Analyst Conference Call Summary

semiconductors

conference date: August 14, 2025 @ 1:30 PM Pacific Time
for quarter ending: July 27, 2025 (third quarter, Q3 fiscal 2025)

Forward-looking statements

Overview: Revenue above guidance, but Q4 revenue uncertain.

Basic data (GAAP):

Revenues were $7.30 billion, up 3% sequentially from $7.10 billion and up 8% from $6.78 billion in the year-earlier quarter.

Net income was $1.78 billion, down 17% sequentially from $2.14 billion and up 4% from $1.71 billion year-earlier.

EPS (diluted earnings per share) were $2.22, down 16% sequentially from $2.63 and up 8% from $2.05 year-earlier.

Guidance:

For fiscal Q4 revenue expected between $6.2 and $7.2 billion. Lower sequentially due to China uncertainty. Non-GAAP diluted EPS $1.91 to $2.31.

Conference Highlights:

Gary Dickerson, CEO, said "Applied Materials delivered record performance in our third fiscal quarter, and we are on track to deliver our sixth consecutive year of revenue growth in fiscal 2025. We are currently operating in a dynamic macroeconomic and policy environment, which is creating increased uncertainty and lower visibility in the near term, including for our China business. Despite this, we remain very confident in the longer-term growth opportunities for the semiconductor industry and Applied Materials." Brice Hill: "Expecting a decline in revenue in the fourth quarter driven by both digestion of capacity in China and non-linear demand from leading-edge customers given market concentration and fab timing."

Applied has a large backlog of export license applications. Potential from these is not in guidance. Global AI race should propel growth. Investing $200 million in manufacturing in Arizona. Expects to gain market share in critical areas like leading-edge logic, advanced packaging and power electronics.

Non-GAAP numbers: net income $1.99 billion, up 3% sequentially from $1.94 billion, and up 12% from $1.77 billion year-earlier. EPS $2.48, up 4% sequentially from $2.39, and up 17% from $2.12 year-earlier.

[note: ICAPS = IoT, Communications, Automotive, Power and Sensors]

Semiconductor Systems sales were $4.43 billion, up sequentially from $5.26 billion, and up from $4.92 billion year-earlier. Revenue by type, as % of total: Foundry, logic and other 69%, DRAM 22%, Flash 9%. Segment operating income was $1.97 billion.

Applied Global Services (AGS) revenue was $1.60 billion, up sequentially from $1.57 billion and up from $1.58 billion year earlier. Non-GAAP operating income was $445 million.

Display segment revenue was $263 million, up sequentially from $259 million and up from $251 million year-earlier. Non-GAAP operating income was $62 million.

Cash and equivalents (including long-term investments) balance ended at $11.1 billion, up sequentially from $10.4 billion. Cash flow from operating activities was $2.63 billion. Capital expenditures were $584 million. Free cash flow $2.05 billion. $368 million was used for cash dividends. Used $1.05 billion to repurchase shares. Long-term debt was $5,5 billion.

Cost of goods sold was $3.74 billion, leaving gross profit of $3.56 billion. Operating expenses of $1.33 billion consisted of: research and development $901 million; selling and marketing, $224 million; general and administrative $204 million. Leaving income from operations of $2.23 billion. Interest and other income net $330 million. Income tax $784 million.

Q&A selective summary:

Incremental China weakness, could it go longer than one quarter? We had large shipments to China in 2023 to 2024. We expect the weakness to continue several quarters.

Leading logic weakness? We think underlying demand is very strong. 100% utilization, so modeled linear ramp in 2025-2026. But not level of order expected in Q4, probably due to economic uncertainty. Confident will ramp up at some point going forward.

There is some increase expected sequentially in Q4 in rest-of-world ICAP equipment.

In fiscal Q1 there is more uncertainty. But basic trends remain strong.

Why are licenses now a challenge for China sales? Q4 is just back to the schedule we expected all year long. There are new fabs being built in China. We do have a backlog of licenses which has been growing. We know the government is aware of that, we are being conservative in not including any of them in the Q4 outlook. But even if licensing speeds up won't effect Q4.

Packaging growth outlook? Steady pace compared to last year, including for leading edge. We have innovations that will continue to drive growth going forward.

Tariff uncertainty did have some effect on fiscal Q2. Do not believe got pushed into Q3.

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