Welcome to the Applied Materials Fourth Quarter Fiscal 2024 Earnings Conference Call. During the prepared remarks, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. I would now like to turn the call over to Liz Morali, Vice President of Investor Relations. Liz, you may begin.

Thank you. Good afternoon, and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO; and Brice 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-Q and 8-K 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 and in our quarterly earnings materials, which are available on our Investor Relations website at ir.appliedmaterials.com. I will now turn the call over to Gary.

Thanks, Liz. With record revenue and earnings in our fourth quarter, Applied Materials delivered a strong finish to fiscal 2024 and our fifth consecutive year of growth. I would like to recognize the hard work and commitment of our global team for delivering these outstanding results. As this is our year-end call, I'll begin by highlighting our key accomplishments over the past 12 months. A year ago, in our November 2023 call, I said the company's priorities for 2024 were driving R&D programs to further differentiate our unique and connected portfolio to extend our leadership at key inflections that enable future industry growth; making operational and supply chain improvements to better serve customers; and drive productivity across the enterprise; and ensuring that we scale the company in ways that are sustainable and environmentally responsible. Over the past year, we made significant progress in all these areas. We strengthened our position at major inflections in logic, DRAM and advanced packaging. We delivered double-digit growth in our parts and services business. We made improvements to our operations and supply chain that supported strong cash flow and margin performance. And our key strategic initiatives are on track including the build out of our EPIC collaborative R&D platform and the deployment of our Net Zero Playbook. In my prepared remarks today, I'll talk about three key topics. First, how large-scale, secular trends are driving growth and innovation in semiconductors, and why energy-efficient computing is emerging as a unifying driving force for the industry. Second, how the major device architecture inflections that make up the semiconductor industry's roadmap are increasingly enabled by innovations in Materials Science and Materials Engineering, where Applied has clear leadership. And third, as the industry roadmap becomes increasingly complex, how we are creating incremental growth opportunities for the company to offer new solutions with our unique and connected portfolio, our high-velocity collaborative R&D platform, and our advanced service products. In the coming years, we are going to experience the biggest technology changes of our lifetimes with major advances in automation and robotics, electric and autonomous transportation, clean energy, and artificial intelligence. All of these tectonic shifts are made possible by semiconductors, and this provides a catalyst for the semiconductor industry to create and capture more value than ever before. The biggest tectonic shift is AI, which has virtually endless applications and therefore the potential to transform almost every area of the economy. Deploying AI at large scale will require AI computing to be significantly more energy-efficient than it is today. To realize the full potential of AI, the leading AI companies are talking about the need to drive a 10,000 times improvement in computing performance per watt over the next 15 years. To deliver energy efficiency improvements of this magnitude, evolutionary innovation will be insufficient. Instead, we see a new technology roadmap emerging made up of multiple device architecture inflections in logic, memory and advanced packaging. This creates three significant opportunities for Applied to deliver more value to customers and extend our differentiation in the market. First, we have built a broad, unique and connected portfolio of highly enabling technologies that we can supply to customers as co-optimized and integrated solutions. By combining adjacent process steps such as material deposition, etch, and material modification into an integrated system, we are providing chipmakers innovative and comprehensive solutions to enable their energy-efficient architecture inflections. Integrated solutions account for around 30% of our Semiconductor Systems revenue, and we expect them to become an even larger part of our portfolio in the future. Second, we are driving earlier and broader collaborations with our customers and partners to bring next-generation technology to market faster. Our global EPIC platform, that we will build out over the next several years, is specifically designed to accelerate cycles of learning, increase mutual success rates, and improve investment efficiencies. In the U.S., construction of the EPIC Center in Silicon Valley is well underway and on-track to come online in 2026, and we will share more details about our EPIC Advanced Packaging strategy at a technical summit we are hosting for R&D leaders next week in Singapore. And our third key opportunity is in services, where we are focused on helping customers manage increasing complexity in their business as the industry scales. We are deploying our advanced service products to help them accelerate their R&D, speed up transfer of new chip technologies from lab to fab, and then optimize device performance, yield, output, and cost in high-volume manufacturing. This is supporting double-digit growth in our parts and service business, with a high percentage of these revenues coming from subscriptions in the form of long-term agreements. These subscriptions have a high renewal rate, and the average tenure of the agreements is growing. This year, we signed our first five-year service agreements with multiple customers. Overall, AGS delivered a record quarter, a record year, and their 21st consecutive quarter of year-on-year growth. Across the business, we are translating opportunities into results as major device architecture inflections grow our available market and we gain share through the technology transitions. In 2024, the leading-edge logic companies started moving the first gate-all-around nodes from their R&D pilot lines into high-volume production. We generated more than $2.5 billion of revenue from these advanced nodes in the fiscal year and expect those revenues to approximately double in 2025. Overall, the transition from a FinFET-based node to a node with gate-all-around transistors and backside power distribution grows Applied's available market from around $12 billion to approximately $14 billion for every 100,000 wafer starts per month of capacity. We also expect to capture more than 50% of the process equipment spending for the gate-all-around nodes, up from the mid-to-high 40% range for FinFET generation fabs. In DRAM, our revenues also grew significantly in fiscal 2024, up more than 60% year-on-year. Compute memory is a critical technology for AI datacenters, and DRAM makers are accelerating their capacity plans especially in high-bandwidth memory, where high-performance DRAM dies are stacked and connected to a logic die with advanced packaging. The dies used in high-bandwidth memory are much larger than standard DRAM, which means that more than three times the wafer capacity is needed to produce the same volume of chips. On top of this, the packaging steps needed for die-stacking further increase our available market. In fiscal 2024, our HBM packaging revenues grew to more than $700 million. DRAM is a great example of how our inflection-focused innovation strategy is succeeding. By focusing on the most enabling steps for next-generation technologies, Applied has increased our share of the DRAM market by around 10 points over the past decade. Future DRAM inflections will further expand our available market as next-generation 4F-squared and 3D DRAM architectures are even more materials engineering intensive. Advanced packaging is another major device architecture inflection that provides significant improvements in the performance, energy consumption, and cost of next-generation chips. We have been investing in new technology to enable advanced packaging for more than a decade, establishing strong leadership positions in micro-bump and through-silicon via. In fiscal 2024, our overall advanced packaging product portfolio generated close to $1.7 billion of revenue, up three times in the last four years. We believe this business will double in size in coming years, as heterogeneous integration is more widely adopted and we introduce new solutions that grow our addressable market. Gate-all-around transistors, backside power distribution, 4F-squared and 3D-DRAM, advanced packaging and next-generation power semiconductors are all examples of device architecture inflections that are enabled by materials engineering. As a result, materials engineering, which spans all the technologies needed to deposit materials, remove or shape materials, and modify the properties of materials at an atomic level, is growing as a percentage of overall equipment spending at advanced nodes. Before I hand over to Brice, let me summarize. In fiscal 2024, Applied grew revenue and earnings for the fifth consecutive year, we strengthened our position at the key technology inflections that customers will ramp in volume production over the next several years, we delivered double-digit growth in parts and services, and we drove operational performance improvements across Applied and our supply chain. As we look ahead to 2025 and beyond, we see AI and energy-efficient computing remaining the key driver of innovation in the semiconductor industry, and the industry's roadmap becoming increasingly dependent on materials engineering which grows Applied's addressable market and provides a tailwind for us to outperform through the investment cycle. I strongly believe that Applied Materials has the right capabilities, strategy, and partnerships, at the right time, and this puts us in a great position for the future. We are delivering differentiated solutions to our customers to help them win the key device architecture inflection races, we are strengthening R&D collaboration with customers and partners to drive innovation and commercialization velocity and optimize mutual success rates, and we are growing our service business by helping customers manage increasing complexity as the industry scales. Now, I'll hand over to Brice.

Thanks, Gary, and thanks to everyone joining today's call. We had a strong fiscal 2024, delivering record revenue and earnings per share, generating healthy operating cash flow, and distributing over $5 billion to shareholders via dividends and share repurchases. I would like to thank the entire Applied Materials team for their hard work and execution, which enabled us to achieve these excellent results. For the full fiscal year, net sales were $27.2 billion, up 2.5% on a year-over-year basis with growth in all three business segments. Non-GAAP gross margin was 47.6%, up 80 basis points year-over-year and our highest annual gross margin rate since fiscal 2000, as we optimized our operations and made progress on value-based pricing. On a year-over-year basis, non-GAAP operating profit grew 2.7% and non-GAAP operating margin was up 10 basis points. Non-GAAP earnings per share grew 7.5% year-over-year to $8.65. For fiscal Q4, net sales were $7.05 billion, up nearly 5% on a year-over-year basis, driven by solid growth in Semiconductor Systems and Services. China declined to 30% of revenue, in line with our previously communicated expectation and our historical average. Non-GAAP gross margin was 47.5%, up slightly on both a year-over-year and quarter-over-quarter basis, driven by a favorable mix and operational improvements offsetting headwinds related to the lower China revenue. Non-GAAP operating expenses were $1.28 billion, or 18.2% of revenue, and roughly in line with our expectations as we prioritized funding long-term strategic programs. Non-GAAP earnings per share was a record $2.32, up 9% year-over-year, and benefiting from higher gross margin, higher interest income, a lower effective tax rate and share repurchases. Turning to the segments, Semiconductor Systems sales were $5.18 billion for Q4, up 6% year-over-year, driven by leading-edge foundry-logic demand. Non-GAAP operating margin was 35.4%, down 50 basis points year-over-year given the normalizing China mix. DRAM sales declined 10% year-over-year, given the elevated purchases from China in Q4 of fiscal 2023. NAND sales were flat year-over-year. Foundry-logic sales increased 12% year-over-year, fueled by robust growth at the leading-edge, including increasing investments for gate-all-around nodes, as customers invested to enable critical technology inflections. Sales for the ICAPS nodes, which serve customers across the IoT, communications, automotive, power and sensor markets, were down year-over-year, given high demand in the year-ago period. Moving to Applied Global Services, AGS delivered record revenue of $1.64 billion in Q4, up 11% on a year-over-year basis and driven by robust growth in services, partially offset by a decline in 200-millimeter equipment sales. Non-GAAP operating margin of 30% was up 2.7 percentage points year-over-year, and non-GAAP operating income was a record $492 million. Year-over-year, we saw increases across many operational metrics, including a 7% increase in the installed base and a 10% increase in tools under service agreements. Our average contract length increased to 2.9 years, and we maintained a renewal rate of greater than 90%. Lastly, our Display business generated revenue of $211 million, in line with our expectations, as the industry experienced lower investment levels amidst ongoing weakness in end market demand. Over time, we expect there to be an increase in capital investments to support the adoption of OLED technology in IT devices like notebooks, PCs, and tablets. We are well-positioned to enable customers for the coming OLED IT inflection with our technology. Moving to the balance sheet and cash flows, we ended the quarter with cash and cash equivalents of $8 billion and debt of $6.3 billion. Cash from operations in the quarter was $2.6 billion, capital expenditures were $407 million and free cash flow was $2.2 billion. In total, we generated $8.7 billion in operating cash flow and $7.5 billion in free cash flow in fiscal 2024. We distributed $1.8 billion to shareholders in the quarter, including $329 million in dividends and $1.4 billion in share repurchases. For the full year, we distributed $5 billion to shareholders, of which $3.8 billion was through share repurchases, up 75% from $2.2 billion in fiscal 2023. As of the end of the quarter, approximately $8.9 billion remains available under our share repurchase authorization. As we contemplate fiscal Q1, we are seeing strong demand in leading-edge logic and the ICAPS nodes, and sequential growth in memory. With that in mind, let me share our outlook for fiscal Q1. We expect total revenue of $7.15 billion, plus or minus $400 million, and non-GAAP EPS of $2.29, plus or minus $0.18, both representing an increase of approximately 7% on a year-over-year basis. We expect Semiconductor Systems revenue of approximately $5.3 billion, which is up 8% year-over-year, AGS revenue of approximately $1.65 billion, which is up 12% year-over-year, and Display revenue of approximately $175 million. We expect non-GAAP gross margin of approximately 48.4%, driven by a favorable mix and cost and pricing improvements, and non-GAAP operating expenses of approximately $1.33 billion. We are modeling a tax rate of approximately 14%. And our outlook is consistent with trade rules currently in effect. In closing, we had a strong fiscal 2024, with momentum across the majority of our markets, fueling record revenue and earnings per share. Our portfolio positions us to uniquely capitalize on the secular megatrends shaping the technology landscape from datacenter and AI to edge computing, the Internet of Things and display. Underpinning this is our strong investment-grade balance sheet, solid cash generation and healthy shareholder distributions.

Thank you. We will now open the line for questions. Our first question comes from Stacy Rasgon from Bernstein Research. Your question, please.

Hi, thank you for taking my questions. My first question is about what you're seeing or expecting for the mix in China as we move into next year. I was a bit surprised to hear you mention strength in ICAPS going into Q1. Can you discuss how that strength in the near term is divided between China and the rest of the world, and whether you believe the China mix will stay at 30% or change as we progress through next year?

Great. Thanks for the question, Stacy, and hello. Yeah, the China mix, a couple of signals there. So, 30% in Q4 as we reported, and that's normalized and come down after we served that China DRAM demand that we had in earlier quarters. Our outlook in Q1 also contains approximately 30% for the China mix. When we think about ICAPS across the world, it is still very healthy. So, we said it's lower than our prior Q4. So, Q4 of '24 was a little bit lower than Q4 of '23, but the ICAPS market is still very healthy and it's healthy globally. It's healthy in China and it's healthy across the world from a total level perspective. Having said that, we expect the ICAPS markets to grow over time. We've talked about mid- to high-single-digits at the device level. We expect customers to continue to add capacity. There are signs to watch for. There are slower end markets in ICAPS; automotive, industrial, analog, image sensors are all markets that have been slower. So, we've kind of been looking to see if the investment rate would go a little bit lower, but as far as our Q4 and our Q1, it remains strong.

Got it. Thanks. And for my follow-up then, if China mix isn't going up, gross margins are, so it doesn't sound like the gross margin increase is due to an increase in China mix. So, can you talk about the drivers of that gross margin increase into Q1? And I guess maybe talk to sustainability as we go through next year? Do you think you get back closer to the target ranges for gross margins as we go through the end of the year?

Thank you for the question. We believe our gross margin has improved to approximately 48.0% at this time. This improvement comes from various areas within the business, including logistics, inventory management, scrap management, overall costs, and the implementation of value pricing. For Q1, we are guiding towards a gross margin of 48.4%, which reflects the strong product mix we expect. We feel that 48% is a suitable long-term target and we will keep striving to enhance it.

Yeah, Stacy, this is Gary. One of the things also that we're very focused on is winning the inflections. There's a lot of really great inflections that provide a tailwind for Applied and we're bringing enabling technology to our customers in a number of different markets. So, one thing that is also a tailwind for us is pricing improvement as we're shipping more valuable products. So that's part of what you're seeing in that increased gross margin. And I think that we have a great opportunity to continue to drive that going forward.

Yeah, good afternoon. Thank you for taking the question. I know you guys don't want to talk about WFE, but I was hoping you could speak to it directionally. How are you thinking about 2024, 2025 more importantly, growth? And maybe perhaps more importantly, in terms of the change in the administration, how you're thinking about the potential risk in terms of adding restrictions or perhaps going the other direction? Would love to hear your first thoughts there.

Thank you for the question, Stacy. Apologies, CJ, and I appreciate your staying up for us. Regarding WFE for 2024, we just concluded our fifth consecutive year of growth. While we await the overall industry results, we anticipate it will reflect growth. Looking ahead to 2025, we envision a $1 trillion semiconductor industry by 2030, which aligns with the outlook shared by most in the sector. We maintain this perspective due to the increasing wafer starts and capacity across the industry year after year. Although it's difficult to make definitive predictions for 2025, I want to highlight that our Q4 showed year-over-year growth, as did our Q1. Having just completed five years of growth, we are beginning to see acceleration in the leading-edge logic components as investments in gate-all-around nodes are happening worldwide. Finally, regarding the change in administration, it’s too early to speculate on potential changes, so we'll need to gather more information on that front. Thank you.

Very helpful. As a follow-up on gross margins, the 48% now as a floor is fairly pretty good accomplishment. So, would love to hear kind of how you got there and I guess how to think about growth beyond that over time.

Yeah, I don't think I can be as aggressive to call a floor, but I won't call it peak either. So, 48.4% for Q1, that's mix positive for Q1, but we do expect to continue to make improvements on that 48.0% baseline. So, we continue to have significant cost projects in our pipeline and as we introduce new equipment and improve the value of the equipment that's existing, we'll improve our value pricing. So, we expect to continue to make progress.

Thank you for taking my question. Regarding the leading edge, among the three major foundries and the IDM, one is performing exceptionally well while the other two are not doing as strongly. When you mention that the leading edge is very robust, is the expectation that the strong performer will maintain its position, and although the others may lag, they will still be sufficient to support a favorable growth outlook for the overall industry next year? My direct question is how much have you considered this disparity in the market where one player is thriving and the other two are not performing as well?

Thank you for your question, Vivek. When we forecast long-term demand for the business, we start with the end markets. For instance, in datacenters, PCs, and smartphones, as well as in the area of artificial intelligence driving innovation, we believe that the overall capacity will need to align with these market demands, regardless of which foundries are fulfilling that demand. At a high level, our expectations for the necessary leading-edge capacity installation have not changed. Therefore, even as customers adjust their schedules and micro factory forecasts, our predictions remain consistent.

Vivek, this is Gary. I've been spending significant time with various companies, and the major focus is on enhancing energy-efficient computing. AI is a key driver of growth, and the die sizes are substantial. Looking ahead, not just in 2025 but for the long term, we anticipate considerable growth in leading-edge foundry logic. A positive aspect for Applied is that advancements in energy-efficient computing are facilitated by architectural changes like gate-all-around and backside power distribution. In each of these architectural shifts, power efficiency improves by 20% to 30%, which is extremely important. One customer mentioned that even a small improvement in energy efficiency is crucial. As we've discussed, we're well positioned to capture market share as our customers navigate these transitions with new gate-all-around nodes and backside power. This provides us with a strong advantage moving forward. As Brice mentioned, we view this from a broader market perspective and remain optimistic about growth in leading-edge foundry logic.

Thanks, Vivek. We'll take our next question.

Hi, thank you for taking my question. I have a question for Brice. Brice, I believe on the last earnings call, you talked about China being 20% of your sales on a normalized basis next year. Is that still your view? And some of your peers have talked about decline anywhere ranging from mid-teens to down 30% for their China sales. And I know you're not talking about WFE next year, but is that kind of the right decline for China sales for you guys as well between 15% and 30%?

Hi, Atif. We have some disagreement in the room here. If I understood you correctly, we don't acknowledge the 20%, but I believe the last quarter was 32%. For this quarter, which is Q4, we reported 30% of our total revenue from China. Our outlook for Q1 is also about 30%. We consider this to be a normalized rate. It was elevated for a few quarters, even reaching the mid-40s, due to shipping DRAM demand to certain customers in China when permitted. Since then, it has returned to the 30% range. As we've mentioned in our outlook, this is consistent with our Q1 expectations, and in reviewing the past several years, we believe 30% is fairly typical for the company, encompassing all our businesses. This includes our Semi Systems, our Services business, and our Display business, which has significant sales in China.

Hi, good afternoon. Thank you so much for taking the question. Gary and Brice, I think you both mentioned the concept of value-based pricing a couple of times in your script and how that's driving gross margin. I know this isn't necessarily a new initiative at Applied, but if you can kind of expand on what you're doing exactly with your customers? Is it primarily tied to your IMS offering or is it broader than that? And which inning are you in as it pertains to you guys essentially trying to capture value? Thank you.

Thank you, Toshiya. I would say we're in the third inning. The reason I say that is due to the impacts we've experienced from COVID, supply chain challenges, and cost changes, all of which needed to be addressed. We've always focused on value pricing and recognized the worth of our tools, but we've had to adjust to the unexpected cost levels from the supply chain. This has prompted us to reassess the value we provide for each application, particularly those integrated applications unique to our company. We're currently enhancing our training, analytical processes, and customer communication. We believe that the tools and systems we offer create greater value for our customers, and we are making progress in that regard.

Yeah, Toshiya, if I look across all of the different businesses within Applied, I've never been more optimistic regarding the technology pipeline and product pipeline that we have and our positions around these key inflections that are important for energy efficient computing. So, as you mentioned, the integrated platforms, that's about 30% of our revenue, and those are absolutely crucial for these technology inflections. But I would say that if I look at foundry-logic or DRAM, where we've gained 10 points of share over the last 10 years, or advanced packaging or even in ICAPS, we have new products in the pipeline that will expand our available market and are incredibly valuable for some of these segments. I think we have a really robust pipeline of capabilities and that will help us from a value pricing standpoint. So, as Brice said, I think we have a lot of room to continue to grow.

Thanks a lot. Brice, you gave a number just now. You said that advanced node revenue is going to double. You said it was $2.5 billion I think this year. And you said it's going to double next year. Not all that's going to be incremental though because some is going to cannibalize I would think N3, N4, N5. So, do you have a sense of how much of that would be incremental? I mean, I'm sure that some of it is, but do you have a sense of how much of it would be?

Thanks, Tim. So, yeah, this approximate doubling has to do with our shipments to the gate-all-around nodes across the industry. And what we said is in the fiscal '24, we shipped approximately $2.5 billion of equipment to gate-all-around nodes and we expect that to approximately double next year. And if I think about it, we've also described the increment for gate-all-around for us as approximately $1 billion raising what was a $6 billion investment for 100,000 wafer starts of capacity, wafer starts per month, to $7 billion. So, the increment would be about one-sixth if you're thinking about it from that perspective. And then, I think most of our shipments at this point are on the leading-edge logic are towards gate-all-around nodes. So, most of that is replacing revenue that was at prior nodes in the past.

Yeah. Tim, the other thing I would add is that we're very deeply engaged with all of our customers, I would say, more so than ever. This concept of high velocity co-innovation where we're co-innovating with our customers a decade out over multiple technology nodes has never been stronger with all of our innovative technologies, our device integration teams, really deep partnerships with customers. And what we see going forward besides overall capital intensity is increasing intensity in materials engineering and the technologies from Applied Materials. So, I think, again, we have very, very deep visibility across all of these different market segments, and that will put us in a good position.

Yeah. Hi. Thanks for taking my question. Gary or Brice, I just wanted to follow-up again on the value-based pricing argument. Is part of it driven by some of these technologies like gate-all-around where it's really difficult to do some of the vertical epi steps and therefore there's a lot more value added to it? The reason I'm asking is, once you get past gate-all-around, go to backside power delivery or even 6F-squared DRAM, does that intensity come down? In other words, gate-all-around is so difficult to do, the next steps might not be as critical? I'm just kind of curious how to think about this value pricing and whether it was a gate-all-around specific thing.

Hi, Krish. This is Gary. Thanks for the question. I would say that the entire industry is focused on energy-efficient computing. We've heard system companies mention significant improvements like 100 times in five years or 10,000 times in 15 years, which are difficult to achieve. These companies pursue the most advanced nodes despite the higher cost of wafers because even a 1% improvement in energy efficiency is highly valuable. Considering the various nodes, gate-all-around is challenging, as are backside power and advanced DRAM technologies. All these areas present significant challenges, but we have a unique capability with our integrated platforms. Our single platform utilizes multiple technologies that provide a 50% improvement in resistance, which is crucial for energy-efficient computing. This isn't just a one-time achievement with the first generation of gate-all-around; all these factors are vital for our customers, and Applied is extremely well positioned.

Good afternoon. Thanks for taking my question. On the team's services business, strong performance, so 21 consecutive quarters of year-over-year growth and that trend clearly looks to sustain going into an improving semiconductor demand environment next year. Additionally, you guys have driven a much more annuity-like recurring and attractive revenue profile, however, operating margins are still about a 100 basis points below the 31% level that you drove for five, six consecutive quarters in fiscal '21 and '22 timeframe, and that was at a lower revenue base. And then maybe, about 200 basis points, 300 basis points below your prior long-term targets for low-30% operating profitability on revenue targets that were also lower. So, what's been responsible for the lower operating margin expansion? Is there still line of sight to getting into the low-30% range on continued AGS growth, or is there something sort of structurally that has changed?

Thank you for the question, Harlan. There has been a structural change. We have started to allocate a greater share of our corporate and central expenses to support each of our segments this year, which has contributed to a decline in operating profit. However, over the past eight quarters, we have generally improved our operating profit for that business. We expect to continue making progress even with the increase in those allocations.

Yeah, Harlan, also there's tremendous pull as customers are going through these inflections in all of these different markets to accelerate time to market for those innovations and then transferring technology, first time right, faster technology transfer and then ramp into high-volume manufacturing, those are big opportunities. We're also driving tremendous innovation in our services and I've been meeting with a lot of the different customers here over the next quarter. There is real traction for many of these service innovations. So, that will continue to drive the value we create for customers and drive our margins higher in the future.

Hey, thanks for taking the question. You mentioned in the prepared remarks that you were seeing DRAM customers accelerate capacity plans especially for HBM. I think most people expect HBM to continue to be strong spending, but are you seeing customers look to add capacity for conventional DRAM? I just want to make sure I understand that comment right. And then, how do we think about just the growth that you talked about sequentially from memory into the January quarter?

Hi, Joe. We do see customers adding capacity in DRAM in total, more wafer start capacity. I actually haven't calculated how much of that was driven by HBM. What we would say is, about 10% of DRAM wafers right now are allocated towards HBM production, high-bandwidth memory. And the high-bandwidth memory demand is growing at about a 30% rate. So, we do see more capacity allocated each quarter to high-bandwidth memory, and we do see the growth rate there very high. My sense is that doesn't equate to exactly what's being added in the overall capacity footprint, but anyway, we do see capacity increases in the DRAM customers and we do see that market continue to be fairly strong.

Thank you. I have a follow-up to the previous question, Brice. If I look at your DRAM, obviously, very strong in fiscal 2024. I think you said 60%-plus growth and you kind of quantified the HBM at $700 million roughly. I think that's roughly about 20 points of growth. So, as I look out to the next, I guess, fiscal year, I'm just trying to understand how to think about overall DRAM growth, because HBM will obviously grow. And I believe there was some China in last 12 months, that's probably declining or already declined. So, all-in, do you expect, I guess, DRAM to grow next year or do you think it's going to be a challenge? Thank you.

We have discussed the $1 trillion semiconductor market and our expectation that capacity will continue to increase across the ecosystem on the wafer side to support this growth. Historically, we have indicated that we expect approximately two-thirds of wafer fabrication equipment to be focused on foundry logic and one-third on memory. While we have not specified the share for DRAM yet, we currently observe a robust DRAM market in our Q4 and Q1 guidance, which is continuing. Additionally, we've mentioned the demand for high-bandwidth memory driven by artificial intelligence application models. We anticipate that capacity will be increased over time, but we are not projecting specific outcomes for 2025; those are the current dynamics at play. Yeah. From a macro perspective, similar to the comments on DRAM, we do see a little bit of growth in NAND in our Q1 outlook. And the dynamic is slightly different at the macro level for NAND and DRAM. On the DRAM side, we do see added capacity, more wafer starts across the ecosystem. On the NAND, we haven't seen that because, I think the bit rate density, so the actual shrink rate of the NAND technologies has been so impressive and so high that it's actually delivered the amount of bits that are in the demand profile. And so, there hasn't been new wafer starts needed on the NAND side. So, most of that has been an upgrade market. So, that dynamic is slightly different. But in any case, we see a little bit of an uptick in the NAND in our outlook for Q1.

Hi there. Appreciate the time this afternoon. It sounds like you still view 30% as a normalized level of China sales, but of course, it did go higher than normalized into the 40%s in recent quarters. So, I was curious, is it reasonable that China could go below 30% in '25 if areas like leading-edge foundry or DRAM improve and ICAPS remains more stable plus or minus?

Thank you for the question, Brian. Most of the variability for us will depend on the health of the ICAPS market in China, which currently constitutes the majority of our business. We have addressed most of the DRAM and NAND opportunities available to us and are unable to provide leading-edge services in China. Therefore, the bulk of our business hinges on the ICAPS sector, and its evolution will determine our outcomes. I previously mentioned some indicators suggesting that the rate of investment might be slowing, such as higher inventory levels and sluggish end markets like automotive, industrial, image sensors, and analog. However, our outlook for Q4 and Q1 remains strong for ICAPS globally. We will need to monitor how this develops moving forward. We anticipate that customers will continue to increase capacity in the medium term.

All right. Thank you. Maybe if I could just ask a little bit of a longer-term question here. ASML earlier today was upbeat on its outlook for AI-driven DRAM spending overall. They also talked about lithography intensity increasing for DRAM toward decade end. This seems to differ, I guess, a little bit from your prior messaging around the potential timing and introduction of technologies like vertical transistor DRAM and even 3D DRAM. Can you maybe compare and contrast where the differences here might arise?

I'll say one thing and then Gary will help here. I think my view is it's complementary, very complementary. So, as there's more business and more demand on the litho side of the equation, that of course, requires more equipment to do the actual materials. So, Gary has a comment.

Yeah. We're deeply engaged with all of the memory companies on their DRAM roadmaps. So, relative to the vertical channel transistor, also known as 4F-squared, I think that's where everybody is focused in the near term. We believe that inflection will be more materials engineering intensive. And again, we're really deeply engaged on the key technologies that will enable that architecture inflection. And I would say that everyone is also focused on 3D DRAM and that one is further out in time and that is significantly more materials engineering intensive. So, again, I can't really comment on what other people are seeing, but I would say that we're deeply engaged with all of those different companies on those architectures. We're working with their integration teams, their device teams, and we have high confidence that materials engineering intensity will increase with those inflections.

Thank you. I wanted to follow up on the strength in ICAPS. You mentioned there's weakness in automotive, industrial, analog, and image sensors, which are mainly in the trailing edge category. So, I'm curious about what is performing well. Does this suggest geopolitical-related spending? What specific aspects are still strong?

Thanks, Joe. I believe that some of the power-related components and certain microcontrollers are performing better than these markets. Those are two areas that stood out in our discussions. Overall, the ICAPS sector remains quite robust. While our Q4 '24 figures did not reach the same heights as Q4 '23, the market remains strong. We'll need to monitor how this situation develops. Our view is that customers will keep adding capacity as the semiconductor market trends toward $1 trillion by 2030. However, current utilization rates are somewhat below the ideal levels. Therefore, we anticipate there might be a slowdown in investment as this year progresses.

Thanks, Joe. We have time for one last question.

Yeah. Hi. Just a quick question on the China side. Gary and Brice, when you look at the China revenues, do you expect it to kind of hold at these levels going through calendar 2025?

Thanks, Vijay. In our Q1 guide, we are highlighting that it is also approximately 30%. So, and looking historically, that's been the number that we've seen. And I'll just say that the market for us, I highlighted a few minutes ago, we're not serving much DRAM or NAND and no leading edge at this point. It's mostly the ICAPS business. And so, the fact that it's been restricted to the ICAPS business at this point, it will really change over time with the strength of that particular end market. We do expect that to grow over time. We'll have to see how '25 shakes out as the market matures. Thanks for the question. Thank you, operator. I'm pleased with the strong performance we delivered in Q4 and for our fiscal year. We're in a strong position with an industry-leading portfolio of products and services and poised to uniquely benefit from the secular megatrends driving technology demand. Thank you for joining today's call. And Liz, please close the call.

Thank you, Brice, and thanks to everyone for joining the call today. A replay of today's call will be available on the Investor Relations website by 5 pm Pacific Time today. Thank you for your continued interest in Applied Materials.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.