult. And, you know, that process flow, you have to co optimize. The interface engineering, from one step to, subsequent steps is very important. In BESE, they’re the world leader in hybrid bonding.

And, we, we created this partnership with them more than five years ago, and this technology is gonna be really important for power and performance going forward. Again, you increase the IO density. You shrink the length of the wiring. That improves power. That improves performance.

And we have an integrated platform with their bonder with five applied technologies into this integrated platform. So it’s really taking the best of what they bring to the market with the best of Applied Materials. In a different world, if we could do M and A, we we would have likely have done that, but, you know, that’s not possible. So creating this innovation network and the unique and connected capabilities, we have the most unique, the most connected portfolio inside the entire industry. But, you know, we’re not stopping there.

And that’s why we’re looking at part strategic partnerships with companies like Vessi, like Kokusai, and there are others also that we’re working together with because innovating across this flow is incredibly critical. It’s unique. So when our customers are trying to bring these new innovations to market, you know, Applied is their most strategic partner. We wanna strengthen that.

Stacy Rasgon, Analyst: I should have asked the $7,000,000 question last because I usually ask finally, why should this this crowd buy AMAT stock? But I think you’ve, answered that one already in space. We’re out of time.

Gary Dickerson, President and CEO, Applied Materials: I think we’ll close out there. Alright. Thank you, guys. Thank you, Stacy.

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