Applied Materials Inc (AMAT) September 8, 2026 Conference Transcript

All right. Good morning. Welcome to day one of Citi Global PMT Conference. My name is Atif Malik. I cover U.S. semiconductors and semiconductor equipment stocks. It's my pleasure to welcome Bryce Hill, Senior Vice President and CFO from Applied Materials. Also, Mike Sullivan, Corporate VP and Investor Relations. I'm going to kick it off with my questions first. If you have a question, save it for the end. I'll call the mic to come to you, and you can raise your hand, and you can ask your question. Welcome, Bryce. Bryce, let's start with the market outlook. A very exciting year. You've described customer visibility as the best you've had. rolling eight-quarter forecast, tracking 10-plus new fabs, having conversations extending to 2030. You have been raising your semis' revenue expectations to more than 30% now. Can you just talk about the confidence on this continued growth and how are you looking at your opportunity in the next few years?

Sure. Nice to see everyone. Thanks for hosting us at the conference, Satif. So, you know, the demand confidence that we have, we look at, we have a lot of information coming in from our customers, especially the DRAM and leading logic companies. We have a rolling eight-quarter forecast we get from our largest customers, which has been increasing all year. And we attribute that to the AI, artificial intelligence systems demand that's happening across the market. So we've got that information coming in directly from our customers. That's been rising. that gives us some confidence. When we look beyond our customers to their customers, cloud service providers, as an example, we see the CapEx forecast rising all year from the cloud service providers. I think it's over $700 billion this year for the US companies, almost a trillion for the global companies. Those numbers continue to go up. When we look at the underlying trend dynamics of AI itself. We see token demand rising. We see the economics of token demand and the economics of the cloud service providers to be positive. And so this underlying trend seems very strong. And when we think about it from a micro economic perspective, what we see inside applied materials, we're of course using AI inside the company to accelerate software development, to accelerate product development, to accelerate schedules for our products. And our own utilization is increasing significantly, which gives us a lot of confidence that this trend, the AI data center investment trend, is investable and is durable from an economic value perspective. The last thing on this is we've seen across the whole ecosystem, we've seen utilizations increasing, almost every different end market, including our mature technology nodes, which just says that the semi-devices themselves are increasing in volume, which also gives us confidence. So really, all the indicators, all the arrows point up, our customers are investing, our customers' customers are investing, and highly profitable, and we're investing. So we think we have a lot of confidence in the future.

Bryce, one thing that we've started to do in terms of forecasting for fab equipment, I understand you guys really don't talk about that number, is to start using the hyperscaler forecast. And you guys have a good team to do this kind of bottoms up. And kind of help us understand if you guys are doing anything differently in this spending environment, tracking, you know, like the hyperscaler's investments or any other metrics that is extending your visibility?

Well, for sure, we're monitoring actual system designs as an example. So we do look at the GPU content, the accelerator content, CPU content, memory content on systems. We're trying to understand, you know, what the shape of the demand by DRAM, by leading edge logic and by advanced packaging will be for our forward-looking forecasts. So that's probably at a deeper level than we've seen before. The other thing, of course, that we track is all the factories announced across the world. So we have a fab tracker. It's well over 100 factories that we're tracking at this point. There were 10, more than 10 added in each of the last two quarters. And that's another strong leading indicator for us is how much clean room is being put in place. We've said over the medium term, you know, this ramp, there's more demand than there is supply. So we've said in the medium term, it's gated by clean room. And so we're looking closely at the investments customers are making in clean room when those factories come on. And that gives us confidence also. And then the triangulation of that system architecture and the amount of capacity that's being put in place across those different device types, we work hard on that.

Let's talk about the growth drivers. You guys have talked about Foundry Logic, advanced packaging, and DRAM driving more than 80% of your growth this year and next year. Can you talk about the areas like NAND capacity and mature node, our ICAPS business, power semiconductors, silicon photonics? Like, which one of these areas have the most potential for upside to your current already very strong expectations for DRAM and Foundry Logic?

I think the, so if we start with DRAM and FoundryLogic, the end market that we would pair with that very closely is advanced packaging. And so, you know, the advanced packaging, that was a $1.4 billion business for applied materials last year. We've said this year it's growing more than 70%. And we expect that advanced packaging will grow, you know, apace with leading edge logic and DRAM going forward. And it goes back to what I just described with the system-level architecture for AI data centers. You have a lot of leading-edge components, CPUs, GPUs, and accelerators. You have stacks of DRAM and HBM on those systems. And they all have to be connected on a substrate with high-performance interconnects. And so that pulls the advanced packaging capability along with the demand for these systems. So we think that's a very strong grower. We put those three together and Applied has, you know, the number one process equipment position in each of those end markets. The other one that's a little bit different than in the past year is what we call ICAPS, our ICAPS market, the mature process technologies. ICAPS is IoT, communications, auto, power, sensors, those end markets. That's been a slow market for the last couple of years, as a lot of capacity had been put in place in China. And we've said the world has to digest that capacity and get utilizations back up. Well, now we see utilizations coming up. We actually expect some moderate growth in ICAPs this year in 2026. And next year, we think will be a more normal growth year for ICAPs. Normal meaning the end market, the devices themselves, grow at mid to high single digits. And we expect the equipment will eventually track that as we normalize from a utilization perspective. And so that's probably a change. And if we have our ICAPS business working well, along with DRAM, LeadingLogic, and Advanced Packaging, then we can get the strong results that we're expecting. On NAND, I'll just add a comment on NAND. The bit demand for NAND is very strong. So we say in the probably high 20% range. The issue is that the additional layers that are being added in the NAND process technology is so productive from adding bits per square centimeter on the wafer that you actually need fewer wafers to complete all of the demand or to make all of the demand. And so when you do that, basically what you have is an upgrade cycle on the NAND side. So you have fewer new factories. You don't have more wafer starts. You have a lot of upgrades. So what that does from an equipment perspective is it makes that market smaller. And we expect that to continue, you know, for at least the next few years.

Great. Bryce, June DRAM and Advanced Packaging Masterclass, you highlighted panel landfill packaging. It's something that you guys have been kind of working towards in the last few years. Could you talk about where the industry is today on panel adoption and what are the key hurdles and opportunities for Applied Materials?

So panels, you know, if you picture these data center systems, all of the large cloud service providers and system design companies, again, are looking at their mix of components, accelerators, GPUs, CPUs, stacks of memory. And they're trying to figure out how can they get even more performance per watt, even more performance, because there's such a concern about the amount of energy being needed to run those systems. And one of the most important ways of doing that is to expand the amount of chips with higher quality interconnects on a single system. And that requires larger substrates, panel being one of the options for larger substrates. Applied Materials is investing significantly in this trend to grow its capabilities. We just recently did a small acquisition. The company is called Nex. As an example, that does fine line interconnects on panel levels. You ask where the industry is. The industry is currently in development on panels. We have revenue on our panel processing equipment, but I don't think there's any volume production at this point, so it's in development. From, you know, what are the challenges? I think the challenges are typical of what you see in new package technologies. The engineering has to do with how do we solve the thermal issues on a panel in a different substrate? How do you maximize the density? And just the form factors themselves. companies are experimenting with different form factors. Some are wafer size and some are larger than wafer size. And by the way, Applied's experience on the display business gives us the ability to experiment and drive equipment solutions in those larger form factor sizes. So we've invested in litho capabilities. We have e-beam products that will help inspect on a panel or other package types. And as I mentioned, we're investing in other capabilities. So we think that will be a natural evolution in terms of larger compute systems over time.

One question we've been getting from clients is around the tightness in the DRAM market where some of the AI servers are going to be despecking memory content because of the availability of memory and the move down towards maybe eight high or even lower stack of HPM. Can you talk about, obviously they have to do this to kind of adjust themselves to the availability of the memory market, but can you talk about any impact you see on the equipment demand?

Sure. You know, I've heard this term de-specking, And I think our view at Applied Materials is when customers are lowering the number of stacked HBM, high bandwidth memory in a system, they're doing that to get more system output. And so from our perspective, they're trying to be able to ship more AI data center systems in total dealing with the memory constraint. And so they're adjusting the system throughput and orchestration in that system so that they can maximize the amount of compute with the hardware that they have. What that means on the equipment side is you're actually shipping more GPUs, more CPUs, more accelerators per memory chip. So I think from an equipment perspective, we would view that overall as neutral. And we certainly haven't seen a reduction in demand in the business because of this phenomenon. So I would just look at it like any other situation where you're managing the amount of chips available. They're trying to maximize the amount of compute they're outputting with their systems. And so it's just an adjustment to figure out what's best, the most memory or the most systems. and they're leaning toward more systems in that de-spec-ing situation. Great.

Price, when we talk to some of your customers, like big foundries, and ask them how is this cycle any different from prior cycles, one thing to point out is that the prior cycles were all about Moore's Law, just making it smaller. But with this new age of AI, the performance and the time, too, you know, get the latency and those improvements is far more stringent, and they're really counting on the equipment makers to provide that extra boost in performance. And you guys have the most kind of broad, optimized portfolio. You talked about integrated process tool set. Are customers increasingly awarding you more PTORs or process tool of records because of this ability to boost the device performance in a more integrated manner?

Great. Thank you. I think that's something that I was hoping to touch on. So that's a good way to think about Applied's portfolio. When we think about our portfolio of tools and investors know that we have a large number of solutions at Applied Materials, we have deposition, we have etch, we have treatments, we have films, we have thermals, we have inspection, we have planarization tools, et cetera. I've heard some investors say before, oh, you know, if you invest in applied materials, you're just investing in the entire semi-equipment stack. So the company should grow like the overall market. We certainly don't view it that way. What we're trying to build is a complete set of processing equipment to be the most enabling set of tools for our customers. So the way we look at it is when our customers come into Epic, our new development center that we're building into California, in California, when they come into Epic and they want to work on nodes, process technologies that are five to 10 years out, next generation technologies, and we need to invent the type of equipment and we need to invent the technologies to build those new advanced architectures. Applied wants to be able to do every step in that process so they're not having to go back and forth with other process solutions. So if there's 16 steps in a particular formation of something in the architecture, we want to be able to do all 16 steps so that we can control the interaction of those materials and control the way the process is developed and optimize the tools for that solution. The benefit for our customers is they've got a one-stop shop to do that work. the benefit for Applied is when we're successful, hopefully we win all of the designs for those applications. It's really a focus area for us. I would look at that portfolio less as a desire to be broad and more as a desire to be the most enabling technology company for our customers. That's the way we think about recent acquisitions we've made. We've done an x-ray technology company that's going to help us inspect micro bumps between stacked chips. We did the next acquisition that I mentioned that's fine layer interconnects for panels. And that's the way we think about our portfolio is what technologies will help us be the most enabling partner for the customers and be critical for our Epic Center where we're trying to invent those technologies that'll be five to 10 years in the future.

Awesome. Now we've established the demand picture looks really strong. Let's talk about your ability to supply. You doubled your manufacturing space over the past several years, and now you're preparing 2X current systems output levels by 2028 and some planning going on to 2030. Can you just talk about when you look at your supply chain readiness to meet this demand, where do you guys stand?

Sure. Well, on the capacity side, one of the most important things when you have long lead time capacity investments like clean room, clean room typically takes two, three or four years, depending on what you're starting with. you never want to be short clean room when you're in a highly profitable business. And so when I made those comments, I wanted to make sure investors knew and our suppliers. Partially, those comments were also to be reinforcing to our suppliers who have to make the similar investments. We have invested in our investing to make sure that we can produce double the amount of systems each quarter that we're producing today. And it's a capacity statement. It's not necessarily a revenue forecast, but it tells you those are possible scenarios that we're considering. You have to have the clean room in place. So we're putting that in place. And when we think about our suppliers, those eight quarter forecasts that we talk about from our large customers. We aggregate that information by component type, and we send that information to our suppliers so that they're getting eight quarter advance notice on what type of demand that we will have of them so that they can make the investments. Our suppliers, there's a lot of smaller suppliers. They're all different sizes. We typically reference 2,000 plus suppliers for applied materials. A lot of them have to make investments, hire people, add capacity, just like we do. And so they need that signal. Now, the only rub in the equation is we have that eight quarter forecast. And of course, every single quarter this year, it's risen, even within the year. And so our suppliers are doing a great job keeping up with us. And the customers understand the importance of sending those signals. And so we continue to work on, you know, optimizing that whole communication flow.

Let's talk about gross margins. And I actually feel guilty asking you this question because you've done such a great job in expanding gross margins by 300 basis points the last few years. But you're guiding to, you know, kind of flat gross margins near term. And can you just talk about the drivers to expand these gross margins further, whether it's value-based pricing, product mix, or manufacturing scale? Sure.

I think the most important thing to think about for applied materials gross margins is the R&D function first. You mentioned pricing and cost and mix and those kinds of factors. What I would ask investors to think about is how we're focusing our R&D. The company, the projects that we pick with our customers, we're selecting what we think are the most enabling and the most valuable projects. And if we're successful in building those solutions with our customers, then the portfolio becomes more and more valuable every year as we introduce those new solutions and the complexity and value of those solutions becomes higher. Pricing becomes just your mechanism to size up the value that you're delivering in that R&D function that you hoped you would capture when you were building those solutions. Pricing becomes a tool that you use to assign the right value and sell at the right value with the customers. We have been doing a better job at pricing. We have a much more sophisticated and robust process of pricing, but really, from our point of view, it's reflective of the value of the solutions that are being delivered. So I would equate the growth and gross margin, approximately 300 basis points over the last three years. A lot of that has been on pricing, but I don't look at it as we've raised the price. I look at it as the solutions are more valuable, and we're producing more valuable solutions. Also, as everybody knows, you can see that there's more value in the product because things cost more. So aluminum, steel, chips, labor, costs are going up. So we do have to adjust prices going forward and we're improving our ability to do that.

Great. Let me stop here and see if there are any questions in the audience. If you have a question, please raise your hand.

Thank you for all the time and questions. just wondering on the um when you talk about your eight quarter forecast you said that they've been going up you know every time you've reported this year can you share what you're allowed to share on the shape of that forecast over time right is it is it going up in a linear line is it tailing on and and to what extent is um that just a reflection of lack of certainty from everybody involved in terms of their ability to project demand, say, 12, 18, 24 months out from now?

Okay, good question. So on the eight quarters, I wouldn't call it linear. And the reason is the way that that comes into us, as you might imagine, is by factory. And so when factories open up, the size of the factory matters. One factory might be 30,000 wafer starts a month, Another factory might be 50,000 away for starts a month. There could be a mega factory that does even more than that. So as those factories become available to take tools and have tools installed, that translates into demand for us for those tools. So I would say if you got right down to the smallest level of detail, it's very uneven in terms of its growth. It grows in spurts from that perspective. That said, our customers know that we don't produce in spurts. We produce relatively linearly from a tool perspective. So they try to schedule that demand with us as we grow. I would just say, from a guidance perspective, we have said that we expect next year to be a strong growth year for the business. And it's really this AI investment cycle that we think is driving that. We don't see a change in that. Generally speaking, we expect growth every year for semiconductors. You know, we've looked in the past, we've talked about secular growth for semiconductors. We see capacity being added every year. We see the customers signaling that. When I talked about the fab tracker, the number of factory projects we're tracking globally, that's going up in each of the past few quarters, which gives you an indication that the amount of production capacity by wafer is expected to increase and customers are making those investments. So, you know, I guess the best I can say is it's not completely linear and we don't see a place where it peaks, if you will, or changes from that perspective.

Question? Ms. Wanda, go ahead.

Bryce, specifically about DRAM, there have actually been very few Greenfield fabs that have come online over the last five years, and the industry is projecting 15, 16, 17 new fabs coming online out to 2030. Can you discuss the difference in the economics? And since they've been growing bits by primarily doing line enhancements and upgrades for the last five years, the next five years, we're going to be transitioning to Greenfield. Can you talk about how the economics from your standpoint, specific to DRAM, is different when you're going from green from from line transition to to Greenfield backspace?

Sure. Thanks for the question. So on the DRAM side, I think a year ago, if I'm right, about one point six million DRAM wafers per month is a good number to think about. I think this year, the industry is adding 400,000 more wafer starts per month in capacity. And that's what we see going forward, is that the next several years, you're going to get three to 400,000 additional wafer starts a month of DRAM capacity. And those are new factories, as you say. The economics for applied materials and for any of the equipment companies is a lot different. I would say for an upgrade factory, just at a high level, about 25% of the equipment investment relative to what you see at a greenfield. So if a greenfield, if the process equipment is more like $10 billion for 100,000 wafer starts of capacity for an upgrade, it's only a quarter of that in that zip code. So this is a much larger investment cycle with many more wafer starts added per month in terms of production. And that's a big difference you see in the DRAM cycle. So you can picture that 1.6 million, 2 million, 2.4 million wafer starts per month. That's a completely different picture than what you see in NAND. And NAND has been a smaller number of wafer starts and declining, even though the bit growth rate is the same, declining on a yearly basis. And that's because it's mostly an upgrade cycle for NAND and where you get those dynamics. It's less investment, less greenfield in that area. Thank you. Questions?

All right, Bryce. Let's talk about your services business. It's growing 20% this year, a very strong year above your mid-teens long-term model. Can you help us understand what's driving such strong services growth and why are you still expecting it to kind of come down to the low-teens model? Sure.

So I guess the way I look at it, Atif, is the beginning of the year, the first half of this year, we talked about our services business growing in low double digits. So let's say 11 or 12%. And we've raised that to mid-teens for a longer term growth this year because the install base is growing faster than we expected. This goes back to the semi-business and what we were talking about with the semi-business. Since the semi-business has sped up, we're shipping more tools, the install base for service is going up, and we have more opportunity there. So we raised our long-term forecast from low double digits to mid-teens. This year, we're over 20%. And what's happening this year is that the utilization across the entire network has increased across every single end device. So leading edge logic and DRAM, almost 100% utilization across the board. ICAPS is in a much more healthy spot and NAND has very high utilization. And so what that means is customers are buying more spares and more components to keep their systems working at full output. And so that's given us a unusual bump. Let's say we're at 100% utilization this year. We can't go to 110% next year. So you kind of next year go back to your more longer term growth rate. And just for the investors, the way I would think about the services business is there are two components to growth. One is that installed base growing every single year, 5%, 6%, 7% every single year. And the second is the average revenue per tool rises each year as we introduce new products on those tools. Most of the new products or a large number of the new products are actually AI-based products. This is one of the benefits that we're getting from AI is we're able to provide tuning solutions to our customers that with the sensors that we have and with the data that we collect on the tools, we can quickly get those tools up to the highest yield and highest output. But those are new services we offer to customers, and it helps with the revenue per tool, even as that install base grows. So that's the way to think about the service business. And obviously, mid-teens outlook is very positive for us.

Great. And then, Bryce, when you talk about the value-based pricing approach, is that both on new products and existing products or mostly on the new products?

The way I would think about it is on every product, new or old, from a, maybe I shouldn't say the word old, but from an existing product perspective, your costs have gone up. So costs of labor, materials, components, aluminum, steel, gold, all the input costs have gone up. And that tells you that there's more value in that tool than there used to be. We have to make price adjustments on everything. I would just go back to what we described a few minutes ago. We have a process to examine the value that the tool is providing. Each tool has a different level of solution capability and enabling capability for the customer. We look at that and we set the appropriate price, but I wouldn't distinguish between new products and existing products. We have to make an adjustment each period. All right.

And then on your process diagnosis and control, your outlook to grow more than 50% is actually far above WFE and also above some of your peer commentary in this market. Can you talk about what you're seeing in that market?

Very exciting in process control. So if you can imagine, these are 3D architectures. When you think about a gate all around transistor, many levels of semiconductor processing to build one of those processors and one of those transistors. And you need the ability to look inside that construction. There's buried defects inside that construction, which optical sensors or optical microscopes don't allow you to see. The E-beam microscopes or E-beam inspection where we have the top market share, that is the tool that allows you to shoot electrons in there and see the shapes and see what's being constructed and find those buried defects and fix those buried defects. Our CEO says you can't fix what you can't see. Well, that's one of our capabilities that we provide to customers. So as the architectures, the actual device architectures themselves get more complex, you need more technology like the E-beam tool to look inside as you're building them, find the structural defects and be able to fix those in your process. So the demand for e-beam is going up significantly, and we expect that to continue as DRAM goes to 3D DRAM, 4F squared, and eventually as the leading edge node goes from gate all around to CFET, you're going to need a lot more levels of inspection. That's been the number one driver for us. We're also making several other investments. I mentioned the x-ray. I mentioned the package level, e-beam products that we have. So we think the inspection business will be significantly important for applied materials and its growth story. That's a wrap. We're almost out of time.

Bryce, thank you for coming to the CityCon. Thanks, everybody.