Applied Materials at Deutsche Bank’s 2025 Technology Conference: Strategic Insights

On Thursday, 28 August 2025, Applied Materials (NASDAQ:AMAT) presented its strategic outlook at Deutsche Bank’s 2025 Technology Conference. The company reported record Q3 revenues and earnings per share, fueled by demand in DRAM and AI-related technologies. However, the outlook for Q4 reflects challenges due to slower-than-expected growth in leading-edge logic spending.

Key Takeaways

• Applied Materials achieved record revenues and earnings per share in Q3.
• Q4 guidance indicates a slower ramp-up in leading-edge logic spending.
• The company expects continued growth in DRAM and AI-driven markets.
• Gross margin guidance for Q4 is set at 48.1%.
• China’s market faces overcapacity challenges in mature nodes.

Financial Results

• Record Revenues: Applied Materials reported record revenues in Q3, driven by strong demand in DRAM and AI-related technologies.
• Record Earnings per Share: The company also achieved record EPS in Q3.
• Q4 Guidance: The outlook for Q4 reflects slower-than-anticipated growth in leading-edge logic spending despite strong underlying demand.
• Gross Margin: Q4 gross margin is guided at 48.1%, reflecting improvements in portfolio mix and pricing.

Operational Updates

• Leading Logic: Foundries are operating at full capacity on leading-edge processes, with designs on current nodes surpassing prior levels.
• China: Despite restrictions and overcapacity, China’s market is expanding, with increased build-out in 28nm technology.
• Strategy: The company focuses on developing new applications for architectural changes in DRAM and leading logic.
• Share Shift: Applied Materials anticipates gaining market share in leading-edge and DRAM sectors.

Future Outlook

• 2026 Outlook: The company expects continued strength in DRAM and leading logic, driven by AI and new packaging elements.
• DRAM Growth: DRAM and leading logic are projected to be the fastest-growing equipment markets over the next five years.
• Gate All Around Node: Demand for gate all around node is expected to reach 300,000 wafer starts per month.

Q&A Highlights

• China Business: The market is described as growing, supported by local incentives and increased 28nm build-out.
• Customer Order Patterns: Customers are placing orders later in the cycle.
• Government Incentives: These primarily affect factory locations rather than overall demand.
• Gross Margins: A baseline gross margin of approximately 48.1% is anticipated.

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

Full transcript - Deutsche Bank’s 2025 Technology Conference:

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Okay, great. Well, thanks everybody for joining us for the next session at our Deutsche Bank Technology Conference. I am Melissa Weathers. I lead S.

Semi Cap Equipment and Memory Research here at Deutsche Bank. And this afternoon, still, we are pleased to have Bryce Hill, CFO of Applied Materials joining us. So thanks for joining.

Bryce Hill, CFO, Applied Materials: Thanks for hosting us. Beautiful conference. Appreciate you having us here.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Okay. Before we begin, if anybody has any questions from the audience, feel free to raise your hand, and we can get a microphone over to you to get that answered. So I guess, I think to kick off, the smartest place to start would be your reported earnings two weeks ago. You talked about some maybe some incremental headwinds going into the second half of the year, maybe a little bit different than what you had been thinking ninety days ago. So I think just to level set everyone, can you remind us what was your messaging on that call?

What are the key takeaways that you want investors to have taken from that call? And what are you seeing into your October?

Bryce Hill, CFO, Applied Materials: Yes, great. So when we think about this year, if we back up ninety days and even further than that, for Applied Materials and for the industry, we’ve been thinking how strong will DRAM and leading logic be this year and will it be strong enough to offset any headwinds in ICAPs, the mature logic space. Because in the ICAP space in China, there was a huge build out in 2023 and 2024. So we’ve kind of expected 2025 to be slower, but on the positive side with all the strength of AI, we’ve expected DRAM to be really strong and we’ve expected leading logic to be really strong. Q3 was record revenues for us, record earnings per share, and it was sort of exhibiting that sort of behavior.

And we had expected leading logic to be sort of linearly accelerating through the course of the year. When we gave our guide for Q4, it was different than what we expected. The expected part and the headwind part was China. China is lower, lower than 24%. We’ve been expecting that, still a good market, but not going as fast as 2024.

What was unexpected was that leading edge wasn’t linear. Now we model, of course, all the customers’ factories and the capacities and the timing of the equipment, but the pickup rate wasn’t exactly what we expected. And I would dig into that a little bit because people ask us, well, what does that mean? Is there a slower demand? Is there a change in expectations?

No change in expectations on leading logic. If we dig into it, if you look at the foundry ecosystem, the utilization on the leading edge processes is 100%. From a design perspective, reported designs reported designs are higher on these nodes and this node than prior nodes. If you look at the performance of the process itself, a gate all around process, is 20% to 30% more power efficient compute than the prior. So it’s a good node to put a design on, especially in the AI space where you need more power efficiency going forward.

When we listen to the cloud service providers and their CapEx forecasts, I think investors know that their CapEx forecasts have only been going up. And when you look at those, the CapEx on AI compute and high performance compute systems, what do those systems consist of? They consist of accelerators, GPUs, processors, than with stacks of DRAM, the high bandwidth memory around those systems. And that has a lot of pull for DRAM, a lot of pull for leading logic. So that’s what we expected just to continue.

However, the pickup rate from an equipment perspective is not linear. We’re a little bit more tilted towards one large customer. It’s going to be a little bit more tilted towards their factories and their timing. And so it will be more uneven than it was in the past from a build out perspective. But I would just leave it as that was the piece that’s unexpected.

I would put it, Melissa, in the construct of we expect leading logic and DRAM to grow over time and in fact be the two largest and fastest equipment markets.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: So I want to dig in more on to that leading edge piece. But really quick, as we think about what your peers have said versus last quarter, the messaging across all the semi caps has actually been pretty different, which is strange given that you all have the same customers. So how do you account for the difference in your outlook versus what your peers have talked about?

Bryce Hill, CFO, Applied Materials: Yes, I do think we did see some companies say they saw signs of a slower business than we saw other companies. Every company is at a different timing window with respect to China shipments, with respect to whether they can serve China customers or not, if they have more exposure to NAND, which grew a lot this year or less exposure to NAND. So there is a lot to sort out, which is your job and makes it tough for you. For us, if you back up for Applied Materials, if I can just reiterate the strategy that Gary has put in place, we think DRAM and leading logic will be the two fastest equipment markets for the next five plus years. The strategy of the company is to focus on developing new applications when the architectures change in those technologies.

And that what that really says is that’s the time when our customers reevaluate their equipment set. They’re making a change to the architecture like the gate all around processor. They’ve got new structures to build and they reevaluate the equipments that are going in. And so we’re focusing our development efforts on when you see those architecture changes in leading logic, which would be gate all around, backside power and eventually CFET. If you look at DRAM, which should be 6F2, then 4F2, then three d DRAM, when you see those architecture changes, Applied already has good share, and we expect to gain share, once those transitions get implemented.

So that’s really the focus for the company in terms of the fastest growing markets. And when we think about AI, those strategies, that strategy has been in place for a while. We didn’t know about AI when we started working on those architectures, but AI is a perfect example of the market pull for compute memory, DRAM and of course, for compute logic. Yes.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: While we’re talking about AI, a lot of the high end GPUs and even some of the ASICs, those still aren’t at the very, very bleeding edge. So can you just talk about what are your expectations in terms of bleeding actual bleeding edge adoption for those processors? And could we ever get like two nanometer GPUs? And what’s your view on that?

Bryce Hill, CFO, Applied Materials: Personally, so I’m not a chip architect, but we talked a little bit about this before. I would expect all of that to migrate to the leading edge. And if it’s not the node that’s currently ramping, then maybe the node after. And the reason is there’s two reasons, but the main reason is power performance. The transistor, the gate all around transistor was designed to be better power efficient compute and more reliable than the FinFET transistor.

It’s in the architecture, it’s more efficient, more reliable and consumes less power than the prior generation of technology. So I expect all those designs once they’re comfortable with the tools and implementing and getting the design there and the process itself, expect all those designs to go into that space. It would be I think it would be a huge change for the whole industry if somehow that didn’t evolve. And it’s not the world I think everybody knows, the world is worried about power. The way to solve the power need is to make the compute more power efficient.

And there’s multiple different ways, including in packaging to do that. And so I think you’ll see all those designs move forward.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Maybe on the sticking with the near term side, and then we can get into some of those long term growth opportunities. WFE, I’m going to try and get an outlook from you for 2026. But as semi cap investors, it’s very difficult for us to get a clear picture of what could happen in 2026. You have all these different moving pieces between China, between the leading edge and DRAM. So you don’t have to give me a hard number.

But as we think about the moving pieces into 2026, what how would you guide us? And like where should we start?

Bryce Hill, CFO, Applied Materials: I think the dynamic will be similar from a growth perspective for 2026. We’ll have strength driven by AI in DRAM and leading logic. We’ll have continued growth of new packaging elements for that space in particular. And if there’s a headwind, the headwind will still be in the China mature nodes, which we call ICAPs. The devices ICAPs for investors, we talk about IoT devices, communications, the auto market, power sensors, so all those things that are built on essentially 14 nanometer and larger geometries, analog chips and the like.

Because China invested so much in 2023 and 2024, even though the end markets for those mature logic devices are growing, growing at mid to high single digits, there’s a lot of capacity in place. We’re still adding customers. We’re still adding capacity. So it’s going to be slower developing for the next few quarters still than we’re going to see in the end markets. So going back up to the top, we would expect growth generally over a five year period, especially in DRAM and leading logic, no reason to expect 26% to be different than that.

That will depend on the macros. And then the headwind will be ICAPs. And the question is, is leading logic and DRAM going to grow strongly enough to offset that? So that’s I think the dynamic is similar to what we’ve seen in the past few quarters. Okay.

I would add one thing, sorry, Melissa. The this year’s growth, our semi equipment business is growing with our guide about 4%. So that gives you assuming a constant share, that gives you some perspective on what the equipment business is doing this year. So you should see WFE growing this year. And we’re just I’m just saying the trends, there’s not a reason to expect the trends to be different.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: So on the leading edge piece, that was definitely the biggest surprise to me in this most recent quarter. One of the things that you’ve talked about, which I found interesting is the difference in customer order patterns and order behavior pre COVID, during COVID and then in this post COVID world. So can you add a little bit more color? Like how have your engagements with customers? Have they changed?

What is your visibility going forward as to what those leading edge customers are spending?

Bryce Hill, CFO, Applied Materials: Yes. I think if we start in China, we have more customers and a lot of them are newer customers. And if you compare them to long standing customers that are larger, the long standing customers have a mature process for forecasting their demand, forecasting their facilities and sharing that with vendors. So first of all, a lot more of the market has been in China or in rest of world with less mature processes. And with the policy uncertainties and trade uncertainties and tariff uncertainties, what we’ve seen is customers kind of wait till the last minute before they commit to the order that they’re looking for, right.

And then looking at the mature larger customers, we’ve actually seen the same behavior sort of late commits to the orders that they’re taking. And what we’re doing is we’re reminding everybody, during COVID, we all struggled with supply chain because there was significant volatility in demand for the supply chain. Applied materials can take more orders or take fewer orders in any particular quarter, but what’s really hard is if you have 8,000 to 10,000 components in a system and you’re trying to move a large number of suppliers at the same time, they really can’t move up and down that much. So what we’re doing is reminding our customers, we know there’s more volatility in the environment, which hopefully will settle out, but we really need to have a perspective, what’s the two year roadmap, what’s a good one year build plan and then for six months, we really have to have a clear perspective on what the builds and deliveries are. I think we’ve split away from that a little bit, but I think everybody is on the same page that in order to manage the large ecosystem, we have to follow that behavior.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Are you seeing any signs of share shift?

Bryce Hill, CFO, Applied Materials: If I look at leading edge in DRAM, where we’re focused, we don’t think there’s any change in share. The share shift, of course, the biggest component is in China. This year, we announced early in the year that there was $400,000,000 of business in our backlog that we would not be able to serve because of the entity listed customers in China. So we do have share loss there that’s based on the rules that were put in place. But I would step back and just think about that for a second.

If we think about the China business that we can’t serve, the memory business, the whatever is leading logic there and any restricted accounts, the question is going to be how long will this regime of rules be in place? I think there’s two big questions. The first one is a technology question. Will there be new technologies invented in China that use different tools that are competitive? If that happens, then we don’t have access to that share like we do today.

If you can’t really keep up without access to the equipment, at least over the next ten years, then more of that demand should shift back to the multinational vendors where Applied does provide that equipment. So I think that’s the big that’s a large unknown in the ecosystem right now. That’s one thing that could happen that could benefit Applied. We recently saw that NVIDIA can sell components to China. That’s going to put more demand on Applied tools.

And so that’s an example of how that could happen. The second scenario would be if the government changes its stance from restricting equipment to actually it’s okay if we provide equipment and China can build on top of that equipment. If that happens, that’s another way where Applied could sell more equipment to that customer base or that used base. So I think that’s a big unknown. But going back to your question, yes, where we see share shift is in China and we expected that it’s rules based.

And the question for us when we talk about will we see overall share gain or not, we think we’re going to gain share on leading edge. We expect to gain share also on DRAM. And will that be large enough to offset any share loss in China? That’s what we’re looking at.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: So there’s been a lot of news in the semi sector over the last week or two, particularly in the second tier foundry players. I don’t know if you heard. The U. S. Government is now a shareholder of, one of your large customers, Intel.

And then also, we’ve had some news on the Samsung foundry side as well. So a lot of activity on those second tier foundry logic players. So as we think about those incremental developments, how is that factoring into your outlook for leading edge logic spending?

Bryce Hill, CFO, Applied Materials: Yes. I’ll start with, it’s not much of a factor. And the reason I say that is people used to ask us investors used to ask us, hey, if the governments are incentivizing your customers to build in The U. S. Or build somewhere else, isn’t your demand forecast going up?

And we would say no. At the highest level, demand is driven by PCs, data centers, smartphones and all that those incentives do is have a customer instead of building in Taiwan, they’re going to build in The U. S. So the view was it mattered a little bit at the margin, but it didn’t matter in total. Similarly, our expectation is that if the second tier foundries are more successful, it’s not going to be a major change in the way we look at the market.

We at a high level, we would model the market for leading edge and DRAM, as an example, to be roughly the same. It does matter at the margin. And the way I think about it is if you move the needle all the way to one side of the equation and you say there’s only one foundry, then one foundry will operate at a very high utilization. If you move it to the other side and you say there’s four competing foundries, then they’ll altogether operate at a little bit lower utilization because they’re competing against each other. And so we think it matters at the margin, but hopefully for investors, it’s sort of comforting.

We don’t think anybody is going to build extra fabs that don’t have designs. When you’re building a factory, you know whether you have a design or not, at least when you’re ready to order the equipment. You know, do I have a customer? Are they taping out? Are they ready to commit to volumes?

And then you’re ordering the equipment because there’s enough time between your tape out and design win and actual start of production that you can install the equipment. So we anyway, hopefully that answers the question. It’s a positive. Competition is a positive. It will help drive performance.

It matters at the margin, but we’re not changing our forecast, our five year forecast because of this dynamic.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: I think that’s a prudent way to handle it. Maybe last question on the leading edge piece and then maybe we can get into some China. On your call, you talked about 30,000 wafer starts per month of two nanometer. I don’t recall if it was two nanometer gate all around. So one, can you clarify what which nodes that is?

And then also, as we think about like the timing of this build out, clearly, maybe there’s some seasonality or some a little low in spending in the second half. But as we think about the scale of the two nanometer node, can you talk about what that could mean for the pace of growth that you’re expecting for leading edge nodes?

Bryce Hill, CFO, Applied Materials: Yes. We so first of all, the number I think I used, bigger number, 300,000.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Sorry, 300,000.

Bryce Hill, CFO, Applied Materials: 300,000 wafer starts per month. That’s what we think is a good expectation for the size of the gate all around node. So larger than the prior node and primarily driven by the capability, but the 20% to 30% power efficiency of the transistor that you can build on that node. So we think it’s a good landing spot. If you look at nodes, some nodes are really good landing spots.

They pick up a lot of designs. They’re large. Other nodes have been smaller. I think the 10 nanometer node was an example of a node that was sort of an interim node and then seven was really strong in that example. So two should be a strong node from our perspective.

And then if you look at Applied Materials, we talk about how our SAM, our share of market has gone up from $12,000,000,000 for 100,000 wafer starts of capacity to $14,000,000,000 of SAM for 100,000 wafer starts. That’s our opportunity to grow share and to sell more equipment into those nodes. And so if you look over the last year two years, we sold $2,500,000,000 of gate all around type equipment in 2024. We said 4,500,000,000.0 in 2025. So there’s $7,000,000,000 of equipment, 50% of that $14,000,000,000 number.

So that would equate with roughly by the end of this year, 100,000 wafer starts of capacity being put in place divided across four customers, right? So we would expect there’s a long way to go in this ramp. And somebody asked me earlier today, well, what’s when does that ramp end? That ramp ends when your next node that has good volume starts ramping.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Great. So now let’s touch on the China piece. There’s a lot of moving pieces within your China business. It can be hard to keep up with. So as you look at your China business today, really strong growth in the last two years, starting to taper off going forward.

How would you characterize the overall China business between you’ve got multinational spending, you’ve got some entity list restrictions, and then you’ve also got just a normal digestion of some capacity put in place at the, anything above 28 nanometer. So high level, can you just summarize what you’re seeing in China, what your outlook is there?

Bryce Hill, CFO, Applied Materials: Yes. First of all, I think the perspective from inside Applied is really good market, growing. I mean from the perspective of we’re adding customers. This quarter when we did our account reviews, I think there’s a new customer that’s building display drivers on 28 nanometer. There’s another new customer that’s building computer image sensors on 28 nanometer.

And the last few years, the build out in China has focused on even more mature nodes like forty, forty five, 60. What we’re seeing in the next couple of years is a lot more build out is going to be on 28 nanometer. Applied Materials has a good footprint in 28 nanometer. We think a lot of these customers, when they start, they’re going to use the same equipment set that the big foundries have used for 28 nanometer. So that plays to our advantage from that perspective.

Excellent service capabilities that we think we’ll be able to offer those newer customers who are more likely to use the services as it’s qualified labor and sort of fab experts that come in and can help them ramp. So from that perspective, growing market, a lot of it’s driven by local incentives. Those new customers I talk about, they’re incentivized to build a factory in a new province. And so and of course, we help with that. Having said all that, yes, 2024 was a really big year, and we think we won’t have as big a market or as fast a market as we did in 2024 until, I call it, digestion, until the end market demand sort of catches up with the capacity that’s been put in place.

If it were one customer and one part, call it a monolith, then you would say, oh, I don’t need to add any capacity for more than a year because if I’m at 80% utilization and the market grows mid to high single digits, I can at least wait a year before I need to buy any equipment. The issue is it’s not one customer, it’s lots of customers, lots of different products, lots of different factories. They’re all scheduling construction, installation. So the market keeps going. So I think, it’s complex.

We’ve had investors ask us, who are these customers? What are they building? Are they profitable? Do they have real businesses? We’re all going to learn more, but we expect that market to continue to grow, continue to be strong.

And then of course, the end markets itself, we’re talking ICAPS, mid to high single digit growth over time. So the demand will catch up to the capacity, if you will. Last thing on the restrictions, I sort of gave you my thoughts. This environment that we’re living in with the restrictions, I don’t think it’s permanent, from the perspective of the technologies are going to evolve and change one way or the other, either China will have successful roadmaps that are competitive or they’ll have to shift back to multinationals or the actual rules environment will shift. And so, we don’t speculate on which way that goes, but hopefully that gives you some investors a way to think about that dynamic.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Super helpful. Let’s touch on ICAPs, but maybe the non China piece of ICAPs. On your earnings call, you talked about some green shoots there. This has been a very prolonged cycle. I think we’re all anxiously waiting for the analog and the broad based on this world to reaccelerate.

So what are those green shoots that you’re seeing? And what’s the what is your outlook on the high caps rest of world part of your business?

Bryce Hill, CFO, Applied Materials: Yes. The easiest one is we see utilization improving. So we see it in the current quarter. We see it in our outlook quarter, and we expect that to continue in the over the next few quarters. And what’s happening underneath is I think the whole world, the rest of world is needing to reconcile how much capacity has been put in place in China and how much will they serve.

And if our rest of world companies thought they were selling into China, there’s some rationalization that has to be done on the capacity plans. The green shoots are utilizations are starting to climb even after all the capacity that’s been put in place, that’s good. And the second is specifically in our Q4 outlook, of course, China ICAPs is lower, but rest of world ICAPs is higher. And so it’s indicative of some of the investments that we’re expecting to see in rest of world. And in fact, our internal forecast call for rest of world ICAPs to grow over definitely over the five year period that we’re forecasting, we call for growth in that space.

So not giving a 26 guide, but we expect some of it’s driven by 200 millimeter to 300 millimeter transitions, but the rest is driven by the underlying market is growing.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Is there any tech transition? I know the business is super broad, but what kind of innovations are you seeing in those ICAPs nodes?

Bryce Hill, CFO, Applied Materials: I think the number one space to think about is power. So our teams work a lot on what’s called compound semi, so new materials for substrates or for the transistor silicon itself. And I think that’s where you see a lot of the innovative work is how do we make these components so they’re much more energy efficient than prior technology generations. That’s where you’ll see a lot of the innovation.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Speaking of innovation, let’s move on to DRAM. As you think about the current supply demand balance within the DRAM market, I think some investors are concerned there’s a lot of questions on where will supply demand shake out in 2026. So what trends are you seeing on the DRAM piece? Maybe let’s talk about it as a whole and then we can get into HBM.

Bryce Hill, CFO, Applied Materials: Well, the best trend in HBM is AI related components, including HBM, we think are growing at a 30 to 40% CAGR. And so when you look at HBM DRAM, I think about 15% of DRAM capacity wafers today are allocated for HBM production. That’s growing at a 30% to 40% CAGR. And so that’s where you see we’re going to have a record either a record year or the second best year for DRAM this year. If you look back at 2024, we had a significant China business.

So this year, we’re at a record or close to a record, meaning the multinationals have made up all of that business we had in China in the prior year. I think that’s close to 50% growth for the multinationals in DRAM. And so that’s both a pull on the memory itself and also driven by that HBM. So we think the trend, if you look across the five year horizon I highlighted earlier, we think DRAM could be the fastest growing equipment market. It will be between DRAM and leading logic over the next five years.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: As we think about HPM specifically, that market is seems to be pretty binary in terms of capacity additions. We’re waiting on clarity on qualifications at certain customers. So how are you what’s embedded in your forecast? How do you, as a CFO, plan given that huge binary aspect of we don’t know what supply is going to look like?

Bryce Hill, CFO, Applied Materials: The good news is this is more similar to our the conversation we had about leading logic. We don’t model HBM at the foundry level. We model HBM at what do we expect the high bandwidth memory market to look like, how fast is it growing, what’s the macro. And then as far as subdividing that between the memory vendors, we don’t do that. Of course, we do that when we’re getting ready to take orders and ship equipment.

But as far as when I say our DRAM forecast is to have that process technology be one of the fastest growers over the five years, it’s at that macro level how much HBM we expect to be deployed. So I would just say, of course, it matters dearly to those vendors who wins those designs. But for us, we would say we’ll support all of them, and we certainly hope there’s competition in the market.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: So last couple of minutes that we have, I promise I’ll get you a margin question as CFO. But maybe really quick on the services side, the AGSP. Maybe can you help us think about the two different pieces? You’ve got the 200 millimeter piece and then you’ve got core, which you’re guiding to grow low double digits. So what trends are you seeing in that business?

And then specifically, I think you’ve talked about the subscription side of the business or your subscription revenues is near twothree and growing. So can you talk about the drivers of what’s driving that number higher?

Bryce Hill, CFO, Applied Materials: Yes. I’m definitely trying to have highlight that business for investors by associating and highly correlating our dividend growth with that business. So we’ve signaled for the core part of that business, which is over 90% of what we report in AGS, for the core part of that business, more than two thirds of it is subscription. So you can view that as recurring revenue. It’s the services component and spare parts component of that business.

And we do say that’s growing at low double digits and we expect it to continue to grow at low double digits. And so if you think about the dividend, will hopefully exhibit that with the dividend as we go forward and that will just put that at the top of mind for investors. If you look at total ATS for the year, that component that’s less than 10% of the business today, that’s 200 millimeter equipment that is reported in that services business and that has shrunk this year. And I think a lot of that has to do with the transition of 200 millimeter production to 300 millimeter production. We think there will be a continued 200 millimeter market.

There are some technologies, especially in these compound semi space, where the technology actually can’t be built yet on a 300 millimeter. It doesn’t just from a warpage perspective and from basically the heaviness of the material, etcetera, it doesn’t work on a 300 millimeter wafer. So there will be a continued 200 millimeter market for as far as we can see, but it will be smaller, okay? Back up to the top, that services business, we expect low double digits growth rate. And what the dynamic that’s driving that and the reason it’s faster than the equipment business is every day that we ship a tool, our installed base grows.

Our customers, a lot of them are being incentivized to build in different cities than they normally build in. And when you do that, you are looking for labor and looking for people that know how to work in a fab. And so Applied comes along and says we can provide 100 service technicians that are expert on this equipment that can help you yield and offer some AI based intelligence as to how to tune that equipment. The pickup on that business is higher in this environment because of that dynamic. And finally, the services themselves are improving because we’re using AI technologies to help improve the offerings.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Alright, last thirty seconds that we have. Gross margins, didn’t get a lot of attention on your last earnings call, but where do we how should we think about the baseline of gross margins from here? Your mix is very in flux. So help us on gross margins. And then I do want to ask on the value based pricing initiatives.

Bryce Hill, CFO, Applied Materials: Is that something that So 48.1% gross margin for our guide with a lower China mix, which typically weighs on our gross margins. So we looked at our Q4 guide as sort of a normal. It’s a normal China mix, relatively normal business mix. And so I think it’s a good indication of where we are today from a gross margin perspective, and that’s improved over the last couple of years. Our Q3 quarter of high 48% gross margins was 150 basis points above where we were a couple of years ago.

So we made a lot of improvements. The portfolio is shifting to more critical tools. We’ve got a better pricing process in place. So that’s helping us. And of course, we’re working there is some headwinds with the tariffs, but we’re working through that.

We have a global footprint. We feel good about our ability to manage that. So I think that is a good baseline, Melissa, and we’ll continue to work on improvements in that.

Melissa Weathers, Lead Semi Cap Equipment and Memory Research, Deutsche Bank: Perfect. Well, we are out of time. Thank you so much, Bryce, for joining us, and enjoy the rest of the conference, everybody.

Bryce Hill, CFO, Applied Materials: Wonderful. Nice to see everybody. Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.