Welcome to the Applied Materials Second Quarter Fiscal 2025 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.

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-K, 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. In our second fiscal quarter of 2025, Applied Materials delivered strong results across the board, including record earnings per share. These results reflect great execution by our teams around the world, as well as the agility and flexibility we have in our global operations and supply chain. While we are paying close attention to a highly dynamic macro environment, we have not seen significant changes in market demand. Our customers remain focused on winning the race to be first-to-market with transformative new technologies. Applied is working closely with our customers and partners to accelerate the industry’s roadmap. We are very well-positioned at major technology inflections in fast-growing areas of the market, which supports our multi-year growth trajectory. In my prepared remarks today, I’ll provide our latest market outlook, explain how Applied’s innovative products and services are enabling fundamental advances in semiconductor technology, and describe how we are translating these innovations into sustainable, profitable growth across our business. Starting with our perspective on the market: the major technology trends reshaping the global economy, including IoT, automation and robotics, electric and autonomous vehicles, and clean energy, are all built on top of advanced semiconductors. Central to our future market outlook is AI, which is the most transformative technology of our lifetimes and has almost limitless potential use cases. While we are seeing remarkable progress in AI capabilities, we are still in the early phases of a multi-decade build out of applications and infrastructure. Large scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack. These requirements are reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. The impact of AI data center innovation and investments is apparent in the wafer fab equipment market, where there are significant shifts in the spending mix this year. We see investment in leading edge foundry-logic growing substantially in 2025, and we also expect spending for leading-edge DRAM to increase significantly. We see lower spending in China, with investments in both DRAM and mature logic down for the year. And, finally, we are seeing an uptick in NAND investment, albeit from the very low levels seen over the past several years. Against this market backdrop, Applied is well positioned for 2025 and beyond. In 2024, we underperformed the market in China due to the market access restrictions imposed on U.S. companies. At the same time, outside of China, we grew faster than our peer group, thanks to our strength in leading edge foundry and DRAM. Trade restrictions have also had an impact on our service business. Despite these headwinds, we grew our core parts and services revenues in the low double-digit range last year, and we are on track to deliver a similar growth rate in 2025. On top of our growing installed base, we are successfully increasing the portion of those systems in the field covered by higher-value, advanced services, and comprehensive service agreements. More than two-thirds of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. At a company level, through 2024, Applied Materials has grown revenues for five consecutive years. This momentum continues in 2025. If we take our first half results plus our third quarter guide, revenues are up 7% year-to-date. Looking further ahead, we also believe we are in a great position for the future given the direction of the industry roadmap, our strong leadership positions at key device architecture inflections, and the unique portfolio of solutions and capabilities we provide to our customers. Customers are racing to be first-to-market to deliver major architecture innovations in logic, compute memory, packaging, and power devices including next generation gate-all-around transistors, backside power delivery, 4F2 and 3D DRAM, advanced packaging, compound semiconductors for power electronics, and silicon photonics. These technology inflections grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies, and provide opportunities for Applied to gain market share. Advanced foundry-logic is a great example of this. If we compare an advanced fab using integrated gate-all-around and backside power delivery architecture to the last generation of FinFET technology, Applied’s revenue opportunity is approximately 30% higher for the equivalent fab capacity. In advanced DRAM, we are focused on addressing the most critical steps for next-generation technologies, and this has enabled us to establish a strong leadership position in this market. In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR5 and high-bandwidth memory. Across advanced foundry-logic and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market. One example is our Sym3 Magnum etch system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February 2024. Another example is our breakthrough Cold Field Emission eBeam technology that has strong momentum in gate-all-around and high bandwidth memory, and supported record revenues for our Process Diagnostics and Control business this past quarter. As we look at how the industry’s roadmap is evolving, we see our broad capabilities and connected product portfolio as a major leadership strength. This gives us earlier visibility and a more holistic view of the industry’s most valuable technical opportunities, it allows us to develop solutions to address those high-value opportunities faster, and most importantly, it means we can deliver unique solutions by co-optimizing and combining our innovations. With the pace of technology accelerating, being first to market has incredible value for our customers and Applied Materials. For this reason, another key pillar of our strategy is high-velocity co-innovation. Our goal is to increase the speed of developing and commercializing next-generation technologies through earlier and deeper collaboration with customers and partners. Applied’s global EPIC platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources. Construction of our new flagship R&D facility, the EPIC Center in Silicon Valley, is progressing on schedule, and we expect the center to start operations in Spring 2026. Before I hand over to Brice, I’ll quickly summarize. First, while we recognize that the macro environment is highly dynamic, Applied continues to deliver strong financial performance. We are not currently seeing significant changes in customer demand, and we have agility in our global operations to adapt to a range of scenarios. Second, the race to deliver high-performance, energy-efficient AI computing remains the dominant driver of the semiconductor industry’s roadmap. Applied is best positioned at the major device architecture inflections that will enable that roadmap to be realized. And third, we are seeing strong traction with our high-velocity co-innovation strategy, where earlier and deeper collaboration with our customers and partners is enabling us to bring next-generation technology to market faster than ever before. Now, I’ll turn the call over to Brice.

Thanks, Gary, and thank you to everyone joining us for today’s call. We delivered another strong quarter in fiscal Q2, with robust year-over-year revenue growth, gross margin expansion, and record earnings per share. These excellent results were driven by increased leading-edge foundry-logic investments, given the strong end-market demand for AI-enabling semiconductors. This performance was achieved within the rapidly evolving economic and trade policy environment of the past several months, and we leveraged our global supply chain and diversified manufacturing footprint to successfully navigate the dynamic commercial landscape. With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2, with approximately $2 billion in dividends and share repurchases, and bought back approximately 1.4% of shares outstanding. Turning to the details for Q2, our results were largely in line with our expectations, with total net revenue of approximately $7.1 billion, up 7% year-over-year, with growth across all our business segments. Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year, and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments. Non-GAAP operating expenses were $1.3 billion, down slightly as a percentage of revenue on a year-over-year basis, with growth in R&D partially offset by decreases in G&A, as we focused on funding critical technology inflection-related research. Non-GAAP earnings per share was a record $2.39, up 14% year-over-year, given the revenue growth, better profitability, and share repurchases. Moving to the segments, Semiconductor Systems revenue was $5.26 billion for Q2, up 7% year-over-year, with growth in foundry-logic, as customer investments at the leading edge more than offset declines for the ICAPS nodes that serve the IoT, Communications, Automotive, Power, and Sensor markets; and growth in NAND upgrades more than offsetting year-over-year declines in DRAM. Non-GAAP operating margin of 36.4% was up 150 basis points year-over-year. Moving to Applied Global Services, AGS delivered revenue of $1.57 billion in Q2, up 2% year-over-year, as healthy growth in services more than offset the expected decline in sales of 200-millimeter equipment. Non-GAAP operating margin of 28.5% was flat year-over-year. Lastly, our Display business delivered revenue of $259 million, with non-GAAP operating margin of 26.3%. Moving to the balance sheet and cash flows, we ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion, and cash from operations in the quarter was approximately $1.6 billion, or 22% of revenue. Capital expenditures were $510 million, up from the year-ago period, and driven by the buildout of Applied Materials’ equipment and process innovation and commercialization center, EPIC, the largest and most advanced facility of its type globally. Free cash flow for Q2 was approximately $1.1 billion. As I mentioned earlier, we increased capital allocation in Q2, with total shareholder distributions of approximately $2 billion, with dividends paid of $325 million and share repurchases totaling approximately $1.7 billion. As previously announced, during the quarter, our Board of Directors approved a 15% increase to our dividend per share. This marks another year of healthy growth for our dividend, one of our key capital allocation priorities, and as I like to point out, the dividend and its growth are closely correlated with the recurring revenue and profits in our Services business. We also announced that our Board approved an additional $10 billion share repurchase authorization, and as of the end of the quarter, approximately $15.9 billion in total remains available to us for future share repurchases. Turning to our outlook, as we contemplate the year-over-year performance we expect in Q3, we are seeing acceleration from our leading-edge foundry-logic products, which are key enablers in the ongoing gate-all-around build-out, and which will more than offset a lower level of investment in the ICAPS nodes, following two years of strong spending by these customers. We also expect a stable and healthy DRAM market and growth in NAND, driven by upgrades. Factoring in these views, for fiscal Q3, we expect total revenue of $7.2 billion, plus or minus $500 million, representing a 6% increase year-over-year at the midpoint, and non-GAAP EPS of $2.35, plus or minus $0.20, representing an 11% increase year-over-year at the midpoint. We expect Semiconductor Systems revenue of approximately $5.4 billion, up approximately 10% year-over-year, and AGS revenue of approximately $1.55 billion, down 2% year-over-year, with growth in core services impacted by the trade restrictions previously disclosed and declines in demand for 200 millimeter equipment. Rounding out the business segments, we expect Display revenue of approximately $250 million. Lastly, given our business mix in Q3, we expect non-GAAP gross margin of approximately 48.3% and non-GAAP operating expenses of approximately $1.3 billion, and we are modeling a tax rate of approximately 13%. In closing, while the trade environment continues to evolve, our global supply chain and diversified manufacturing capabilities provide us with significant agility and flexibility to respond to changing conditions. In the near term, we see overall demand and customer investments continuing at the expected rate and pace, even in the current environment, and the long-term secular drivers for growth in our business remain intact. We are positioning ourselves to benefit from the opportunities that will emerge as the equipment industry invests to support a $1 trillion-plus semiconductor market by the end of the decade, and we are investing for the growth that we expect in our business over that time. Thank you and we are now ready to begin the Q&A session. Liz?

Thanks, Brice. To help us reach as many people as we can on today's call, please limit yourself to one question. If you have an additional question, please re-queue and we'll do our best to come back to you later in the session.

Thank you. Our first question comes from Stacy Rasgon from Bernstein Research. Please go ahead with your question.

Thank you for taking my question. I wanted to discuss the services in China. In the last quarter, you mentioned the impact from the China restrictions on equipment and services, particularly affecting the AGS segment. However, you indicated that there was a return to sequential growth in Q3. This doesn’t seem to align with what we’re seeing, as it appears to be flat or possibly down a bit sequentially. Can you explain what might be happening? Is the impact on 200-millimeter more significant than anticipated? Is the situation in China worse? How should we approach growth expectations for this business as we move toward the end of the year? Do you anticipate a return to sequential growth in Q4?

Hi, Stacy, thanks for the question. On the AGS, you have captured many of the key elements accurately. We can state that the core business achieved a record performance in Q2, and we anticipate it will grow at low double digits throughout the year, despite the effects we've seen from the decreased business in China due to trade restrictions. In Q2 and Q3, we experienced the impacts of some accounts becoming restricted. We just met the year-over-year growth for AGS in the quarter, and you are correct that the substantial slowdown in 200-millimeter equipment made the performance appear weaker. The main takeaway for investors is that AGS is expected to grow at low double digits as we adapt to the trade rules. Our Q3 guidance suggests only marginal growth quarter-over-quarter, reflecting the full impact of those rules. However, the core will show year-over-year growth, maintaining low double-digit growth throughout the year. Looking beyond Q3, you should anticipate the type of sequential growth that aligns with delivering that low double-digit growth. I also want to remind investors that we connect our dividend to recurring profits, with around 90% of our revenue being recurring and a high rate of renewals on multiyear contracts, while about 66% of our business falls under subscription agreements. This reflects a robust recurring revenue and profit scenario. Thanks for your question.

But it does seem like the 200-millimeter is weaker than you thought. Like is that correct?

Yes. I think that is one factor. It might be a little bit less than we thought. And then the second is we expected a little bit more in utilization for the quarter, and utilization stayed about flat for the quarter. So the spares side of the business was also probably not right up to what we expected.

Got it. That’s helpful. Thank you.

Stacy, on 200-millimeter, a lot of that business is tied to power electronics. And long-term, we think that's going to be mid-to-high single-digit growth. But in the near term, that business is down from where it was previously. So again, that's one of the things that's causing that business to be weaker in the near term. But in service, we're driving a lot of service innovation. We have 8,000 tools connected in the field, and I have high confidence that we will grow at low double digits going forward.

Got it. Thank you.

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. So if I contrast the sales growth you have versus peers, right, many of them are expecting to grow double digits. You guys are more consistent at this 7%-or-so growth rate. And the perception is your higher ICAPS exposure. So could you help us size what ICAPS is now as a percentage of sales? Do you think it has bottomed? Can it continue to be a headwind? And if you could give us some trends on China versus non-China ICAPS demand for the rest of the year? Thank you.

Hi, Vivek, thanks for the question. I would start by saying that in the mature logic and ICAPS end-markets, including IoT, communication, automotive power, and sensors, we expect mid-to-high single-digit growth as we approach a $1 trillion to $1.3 trillion market by 2030 from a semiconductor standpoint. Specifically, our expectation for semiconductors and AGS is that the share of our business in China will be in the mid-20s percent. Although we face restrictions in some accounts in China, we believe we are performing well in the accounts where we can sell. We anticipate growth in those markets, particularly as they invest more in 28-nanometer technology moving forward. Having built out capacity for 50-plus nanometers, they are now focusing on 28-nanometer. We are well positioned in this area with leading foundry capabilities. Therefore, we feel confident that the 25% figure for our business, excluding display, is a reasonable estimate and should continue to grow over time.

Yes. Vivek, maybe just to clarify, the mid-20s as a percentage of our total company revenue is China semi, including equipment and service. So that's kind of that number. And I'm sure you know and other people on the call know, we have a display business that adds a few percent to overall Applied revenue. And what I would add, certainly, we are extremely well-positioned in the big drivers for AI. If you look at high-performance logic, DRAM compute memory, high-bandwidth memory, packaging, power electronics, all of those areas are the fastest-growing areas of the market, very well-positioned there. And as Brice said, in ICAPS, we expect that will grow kind of mid-to-high single digits over time. The 28-nanometer investment, as Brice said, is increasing significantly as a percentage of the total in China. And our share there is higher. So that will help us in 2025 and also going forward. The other thing I'd say about ICAPS, this has been a focus for us for more than 5 years. We have new products in ICAPS that will enable us to expand into large new segments. We have new products where we have significant cost innovations to better compete in cost-sensitive areas of the market. So I'm optimistic that with all of those different factors, we are going to continue to see strong growth. We’ve grown 5 years previous to this year. We’re growing in the first 3 quarters of ‘25 and I think really well positioned for these key inflections.

Thank you.

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

Good afternoon, and thank you for taking the question. I guess, Brice, I wanted to focus on gross margins. I think a quarter ago, you talked about 48.2% as kind of floor reflecting China normalizing, but that would kind of trade tensions or whatnot. It might now be 48%. Was hoping you could kind of update on that. And then longer term, into '26 and beyond can you kind of speak to how you see value-based pricing, cost reductions, and balancing manufacturing across both Austin and Singapore and where the trajectory for margins could go? Thank you.

Thank you, C.J. It's good to hear from you. Yes, we are at 48.2%. We previously reported 49.2% in the last quarter, and in Q2, we mentioned a very favorable mix. Our guidance is set at 48.3%. As you mentioned, last year we were in the mid-47% range and aimed to reach the 48% marks, which we have managed to do through effective pricing, cost management, and improvements in logistics. I believe that the low 48s, approximately 48.2% to 48.3%, is the right operating level for the company at this moment, with a modest impact from tariffs. In Q2, the tariff impact was minimal due to our pre-tariff inventory positions. For Q3, our guidance reflects a modest effective tariff impact as we have a flexible manufacturing setup with a global supply chain. We have spent years post-COVID duplicating sources worldwide and will adjust prices for items that tariff management does not cover. Our guidance for Q3 indicates our capability to navigate this environment and maintain flexibility. Lastly, we believe we are making significant strides in value-based pricing and cost management, and we expect to continue improving our margin levels moving forward.

Hi, C.J., this is Gary. One thing I would say, aligned with what Brice talked about, we've been driving these cost improvements. We've made a lot of progress there. We're also driving better value capture as we go forward. We're enabling many of these really critical inflections for the industry. And I think the thing that I would focus on here is sustainable margin improvement. We made progress this year. We've been making progress over the last few years. But I really believe that the initiatives that we're driving in cost improvements and value capture, all of those things will assist going forward. And we'll continue to see progress this year and in future years.

Thank you. And our next question comes from the line of Melissa Weathers from Deutsche Bank. Your question please.

Hi guys. Thank you for taking my question. On the DRAM side of things, it seems like HBM has really helped put a floor in DRAM WFE spending since cyclically, we're still kind of bouncing along the bottom. But HBM does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those two dynamics going forward? Like how do we think about the cyclical piece of DRAM compared to the HBM upside that you're seeing?

Okay, Melissa. Yes, thinking about the HBM component, so from a wafer starts perspective, I think in this year HBM as a component of DRAM should reach 16%. And what we would highlight there is it's growing at a 40% rate, similar to the AI data center-type components on the data center side. So that has put DRAM in total, including HBM equipment, really continuing to operate at very high levels. So at least on our side, I wouldn't say cyclical low. I'd actually say maybe last year was a record year, this year will be close to a record year, or it could be a record. DRAM is very strong. And the way we think of it is it's being pulled by that AI leading-edge. And all the compute memory that's needed for that and the HBM is a great example of that. So hopefully, that gives you a perspective. From our side, that business is operating very strongly across all those end technologies.

Yes. Melissa, this is Gary. If you look over the past decade, we've gained 10 points of market share in DRAM. The compute-memory sector is set to be one of the fastest-growing areas of the market over time. Particularly in the AI data center, that business is expanding rapidly. We've noted 40% growth with our top three leading customers in DDR5 and HBM. We are very well positioned as this business continues to grow at a high rate. Our achievements in gaining market share in DRAM and the future direction of DRAM architectures indicate that the next significant change is 4F2. This architecture presents a great opportunity for Applied, and we are actively engaged with a variety of customers. We expect to exceed expectations as this new architecture is adopted. In summary, Applied is experiencing strong growth in DRAM, has outperformed in the past, and is well prepared for the future.

Thank you.

Thank you. And our next question comes from the line of Harlan Sur from JPMorgan. Your question please.

Good afternoon. Thanks for taking my question. Last couple of earnings calls, you guys have been articulating a leading-edge, foundry-logic and leading-edge memory spending acceleration as we move through the year, which implies that calendar second half spending on leading-edge technologies will be higher versus the first half spend. Is that still the team's view? And then kind of tied to that, right, advanced technology drives more penetration of your integrated system solutions. I think you guys exited last year with integrated solutions representing about 30% of your overall systems business. Where do you anticipate that mix exiting this fiscal year?

Great to hear from you, Harlan. We're definitely seeing acceleration at the leading edge. In previous quarters, we noted a slower investment rate in ICAPS for mature technologies following two years of rapid growth. We were optimistic that the leading edge would start to pick up after a slower year in 2023 and 2024, and that's precisely what's happening. We're observing an increase throughout the year, which we hope will align with market developments. The capital expenditures from cloud service providers have been consistently rising, and there have been recent announcements of new factories and increased spending from leading logic companies. We anticipate this trend will continue. In terms of technologies related to AI data centers, such as DRAM, HBM, advanced packaging, and leading logic—which is operating at full utilization—we see notable acceleration. For integrated equipment, we're averaging around 30%, indicating growth at nearly 7%, which aligns with the overall business growth at this time.

Okay, perfect. Thank you.

Thank you. And our next question comes from the line of Timothy Arcuri from UBS Securities. Your question please.

Thanks. I had a clarification and a question. So Brice, I just wanted to clarify what this is for the entire year this year. So I think you were talking about low double-digit growth, but I would assume that the back half is up like 30% half-on-half. So is that really the message where you keep talking about the core part of service? That's what's going to grow low double digit? So can you just tell us what you think the total business will grow for this year? And then my question is, most of the other companies expect WFE to be pretty first half-weighted this year. I know you don't talk about the market as a whole, but can you give us a sense of whether you would also say that markets first half-weighted this year? Thanks.

Thank you, Tim. Regarding services, when we refer to our core, we are excluding the 200-millimeter equipment sales. In this quarter, we're reaching a record for our core, and we anticipate another record next quarter. For the entire year, despite not being able to serve some accounts in China, we expect low double-digit growth in our core business without considering the 200-millimeter sales. The 200-millimeter figures will make the overall growth of AGS look significantly smaller for the year. We will need to see how that ultimately shapes up. For the first and second halves, we're projecting three quarters of Applied that will grow nearly 7%. The trends driving the business appear to be quite stable. We've mentioned the acceleration in leading-edge technology, and while we can't predict the next two quarters yet, we haven't observed any changes in demand or trends over the past 90 days.

Okay. So you have to say that the back half will be pretty flat with the first half? Is that the message?

It's not really the message. Like I said, we won't fill in those last two quarters. Probably when you're thinking calendar year, that would be our Q4 and part of our Q1. So we are not giving specific guidance for that. But what we would say is almost 7% year-over-year so far, year-to-date for the company. And the trends that are pulling on the market seem fairly durable. So hopefully, that helps.

Okay, guys. Thank you.

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

Thanks for the question. I also had a question and a clarification. Gary, just had a longer-term question for you. You are clearly gaining traction in new technologies like gate-all-around, backside power delivery. But when I look at your leadership products more on a unit process specification level, it feels like TBD is moving to ALD. On CVD, Etch and CMP you always had the U.S., Japanese competition, but you have some legit Chinese competition, too, in the segment. So I'm just kind of wondering how to think about your leadership product momentum over the next one year to three years, some of these shifts in competition. And also, can you give any color or rationale on the 9% BESI stake. Thank you.

Sure, Krish. Thanks. I believe that our leadership products are strategically focused on the key changes driven by AI. In high-performance logic, we have stated that we expect to gain market share in gate-all-around and backside power distribution, which are significant growth areas. We are well-positioned to capture more than 50% of the available opportunities in these sectors. In compute memory and DRAM, which are also influenced by AI, we have increased our market share by about 10 points in DRAM over the past decade. We hold a strong position in DRAM for the last 6F-Squared nodes and an even better one for 4F-squared. In the past month, I met with most of the CEOs in the DRAM sector and many high-performance logic CEOs, and our positions are robust, supported by deep engagements. In high-bandwidth memory, we also have a significant share. Advanced packaging is another area with considerable architectural shifts, and we are very well positioned there too. I am confident that we will gain further market share as these changes occur, and we have good visibility thanks to our strong relationships with various customers. Everyone is focused on the concept of high-velocity co-innovation, racing to be the first to market with new architectural innovations, as the first mover tends to capture the largest wins, leaving others behind. This urgency fosters earlier and deeper collaborations with customers, which enhances our visibility regarding our future positions in these major architectural shifts.

Yes, I understand. Krish, regarding BESI, we have had a partnership with them for five years. We recently renewed our collaboration agreement, and it's been highly productive. Our view is that their energy-efficient computing solution, in conjunction with our die-to-wafer bonding technology, will play a crucial role in the energy roadmap ahead. As we extended our collaboration, we also decided to invest in their company. Concerning the 9%, I don’t have specific details to share. We made numerous investments this quarter, including our EPIC facility, a state-of-the-art fab in Sunnyvale, and the share buybacks we previously mentioned. That summarizes the information we have to share.

Yes. Krish, what I would say also, I've personally been involved working with BESI for many years. They are the leader in die-to-wafer and die-to-die bonding. And our teams have developed an integrated hybrid bonding product with six technologies integrated together. There was a question about integrated products earlier on the call. So in this case, this is a really important innovation for the most advanced in AI memory chips, where again, we have an Applied platform with the BESI bonder along with 5 other technologies. And we think this is going to be a meaningful growth driver going forward and contribute to a very strong growth rate in our advanced packaging business going into the future.

Thanks, Gary. Thanks, Brice.

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

Yeah, thanks for taking my question. This is for the team. What are the key assumptions embedded in the low and the high end of your July quarter revenue guide of $6.7 billion to $7.7 billion?

Thanks, Mehdi. That's a student observation. We widened our range by $100 million at this point. So it's plus or minus $500 million for the quarter. We had been doing plus or minus $400 million. And it was really two things. We hadn't changed that in the last few years. And so the business is obviously larger. So we typically ask ourselves whether we should increase the range. And then certainly, during this period, as we saw during the quarter, there was a lot of volatility in the macro, in the market, in geopolitical, in trade, et cetera. And so we felt there's a number of scenarios that are being thought about, and so we thought it was a good time to widen the range. So there is nothing algorithmic or mathematical in this selection. We just thought we would indicate that there's more volatility in the environment than typical.

And I assume that's more impacting the ICAP business than the leading-edge, which is more strategic, right?

Could you say again, please?

Yes. Mehdi, I think it really is the revenue size is larger. And there are changes that are happening from a regulatory standpoint, tariffs, and those things that create more uncertainty. And so it's really a combination of those two things. But it was a very small change in range. But again, it's just those factors.

Got it. Thank you guys.

Thank you.

Thank you. Our next question comes from Srini Pajjuri from Raymond James. Please go ahead with your question.

Thank you. My question is on the NAND business. I know it's a relatively small business for you, but it's up nicely. And I think you are guiding for growth again. On one hand, your customers are talking about taking utilization down. And on the other hand, you and your peers are talking about spending improving. So if you could talk to the sustainability of the NAND growth and what exactly is driving it, I think that would be helpful. Thank you.

Sure, Srini. This is Brice. Thanks for the question. So on the NAND business, it has ticked up both in our Q2 and in our Q3, obviously, coming from lower levels. But yes, I think for that business, agree that utilization is lower, but most of those investments are made to upgrade process technologies and upgrade factories to the latest nodes. We see low 20s percent bit demand from a growth rate perspective going forward. And the way that the customers have been supplying that is by improving their technologies and advancing those nodes. So most of the business is upgrades, and I would say they don't really change their plans on upgrades. With a change in utilization, they'll focus on having the density advancement they need from a tech perspective. So really, I think it is just that, that these are investments they make with the lead time, and they're thinking about upgrading the technology.

Thank you.

Thank you. And our next question comes from the line of Timm Schulze-Melander from Redburn Atlantic. Your question please.

Hi, thanks so much for taking my question. So I had a question on advanced packaging. And I guess it's a question for Gary here, which is around kind of Applied Materials' appetite for risk. So it's an emerging application. It's obviously growing very fast. But also maybe the technologies that are going to be needed on a 2-year, 3-year, 4-year view in advanced packaging may evolve, may change. And I just maybe wanted to ask kind of what is Applied's appetite for risk for maybe trying new things, new technologies to serve that market. Thank you.

Hi, Tim. In advanced packaging, this is going to be one of the most significant shifts in the industry. The way we connect various high-performance components like logic, compute memory, DRAM, and high-bandwidth memory will see major innovations. At Applied, we've been investing and are the leaders in this market, developing new capabilities over the years. Our advanced packaging lab in Singapore is a full flow lab where some of our key customers are collaborating with us on these new architectures. We have great visibility into industry trends, and we are actively engaged in shaping the industry roadmap alongside our customers, which gives us a strong position for making informed investment decisions. We maintain deep relationships with our customers and their clients as they explore advancements in packaging and AI connectivity. I am very confident in the innovations we are driving that will increase our total addressable market in packaging. We are well-positioned, having seen substantial growth—our packaging revenue has quadrupled in the last five years, and I am optimistic about maintaining a high growth rate moving forward.

Great. Helpful, thank you.

Thank you. And our next question comes from the line of Charles Shi from Needham & Company. Your question please.

Hi, good afternoon. Thanks for taking my question. I would like to inquire about China. A couple of months ago at SEMICON China, a new company called Scaria launched 30 new tools, which I believe overlap significantly with Applied Materials' portfolio. I've heard that the general perception is that Applied may face greater challenges due to the emergence of these new competitors in China. Could you share your thoughts on that specific competitor and the potential impact on Applied's market share? Especially in light of what the team mentioned about gaining more market share in China as customers transition from 55-nanometer and 40-nanometer processes to 28-nanometer technology? Thank you.

Hi, Charles, thanks for the question. So again, just to remind you, China-semi is in the mid-20s, including equipment and services, as a percentage of total company revenue. And as we talked about earlier, 28-nanometer, where the investment is increasing, we have higher share. And I think the most important thing for us is we have a great innovation pipeline in ICAPS. We formed this group more than six years ago. It was actually April 12, 2019, is when we formed the group. And we are driving significant innovations with new products that will expand our markets, new TAM for Applied Materials, new products that have significant cost innovations for cost-competitive areas of the market. So I feel really good about the pipeline that we have going forward, expanding our available market and our ability to compete. And so I think in any of these different industries, the key thing is you have to run faster than competitors. And we have a great team in ICAPS. They've delivered great results. And I would say that I'm pretty positive about the pipeline that we have going forward and our position to drive growth in the ICAPS market in the future.

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

Hi, good afternoon. Thanks for letting us ask a question. Gary and Brice, you clearly remain confident on your positioning for the upcoming key technology inflections in Advanced Logic. I think generally, there's some anticipation that 2-nanometer and 16-angstrom nodes can represent at least a few hundred thousand of wafer capacity expansion. I don't imagine your thoughts around significance has changed. However, given the current level of geoeconomic uncertainty, what's your view on pacing here and whether this could cause these investments perhaps to spread out over a longer horizon?

I'll begin, Brian, and I appreciate the question. We consider what drives demand from a wafer perspective. PCs and smartphones are growing at low single digits, making those markets quite stable. However, data centers are growing at 20%. If we focus on the segments related to accelerators and graphics, particularly the AI component in data centers, that growth is at 40%. In terms of leading-edge factories throughout the industry, they are operating at full capacity. We've also considered the advancements in gate-all-around technology, especially with backside power delivery, which significantly enhance power performance and density for chips. This technology appears promising, indicating a strong demand outlook. We anticipate a considerable expansion in this technology's application. Recent announcements, whether related to cloud service provider capital expenditures or the largest foundry, suggest a lot of momentum around the roadmap.

Thank you. And our next question comes from the line of Chris Caso from Wolfe Research. Your question please.

Thank you, good evening. We've discussed how you are positioning yourself this year, and I understand it's early to provide quantitative insights for next year. However, could you share some qualitative perspectives about next year and where you feel more optimistic about growth? What should we keep in mind as we develop our WFE models for next year? How confident are you that next year will be a growth year?

Hi, Chris, that's a great question. We believe the semiconductor industry will reach an anchor of $1 trillion to $1.3 trillion by 2030. This is based on various assumptions regarding equipment intensity, which we anticipate will lead to substantial growth in the equipment business over the next five years. Like you, we don't focus on the uneven growth a single year might indicate. Instead, we project smooth growth leading up to 2030, driven by AI, AI data centers, and key technologies such as robotics and large language models. We see these as strong demand drivers, and they represent enduring trends, supported by current investments in the industry. Companies are making significant investments, from cloud service providers to foundries, and we are also contributing through our lab in Sunnyvale and our global innovation platform. These investments are the key indicators to watch. While there are always questions about potential downtrends, especially after five years of growth for Applied, we maintain a consistent expectation of smooth growth towards 2030, acknowledging that it may not be linear.

And we have time for one last question. Thanks.

And our final question for today is a follow-up from the line of Stacy Rasgon from Bernstein Research. Your question, please.

Thank you for having me again. Brice, I want to quickly revisit your comments regarding the segment growth for the next quarter to ensure I understood them correctly. I believe you mentioned that foundry and logic are growing year-over-year, with leading-edge more than offsetting the ICAPS clients. You indicated that DRAM is stable, suggesting a flat year-over-year performance, and mentioned that NAND is also growing year-over-year. However, wouldn't that imply that NAND is down sequentially within the full guide? Could you please confirm that I captured your commentary on the segments accurately?

Yes. Stacy, I think you've got all those right. And it was a year-over-year commentary that we were providing. So NAND has ticked up. Leading logic is definitely accelerating. I think we've shared that mature logic is down, but we expected that after the 2 years of rapid growth. And so to the extent that that's a little lower, it's being filled in by leading and just sort of continued strength on the DRAM. And what's happened in the DRAM business, depending on which quarter you are looking at. The first couple of quarters last year, we had the shipments to China customers. This year, that business is still very strong. And it's all those leading-edge customers that are making those investments. So I think you have those puts and takes correct.

Got it. Okay. So I would have DRAM down sequentially, NAND could be up sequentially, and then foundry and logic will be up fairly significantly sequentially if I connect those year-over-year statements.

Yes, that's fair.

Okay, thank you. Appreciate it.

Thank you.

In summary, we're pleased to be operating at record levels. We are well equipped to navigate the dynamic conditions in the economic environment, and we are investing in significant industry collaborations to accelerate innovation, all of which position us to grow our business over the coming years. Thank you. Liz, please close the call. Great. Thank you, Bryce, and thanks to everyone for joining the call today. I'd like to call your attention to two upcoming investor events. First, Gary will attend the Bernstein Strategic Decisions Conference on May 29. And then on June 4, Brice will be at the BofA Global Technology Conference. Lastly, a replay of today’s call will be available on the Investor Relations website by 5 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. This does conclude the program. You may now disconnect. Good day.