Applied Materials, Inc. Price & Performance (AMAT)

Good afternoon and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO and Bryce Hill, CFO, Before we continue, let me remind you that today's discussion contains forward looking statements within the meaning of the federal securities laws including predictions, estimates, projections or other statements about future events. Actual results may differ materially from those mentioned in these forward looking statements.

As a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent Form 10 ks and eight ks filings with the SEC. We do not intend to update any forward looking statements. During today's call, we will also reference non GAAP financial measures, Reconciliations of GAAP to non GAAP results can be found in today's earnings press release in our quarterly earnings materials, which are available on our Investor Relations website at ir.appliedmaterials.com Applied. I will now turn the call over to Gary.

Thanks, Liz. In our first fiscal quarter of twenty twenty five, Applied Materials delivered record revenue surpassing the prior high we set The major technology trends reshaping the global economy are made possible by advanced semiconductors, underpinning long term secular growth for the industry and especially Applied Materials. We are providing our customers a unique and connected portfolio of solutions to accelerate the technology roadmap. Positioning us for continued growth and outperformance in the years to come. In my prepared remarks, I'll share our latest market insights, I'll describe how our innovations are enabling the major device architecture inflections that are critical to advancing energy efficient AI and I'll talk about why high velocity co innovation is more important than ever as the industry races to bring next generation technology to consumers faster, and at lower costs. Starting with the market, AI remains central to our outlook. With almost infinite possible uses, AI is the most transformative technology change of our lifetimes and a major catalyst for innovation and growth across the technology sector.

Early deployment of AI year on year growth of global semiconductor sales in twenty twenty four and the market remains on track to exceed $1,000,000,000,000 of annual revenues by 02/1930. We are only at the beginning of what's possible And as we look ahead, we expect disruptive innovations to significantly improve the energy efficiency and cost of AI, opening up new applications and growing the overall market opportunity.

To unlock this potential, innovation is required across the technology stack from the models and software as we've seen in recent weeks with DeepSeq to data center architecture chip design, and how those chips are made. Advancements in foundational semiconductor technologies will have a dramatic impact on system level energy and cost reduction in the AI data center. I've previously described four critical areas the industry is currently focusing on. Leading edge logic, high performance DRAM, DRAM stacking referred to as high bandwidth memory or HBM and advanced packaging to connect the logic and memory chips together in an integrated package. There's also a fifth theme emerging, As we are seeing major innovations in power electronics, These innovations can address data transfer energy consumption within the data center as well as significantly reduce grid to data center power losses. Applied has strong leadership in all these areas and we're best positioned at future device architecture inflections including next generation gate all around transistors, backside power delivery, 4F squared and three d DRAM, advanced packaging, compound semiconductors for power electronics and silicon photonics. These device architecture inflections in logic, compute memory, packaging, and power devices grow the market for wafer fab equipment increase the relative mix of materials engineering technologies and provide opportunities for Applied to gain market share.

Taking leading edge foundry logic as an example, the transition from the most advanced generation of FinFET to the first nodes with integrated gate all around and backside power delivery grows our total available market by more than 15% to around $14,000,000,000 for every 100,000 wafer starts per month of capacity.

At the same time, we expect related applied revenues to grow in the 30% range for the equivalent wafer fab capacity. While the bulk of spending for these inflections is ahead of us, we are already seeing a positive impact on our business. In 2024, we believe we outperformed the market in aggregate across leading edge foundry logic, DRAM, advanced packaging and the iCAPS markets outside of China.

The ability of U. S. Companies to serve the China market is constrained and has been further limited by updated trade rules announced in December and January. We estimate the incremental impact of these new rules will be around $400,000,000 of revenue in fiscal twenty twenty five approximately half of which is service revenue. We also see China being a smaller portion of global wafer fab equipment spending in 2025. At Applied Materials, our strategy is to develop and commercialize the most enabling technologies for the industry across leading edge logic, memory, advanced packaging and iCast. We have focused our investments on these high growth inflections that allow us to create and capture more value. One of the ways we are implementing our strategy is to provide our customers unique and connected solutions that take advantage of our broad portfolio of technologies, capabilities, and partnerships. Our co optimized and integrated solutions address higher value device challenges for customers and are difficult for competitors to replicate. A good example is our integrated hybrid bonding interconnect solution that combines six technologies including one module from a partner into a single integrated system. In the past quarter, we successfully completed important qualification milestones and received volume orders from multiple leading edge customers.

Our integrated hybrid bonding system is one of our next generation solutions that is allowing us to extend our leadership in advanced packaging. In 2024, our packaging business captured more than half of the market we serve and we remain on track to double our revenues over the next several years. Another key pillar of our strategy is high velocity co innovation. We believe this is key for Applied and our customers to bring next generation technology to market faster and at lower cost. By speeding up cycles of learning, through tighter ecosystem collaborations, we are accelerating new chip architectures, driving higher mutual success rates and optimizing R and D efficiencies. Among our accomplishments in the past quarter, we launched our EPIC advanced packaging strategy at a technical summit we hosted in Singapore that brought together R and D leaders representing more than 20 global companies. We were part of two teams that received CHIPS Act grants to develop advanced packaging substrates for three d integration. We are leading the team for silicon substrates, and we have a long term partnership and investment in the company that won the grant for glass core packaging.

We made significant progress with the construction of the Epic Center in Silicon Valley which is on track to come online in 2026 and will become the centerpiece of our global Epic collaboration platform.

And we partnered with TPG to transition Applied thin film battery business into an independent company. We're also evolving our collaborative model and services where we are helping customers manage increasing complexity in their business as they ramp next generation technology into high volume manufacturing. We are deploying our advanced service products, including our actionable insight accelerator data platform or AIX to help accelerate customers' R and D programs reduce technology transfer times and optimize device performance yield output and cost in their fabs. Through these closer working relationships, a high percentage of our service revenues is generated from subscriptions in the form of multiyear agreements. While our near term service growth is negatively impacted by trade restrictions, we remain confident that we will still grow AGS at a low double digit annualized growth rate over the longer term. Before I hand over to Bryce, I'll quickly summarize. As major technology trends reshape the global economy in the semiconductor industry, Applied continues to deliver strong financial performance in the near term, we are best positioned at major device architecture inflections in fast growing areas of the market that are critical to energy efficient AI and we are focused on high velocity co innovation with our customers and partners to bring breakthrough technology to market faster than ever before.

Bryce, Thanks, Gary, and thank you to everyone joining us for today's call. We had a strong start to the fiscal year with healthy revenue growth and meaningful margin expansion, which helped drive a 12% year over year increase in non GAAP earnings per share. In addition, we distributed $1,600,000,000 to shareholders with $1,300,000,000 of share repurchases and $326,000,000 of dividends. Fiscal Q1, our results were largely in line with our expectations. With total net sales of approximately 7,200,000,000.0 up 7% year over year with growth in both Semiconductor Systems and Applied Global Services. Non GAAP gross margin was 48.9%, up 100 basis points from the prior year quarter. And our highest quarterly gross margin since fiscal year two thousand. The strong margin performance in Q1 was the result of a very favorable mix and increasing adoption of our leading edge technologies advanced integrated systems. In addition, we progressed on our value based pricing initiatives and cost reductions. Non GAAP operating expenses were $1,310,000,000 dollars with increased R and D investments to support our technology growth areas. Non GAAP EPS was a record $2.38 up 12% year over year given the revenue growth, better profitability and share repurchases. Moving to the segments.

Semiconductor system sales were $5,360,000,000 for Q1, up 9% year over year driven by 20% growth in foundrylogic, partially offset by an expected decline in DRAM sales as prior year sales to customers in China did not repeat. Non GAAP operating margin of 37.3% was up 160 basis points year over year. Sales for the ICAPS nodes which serve customers across the IoT, communications, automotive, power and sensor markets. Were down slightly year over year and flat quarter over quarter. Moving to Applied Global Services, AGS delivered revenue of $1,590,000,000 in Q1, up 8% year over year with healthy growth in services partially offset by a decline in sales Non GAAP operating margin of 28% was down 30 basis points year over year. Lastly, our display business delivered revenue of $183,000,000 Moving to the balance sheet and cash flows, ended the quarter with cash and cash equivalents of $6,300,000,000 and debt of 6,300,000,000.0 Cash from operations in the quarter was $925,000,000 capital expenditures were $381,000,000 and free cash flow was $544,000,000 We distributed $1,600,000,000 to shareholders in the quarter including $1,300,000,000 in share repurchases and $326,000,000 of dividends. As of the end of the quarter, approximately $7,600,000,000 remains available under our share repurchase authorization.

Turning to our outlook. We are seeing strong momentum for leading edge foundry logic where we are particularly well positioned as our customers ramp the most advanced technology nodes with gate all around transistors into high volume manufacturing Offsetting Leading Edge, a more measured level of investment in the ICAPS nodes. Following strong spending in 2023 and 2024. In DRAM, are seeing healthy demand but face tough year over year compares given the purchases from Chinese customers in 2024 that do not repeat this year. We are also seeing growth in NAND, albeit from historically low levels. As Gary mentioned, as a result of the expanded export controls announced in December and January, we expect to face a headwind to revenue of approximately $400,000,000 in fiscal twenty twenty five. Nearly half of that impact will be in Q2. The impacts in the second half of the fiscal year will be more weighted to AGS As we are no longer able to service certain customers, and following the step down in revenue in Q2, we would anticipate a return to growth in Q3. For AGS. Based on these trade restrictions and our view of our business, for Q2, we expect that China as a percentage of total revenue will be about five percentage points lower than in Q1.

This is below the normalized level approximately 30%. Taking all of these factors into account for fiscal Q2, we expect total revenue of $7,100,000,000 plus or minus $400,000,000 which represents a 7% increase year over year and non GAAP EPS of $2.3 plus or minus $0.18 which represents a 10% increase year over year.

We expect semiconductor systems revenue approximately $5,300,000,000 8% year over year AGS revenue of approximately $1,550,000,000 up 1% year over year and display revenue approximately $250,000,000 We expect non GAAP gross margin of approximately 48.4% and non GAAP operating expenses to be approximately $1,300,000,000 We are modeling a tax rate of approximately 13%. In closing, our business is strong. And we remain confident in our growth opportunities across all of our business segments. We are making significant investments in R and D to grow our share at the leading edge and we are increasing our capital investments to be the leader in high velocity co innovation with our customers. This is an important indicator of the confidence we have in the growth trajectory of our business and with our differentiated technology unique insights and deep industry relationships, we are poised to benefit from the technology transitions and semiconductor growth that is expected over the coming years. Thanks, Bryce.

To help us reach as many people as we can on today's call, please limit yourself to one question.

Please re queue and we'll do our best to come back to you later in the session.

And our first question comes from the line of Toshiya Hari from Goldman Sachs. Your question please. Hi, good afternoon. Thank you so much for taking the question.

I know you guys aren't or haven't been giving specific WFE numbers, but at a high level, Gary and or Bryce, I was hoping you could provide a little bit of context on how you're thinking about the year. I know you gave a couple of comments, but by application, by geography, how is 2025 likely to shape up in your view? And more importantly, your outperformance vis a vis the market, what are some of the key drivers should be focused on? And if you can speak to the magnitude of outperformance relative to what you achieved in 2024, that would be really helpful.

Thank you.

Okay. Thanks, Toshiya. Nice to hear from you. So first, we'd say that our Q2 guide gives a really good indication of how we think the market is evolving. So leading edge with all the strength that you see in AI pulling DRAM, advanced logic, and HBM. That factors into what we see in the market today. So leading edge is growing We've been thinking it will be accelerating through the course of the year and we do see that growing strongly in Q2. And we highlighted that we've also been watching the iCAP market after the significant build out the last couple of years in China. And that is lower in Q2. So those things offset but you see on total that we still have consistent year over year growth in the overall market. So that's the the big change from a market perspective. If you look at the memory side, our memory is roughly flat quarter over quarter. We do see some additions on the NAND side and that's offset by a slight reduction in DRAM. NAND is growing, but of course that's from a smaller level. The last thing I would share is when you think about advanced packaging, we had a significant amount of capacity adds last year in the HBM [indiscernible] For the initial burst of capacity And we're still selling into HBM, still adding equipment into that market but it's at a slower rate.

So that's part of the outlook also. So the key thing there is we've all been waiting to see if advanced logic would ramp strongly enough to offset any slower rate of investment in iCAPS that is what we're seeing in Q2 and that's our best what we try to do is share what we're seeing today and we think that's our best indication and how you can think about the year at this point.

Yes, Toshiya, relative to the out performance question, over the last four years, including last year, we outperformed in aggregate across leading edge foundry logic, DRAM, high bandwidth memory, advanced packaging and ICAPS markets outside of China. And we've been talking about this a lot We're focused on major device architecture inflections critical to AI energy efficient computing. When we're meeting with all of our customers, that's where they're all focused. So for us, we're we're on track to capture greater than 50% share of our served market in gate all around and backside power and foundry logic We gained 10 points of DRAM share and we're positioned to gain share as 4F2 and three d DRAM architectures are adopted Packaging was around $1,700,000,000 in 2024, up 3x in four years. And as we've said many times, we're positioned to double this business in the coming years. In iCAPS, we gained several points of share since we formed the group six years ago. We brought several new products to market. We have a strong pipeline of new products that will grow our available market and position us well in this segment intensity where Applied has clear leadership is increasing in next generation chip architectures So going forward, I like how we're positioned to win these major inflections.

Again, we've been outperforming in all of these segments over the last four years and we're well positioned to continue to outperform going forward.

Thank you. And our next question comes from the line of Atif Malik from Citi.

Your question please. Hi. Thank you for taking my question. Bryce, appreciate the color on the April quarter. The silicon system is down a little bit. Explained by the China impact. You're talking about the return to growth in AGS. Can you also comment on the silicon systems? Do they return to sequential growth in the July quarter or we'll have to wait and see?

Yes. Thanks, Atif. I think we'll have to wait and see on the semiconductor systems, but what we're sharing is we've been expecting the leading edge to accelerate. When you think about the gate all around and backside power nodes in the market and the advantages of those nodes for leading edge architectures, we expect a significant amount of capacity to be put in place in those nodes and that's that is what you see in Q2 and we expect that is a good indication of where the market will be going. And then on the offset for that, we highlighted the iCAPS and we've been watching that. But I'll just say that market continues to evolve. Our forecast for ICAPS and for ICAPS China seems to change every single quarter. And so we'll see how that evolves through the rest of the year. And then on the services business, yes, this will be similar to 2022 when there were new trade rules. We'll have a step back as you can see in our guide in Q2, but we expect to grow from there at the low double digit rate as we continue to add [indiscernible] business is utilized by the customers.

Thank you.

Thank you. And our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.

Hi guys. Thanks for taking my question. You said that the China impact in the second half will be weighted to AGS, but you also said AGS returns to growth.

In Q3. So like how do I square that circle on what's offsetting the China impact in the second half?

And just like broadly, if I were to add the $200,000,000 ish so that AGS is getting hit by the China sanctions, if you added that $200,000,000 back in, would it still grow double digits this year? Yes. That's a good that's a good question. Thank you, Stacy, for the question. So on the AGS side, the way to think about it is, approximately half of the impact will be taken in Q2 and then it will be a continued impact in the following quarters. But But we don't expect it to be a sequential reconciling line item. In other words, whatever business we can't support in Q2, that's the same business or less in Q3 and Q4. So there is a is an impact in Q3 and Q4, but we think you shouldn't worry about it from a modeling perspective. We'll just begin to add from there and we'll grow at the rate that we've described, low double digits as we continue to add installed base and tools to support And then, didn't do the calculation. I guess what I would say is from a core AGS perspective, if you take the 200 millimeter out, we're absolutely growing at low double digits or higher.

Thank you. And our next question comes from the line of C. J. Muse from Cantor Fitzgerald.

Your question please. Yes.

Thank you for taking the question. I was hoping you could speak a bit to gross margins. You talked about value based pricing. Starting to come in, in the January. Would love to hear more about how you see that flowing through the model throughout all of calendar twenty five and I guess as part of that how should we be thinking about kind of evolving mix in terms of modeling gross margin either first half, second half or kind of exit rate for calendar twenty twenty five would be very helpful.

Okay. Thank you, CJ. Good to hear from you. So on the gross margin, 48.948.4% in our guide in Q2, very strong mix in both quarters, obviously with the the China impacts for Q2, it's a little bit lesser mix strength. We're still going to reiterate our 48% underlying rate. So we think with when we don't have those quarters with ultra strong mix, that's still about the ballpark for our normalized rate. So I think in the second half that unless we maintain the exact same mix, which we likely don't expect, We will be closer to that 48% gross margin for the year. Or not for the year, sorry, we're not giving a guide for the year, but that is our underlying baseline rate to think of as you think about where the business is normally. And then, if you think about the pricing, there I think of two dynamics with pricing. One, the solutions that we're developing that Gary has pointed the company toward the inflections those are increasingly valuable solutions for the customers. And so there's increasing value proposition for the equipment itself. And then our pricing mechanism is to make sure that we're including that in our thinking with respect to the pricing and that we also have a disciplined infrastructure to have those discussions with customers.

So as we allocate our R and D, we're of course allocating to the areas that we think are most valuable in the market. And we think it's a matter of execution to achieve that value in the marketplace, which is what we're trying to do. So I said third inning last quarter on those on the process for pricing and I think that's still accurate.

Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please.

Thanks for taking my question. I actually had a longer term conceptual question for Gary related to Lidho versus etch and depth intensity, let's say overall WFE intensity stays around mid means WFE will grow in line with semiconductor industry sales, over the next several years. And if that happens, you think, Gary, Litho takes more share or do you think etch or debt take more share and hence grow faster or slower than overall semiconductor industry sales. I've heard arguments on both sides, but would appreciate [indiscernible] Hi, Vivek. Thanks for the question. So if I look at the major inflections that we're focused on going forward, if you look at leading edge foundry logic, Gator all around and backside power, our customers have talked about being able to achieve in Backside power 30% area scaling benefit, but beyond power and performance benefits, with really no change in feature size. So that's basically what we're seeing in foundry logic and we think that continues going forward. In DRAM, if you look at what our customers have talked about in 4F2, they also talk about significant area savings as they implement that new architecture. And of course, again, for all of these things, we're incredibly well positioned.

And then we get to three d DRAM. Three d DRAM is more similar, not the same materials, but a similar impact where the relative spending for materials engineering goes up significantly versus lithography And then of course another area that we're focused on and the entire industry is focused on is advanced packaging. And we we look at what the AI servers look like three or four years from now, the architectures are going to be very different And the way the data is connected in those architectures, there's just going to be tremendous innovation again around materials innovation. So when I look across any of these different markets and of course iCAPS is really all driven through materials innovations. We've talked about this before in our master classes. We see the percentage of materials engineering relative spending to be increasing going forward around all of these different architecture inflections.

Thank you.

Thank you. And our next question comes from the line of Timothy O'Curry from UBS Securities. Your question please. Bryce, do you think as you look at I know that you're not going to give us WFE number for last year, but do you think you've gained WFE share? That's the first question. And then how do you kind of assess, Gary, headwind from these [indiscernible] China because I know that they have delayed rev rec, so it makes it hard to sort of measure year to year.

But they're about 5% now of WFE. It's up like 400 basis points over the past four to five years and that's all definition. You've done a great job holding share and gaining share. But how do you sort of think about that headwind from China because so much of the incremental spending is from there.

Okay, Tim. Nice to hear from you. Thank you. On the share in '24, of course, we don't know yet in terms of the final measures there. But you heard in Gary's script, he talked about we think we've gained share in all the markets except for likely China. So we'll just have to see what the what that reading is once all the share numbers are in. So we feel well positioned from that perspective. And even in China, we feel good about the way we compete. It's just, yes, the local Chinese vendors have some advantages with the trade rules that have been put in place. And then on the headwinds for China, I think we do have lower visibility, but we continue to add customers and we think that's a huge market. It's our our largest ICAPS market and ICAPS is the largest market for Applied. And we expect that to grow over time. At the device level, mid to high single digit the equipment investments in the last couple of years have been ahead of the market. So we've expected it to moderate for some for some period of time. So we'll see how that plays out.

But for us, that continues to be one of the the most important markets for the company.

Yes, Tim, just I would add, and again, I talked about this a little bit earlier. Leading Edge Foundry Logic, we're incredibly well positioned positioned for those inflections. DRAM, we've gained 10 points of share. And again, really well positioned for 4F2 and three d DRAM. Bandwidth memory, that's another one where we have a very strong leading position And advanced packaging is another area where it's up 3x in four years and we anticipate that we'll double that business and then that will keep going. Into the future. And again, we're just really well positioned for all those inflections. In iCAPS, we have room to grow in PDC and H and we have momentum in those segments. And I talked earlier about the pipeline of iCAPS innovations. Again, we formed this group six years ago.

We brought 20 new products to market. And we have new products in the pipeline that will expand our total available market We have new products for cost competitive applications and we have innovations to enable new iCAPS device architectures that we're co innovating with leading customers. So as Bryce said, in the areas where we can compete, I feel really good about our positions and our pipeline going forward. Thank you. Our next question comes from the line of Harlan Sur from JPMorgan.

Your question please.

Hi, good afternoon. Thanks for taking my We track many of your end customers in the semiconductor industry. [indiscernible] we're tracking their design starts, especially at two nanometers, design starts appear to be accelerating since the second half of last year, especially in areas like AI, accelerated compute, mobile, is the team in talking with your customers, is the team getting a sense on how big the upcoming two nanometer node transition and more importantly volume production potential could be relative to three nanometer?

Hi, Arlan. Gary might also add on to this. I've seen various estimates for two nanometer based on the performance benefits of two nanometer. I think we're expecting that to be a large node. If you look at some of the third party estimates, that should be a good landing spot for designs just like seven nanometer in the past. Was a good landing spot for designs. So we're expecting it to be on the large side from a node perspective.

Yes, Arlan, I would just add that everybody is focused on energy efficient computing for AI. And if you look at what our customers are saying, they're very bullish about the size of that two nanometer node.

Thank you.

Thank you. Our next question comes from the line of Krish Sankar from TD Cowen. Your question please.

Hi, thanks for taking my question. Gary, I had a question on Gate All Around. You've spoken about getting over 50% share of the incremental TAM there. But it seems like the Epi stack is one of the more critical ones and your Epi Taxi competition seems to be making some strides. So I'm just going to curious, can you talk a little bit about your EP market share and if you still feel confident in the 50% per share gain, [indiscernible] Yes. We're in as I mentioned earlier, we're in [indiscernible] partnerships with all of our customers focused around this concept of high velocity co innovation And we're working with every one of our customers out a decade into the future on multiple technology nodes [indiscernible] still are on track to do what we had talked about earlier with gaining more than 50% of the incremental spending for Gate All Around and Epi as part of that. We're in very strong position I think 85% of those epi steps are selective epi where we have tremendous strength We have new innovations we're bringing to market in Epi. And so we still feel very confident in our outperformance going forward.

Thanks, Gary.

Thank you. And our next question comes from the line of Srini Pajjuri from Raymond James. Your question please. Thank you. My question is on China.

Think, Bryce, you said for Q2 outlook, you used the word China will be below normal in terms of percentage exposure. I would think that the export restrictions, those are permanent. So I'm just curious as to when you say below normal, are you expecting China to recover to like the 30% level that you previously communicated? And then when do you think we might get to that level? And then maybe for Gary, Gary, for over the last ninety days, excluding the export restrictions, can you talk to how the demand conditions are within China?

Okay. Thanks, Srini. So first of all, 30%, we still think will be a good long term rate for us or a good long term estimate of the share to China. When you think about the market, of course, for us now that's an ICAPS market. We can can't serve the leading edge. That will be a growing market over time. The devices will grow mid to high single digits.

If not more heading to the one helping to get to the 1.3 or yes, dollars 1,000,000,000,000 to 1,300,000,000,000.0 semiconductor market by 2030. So that market will continue to grow.

We may pause a little bit less. We may have a little bit lower rate of investment as we go through the next short period of time, will that adjust? But that's a very strong market for us. So 26% in Q2 and 30% is a good estimate for the company. And of course, that includes all of our businesses, AGS and display also. And then, Gary, on what we're seeing with respect to demand. Yes, I think I'll just make a comment on that. It's still our largest market. So you see leading edge accelerating but iCAPS is still our largest market and China is the largest country inside that market. And so when you're thinking about it and you're thinking about what we're describing as a step back in the rate of investment, you should still think about it as just a very large opportunity and growth opportunity going forward. And so we think the rate slows down a little bit after two huge years of investment, but we expect that mark [indiscernible] that are underway. We expect capacity to be added every single year. And that forms the back bone of our expectations.

Yes. The one thing I would add is that, we believe that the iCAPS market over the longer term will grow kind of mid to high single digits. And as I mentioned earlier, we have new products in the pipeline that expand our total available market, new products for cost competitive segments. And opportunities to grow in large segments where we have momentum. So I think longer term, we're positive on the market and positive on our position in the market.

Thank you. And our next question comes from the line of Brian Chin from Stifel.

Your question please.

Hi there. Good afternoon. Thanks for letting us ask a few questions or maybe one question.

Maybe for Bryce, I think you previously disclosed that a $549,000,000 reduction in backlog for the fiscal year and a filing And you're quantifying a $400,000,000 impact for the year. Did you revise what that actual impact [indiscernible] Maybe the residual amount of $149,000,000 that sits outside of the twelve month Horizon.

You've got it exactly right, Brian. So it's not much of a change. That $549,000,000 was our backlog and it covered more than just the year. And so we shared I think what was in the twelve months And if you did that math, I think it was about $3.80. So we're still very close in terms of what we're thinking the impact is for the year. [indiscernible] Thank you. And our next question comes from the line of Joe Quaterke from Wells Fargo. Your question please.

Thanks for taking the question.

I was wondering if you could talk a little bit more about your expectations for DRAM growth. If we were to exclude just the benefit of China DRAM spending in the comparison a year ago, how should we think about the growth in your business this year? Yes. Thanks, Joe. I'll start on this one. I think we've seen two record years of DRAM and of course '24 was buoyed by the extra China demand that we saw and I can't call the year here, but we see the rate of invest [indiscernible] there's a lot of pull for the HBM solution and there's a lot of pull for DRAM in the advanced compute performance systems. So I would expect continued momentum in DRAM and that's included in our outlook in Q2.

Yes. Joe, I would just say that as I mentioned earlier, we're more bullish on compute memory than we are in storage memory. And then what our customers have said is it takes three times the number of wafers to produce the same number of bits for HBM. So that's going to certainly help the growth rate over the longer Thank you. Thank you. And our next question comes from the line of Charles Shee from Needham and Company. Your question please. Hi, guys. Good afternoon. I have a question about the revenue You previously said more than $2,500,000,000 in Cisco I mean, in probably calendar twenty twenty four and you expect to double has the 2025 number move up or down or any changes to that number? And Maybe the other part of the question, I think that you previously said, last year's $8 around revenue plus this year kind of implies the $100,000 global capacity built on two nanometer by the end of this year. Do you see potentially that get on run spending can accelerate further into 2026? Because we were trying to think about what the end capacity, it could be in '26, but do you want to get your early thoughts on 2026, if possible?

Okay, Charles. Thanks for the question. So first thing, Yes, we have not changed our expectations for growth looking into '25 with the gate all around related equipment. So 2.5 in in 2024 and then the opportunity to double that in 2025.

And if you put those together, that's just over 7,000,000,000 And when we describe the the SAM for us with gate all around and backside power, yes, you can back in and say that implies that there's approximately 100,000 wafer starts [indiscernible] high volume manufacturing capacity being put in place in the beginning. And then of course, You'll have to do your own research to see what size you think the node would be. I would just suggest that nodes are generally larger than that. So we would expect that to continue and the ramp to continue beyond 25 For sure.

I would say the one thing incrementally is that as you go forward, you're going to add in backside power. That also is growing our available market and we have a very strong share there. So once you have Gate All Around and backside power together, our opportunity grows significantly.

And our next question comes from the line of Chris Caso from Wolfe Research. Your question please. Yes, thank you. Good evening. I guess the question is regarding Sort of where your level of confidence is in your customer forecast right now? And I know you haven't given us guidance for the full year, obviously, but I know the customers generally give you pretty good visibility on the forecast Maybe you could talk about the different segments and you sound pretty constructive with regard to foundry logic spending for the year. Your comments suggested that ICAP, the forecast have been changing a lot. So I'd imagine that there's some uncertainty there. Perhaps you could speak in those terms for the different segments?

Sure. Thanks for the question, Chris. So I think I would put The level of confidence for larger customers is fairly high. So especially since COVID and the inflation events that we saw, We've asked for longer perspectives from all of our customers. So we have more visibility with the larger customers. So if you think about Leading Logic, more visibility certainly for DRAM, certainly for NAND. And then I would split up ICAPS. It would be the same sort of good visibility, same practices. And then then for the long tail in ICAPS, including a lot of the customers in China, there's just much less experience there on both sides. And so the visibility gets lower and that's where we've seen a lot of volatility in our forecast. I think in the past couple of years, we've continually increased our China forecast as we've gone through the year. And so you just have less visibility and the plans change as that goes forward. And then just a last comment, thinking about Foundry Logic, because there's lots of questions about the various foundries. Our perspective there is not only do we have the information from customers, but we try to also triangulate with our end market expectations And so we think we're pretty comfortable with our forecast for leading logic being driven by data center PC, smartphone and understanding what the end demand is those markets Thank you.

Thank you.

Our next question comes from the line of Vijay Rakesh from Mizuho. Your question Yes.

Hi. Just a question on the packaging side. I know packaging is becoming more and more important and on the memory side, I was just wondering if there's a way to look at what the mix of just packaging was of total WFE if we were to look at 2025 and how you see that that mix of WAC growing as packaging becomes a bigger and bigger chunk both memory and logic? Thanks.

I'll try We said last year that in 2024 that our packaging related revenues in advanced packaging were $1,700,000,000 And so you know that we have an advantage share in that space. So you probably have to do some backward math to imply what packaging is. And it's growing at a strong rate I think just thinking about what's behind that, We all know that there's Gary calls it a race for performance on these leading edge systems. Getting the highest utilization out of GPUs, CPUs, accelerators, etcetera. And that's really what's driving the increased demand for these packaging technologies. So So we expect that to grow significantly over the coming years.

Yes, Vijay, we also talked about doubling again our packaging revenue over the next few years. There's just tremendous innovation happening in this space. We talked about chips grants on new substrate technologies for silicon and glass, how you connect the AI server and that ARC [indiscernible] than what it looks like today. So I believe this a great opportunity for Applied. We're the leader in wiring on the front of the wafer, back of the wafer, and in advanced packaging. And this this segment is going to see a significant compound annual growth rate because it's so important for energy efficient computing.

Thank you. And our next question comes from the line of Mehdi Hosseini from Susquehanna. Your question please.

Yes. Thanks for taking my question. One question, two parts. Based on the last the SSG backlog of $8,300,000,000 down 23% year over year. And then AGS backlog of $6,800,000,000 up 32%. When do you expect backlog for SSG to show the inflection point and show growth And on the AGS the $200,000,000 that is going to come out because of the restriction in China, That seems a very small part of the AGS backlog. Is that reflection of the AGS backlog is a multiyear or any color you can add here would be great.

Yes, Mehdi, thanks for the question. You've got it right on the AGS, We've got multiyear contracts in AGS that tends to make that backlog look larger and your book to bill look much larger when we sign those contracts. So the average contract life I think is in the two point nine year region and we're signing some that are longer than that. So that really is what distorts the backlog or makes it larger for AGS. And then on the equipment side, since the supply chain and COVID issues related to COVID, we've been normalizing on the equipment side. So we stopped reporting that on a quarterly basis because it's not a very good indication of our of our the underlying business changes. We're working to get longer visibility with our customers and we're working to get longer commits on the builds. And so there's a lot of movement in that. So I wouldn't have anything to share other than what you've seen in our 10 ks.

Got it. Thank you. Thank you. And our next question comes from the line of Tim Schulte Schmidlander from Redburn Atlantic. Your question please.

Yes.

Hi there. Thanks very much for taking my question.

Maybe one for Gary and one for Bryce, please.

Gary, you mentioned advanced packaging and you referenced volume orders from multiple leading edge customers.

Could you share a little bit of color in terms of what kind of device applications they are and when you'd expect volume manufacturing to begin? And then, Bryce, just a modeling question. On that tax asset revaluation, could you maybe just provide a little more color on that? And is there any read across the implication for the remaining $2,400,000,000 of deferred tax assets on the balance sheet? Thank you.

Yes, Tim, relative to packaging revenue, it's really coming from all of the different packaging architectures. We have a very strong position broad, unique connected portfolio. So I wouldn't say that again for us, including an HBM or we were at hundred million dollars in revenue this last year, we have strength across all of those different architecture types. I don't really want to comment. I'll let customers comment on which architecture [indiscernible] there's going to be tremendous innovation in this space with very different architectures than what are in the market today. This is going to be very important for energy efficient computing. Applied has been investing to be positioned to win those architecture inflections.

Okay. And then Tim, thanks for the tax question. So yes, good to point out that on our GAAP net income, income. And what is happening there, it's one of those situations where good news is bad news. So we've just renewed our incentive rates in Singapore. And so the tax asset that we have in was created years and years ago when we moved assets to Singapore. That is essentially less value less valuable because it will protect from lower taxes, if that makes sense. So our tax rate goes down, which is good news. And then the asset that you have to protect from taxes is a little bit less valuable than what it was with higher tax rates. And so that $674,000,000 I think that number is is a revaluation of that tax asset. And I wouldn't look we're amortizing the benefits of that tax move of years to go. That's always in our a reconciliation. But this particular event that we're talking about, I don't think there's any look Great. Thank you. [indiscernible] Session of today's program. I'd like to hand the program back to Bryce for any further remarks.

Thank you. To recap, we believe we're well positioned in both the near term and the longer term as the investments we're making in R and and D for leading edge technology inflections together with our efforts to accelerate [indiscernible] set us up to benefit from the semiconductor growth as expected over the coming years.

Thank you for attending today and Liz, please close the call.

Thank you, Bryce, and thank you to everyone for joining the call today.

A replay of today's call will be available on the Investor Relations website by five p. M. Pacific Time today.

Thank you for your continued interest in Applied Materials.

Thank you, ladies and gentlemen for your participation in today's conference.

Good day. Two,