EPS of $2.05 decreased by 14.2% from previous year
Gross margin of 47.3%
Net income of 1.71B
""The value of bringing next-generation semiconductor technology to market faster has never been greater. Our strategy and investments are focused on accelerating the industry's roadmap." - Gary Dickerson, CEO" - Gary Dickerson
In the third quarter of fiscal 2024, Applied Materials Inc (AMAT) reported a record revenue of $6.78 billion, marking a 5% increase year-over-year. This robust performance was underpinned by significant growth across all three business segments: Semiconductor Systems, Applied Global Services, and Display & Adjacent Markets. The company demonstrated resilience against external market challenges, notably in the DRAM sector, and positioned itself strongly to capitalize on the rapidly evolving AI and semiconductor landscapes. Management's commentary underscored confidence in achieving sustainable long-term growth driven by innovative technology solutions and strategic collaborations.
Management expressed that the momentum gained in Q3 positions AMAT well for the future, with expected revenues of $6.93 billion in Q4, reflecting continued strength particularly in AI-driven semiconductor demand. Gary Dickerson, CEO, emphasized the impact of AI on their market trajectory, stating, "The race for AI leadership will, in large part, be determined by which companies in the semiconductor industry are first to deliver substantial improvements in energy-efficient compute performance."
Compared to Q2 2024:
- Revenue increased by $130 million.
- Net income decreased marginally by 0.99%.
Management anticipates maintaining gross margins at 47.4%, capitalizing on their leading position within the semiconductor market and strong demand across all segments. The DRAM market, despite challenges, saw sales growth reflecting customer demand. Dickerson noted, "We expect materials engineering, as a percentage of total wafer fab equipment, to grow in both logic and memory through the coming node transitions."
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.78B
0.82%
1.99%
Gross Profit
3.21B
1.14%
1.65%
Operating Income
1.94B
-1.47%
1.57%
Net Income
1.71B
-14.92%
-0.99%
EPS
2.06
-14.17%
-0.48%
Key Financial Ratios
currentRatio
2.86
grossProfitMargin
47.3%
operatingProfitMargin
28.7%
netProfitMargin
25.2%
returnOnAssets
5.07%
returnOnEquity
9.05%
debtEquityRatio
0.35
operatingCashFlowPerShare
$2.89
freeCashFlowPerShare
$2.53
dividendPayoutRatio
19.4%
priceToBookRatio
9.01
priceEarningsRatio
24.9
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Market Dynamics: Management emphasized the ongoing transformations in the semiconductor industry due to AI and energy-efficient computing demands. They noted, "Advanced chips in the datacenter, used for training AI models, are built upon four critical categories of semiconductor technology."
Growth Strategies: The management discussed planned investments in R&D to bolster technology inflections. CEO Gary Dickerson remarked, "We are driving tremendous innovations in foundry-logic, leading-edge, high-bandwidth memory, DRAM, and advanced packaging."
Segment Performance: Brice Hill provided insights on the Semiconductor Systems segment generating $4.92 billion, growing 5% YoY, with strong performance in DRAM sales increasing nearly 50% YoY.
"The value of bringing next-generation semiconductor technology to market faster has never been greater. Our strategy and investments are focused on accelerating the industry's roadmap." - Gary Dickerson, CEO
â Gary Dickerson
"We expect AGS to grow at a low double-digit rate over the long term, considering the consistency of our profitable growth in services, giving us confidence in our ability to continue to increase our dividend per share." - Brice Hill, CFO
â Brice Hill
Forward Guidance
For Q4 2024, management provided guidance of expected revenue in the range of $6.93 billion, with a non-GAAP EPS projection of approximately $2.18. This reflects a modest 3% increase year-over-year at the midpoint. The anticipated growth is backed by the robust demand in Semiconductor Systems, projected at $5.1 billion, and continued growth in Applied Global Services, expected to reach $1.61 billion. Management advises stakeholders to monitor trends in DRAM demand, advancements in AI technologies, and developments surrounding gate-all-around fabrication equipment.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AMAT Focus
47.29%
28.70%
9.05%
24.90%
KLAC
59.10%
36.00%
19.40%
39.87%
ASML
50.80%
32.70%
12.90%
35.31%
ACLS
42.90%
18.30%
4.98%
17.56%
TER
59.20%
20.60%
5.02%
37.47%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Applied Materials remains well-positioned for future growth driven by strong sector demand, particularly in areas influenced by AI advancements. With impressive cash generation capabilities and a sound operational strategy to capitalize on impactful technology transitions, investors may consider AMAT as a compelling opportunity. Maintaining a focus on technological innovation and market expansion while managing risks associated with geopolitical tensions will be critical for sustaining long-term growth and enhancing shareholder value.
Key Investment Factors
Growth Potential
Applied Materials demonstrates strong growth potential driven by the increasing demand for energy-efficient semiconductor solutions, especially as AI continues to reshape the computing landscape. Their established market position in key segments like DRAM and advanced packaging enhances their growth outlook.
Profitability Risk
Risks include fluctuating demand from major markets like China, potential supply chain disruptions, and competition from other semiconductor equipment manufacturers such as ASML and KLA. Regulatory risks may also impact global operations.
Financial Position
The company maintains a solid financial position with a current ratio of 2.86 and debt to equity ratio of 0.354, indicating healthy liquidity and manageable leverage levels.
SWOT Analysis
Strengths
Leading position in the semiconductor equipment market
Strong R&D capabilities and innovative product portfolio
Robust financial performance with record revenues and cash flow
Weaknesses
Dependence on cyclical semiconductor market
Exposure to geopolitical risks, especially in China
Opportunities
Growing demand for AI-capable semiconductors
Expansion into advanced packaging and heterogeneous integration
Strengthening long-term service agreements enhancing revenue stability
Threats
Intense competition from major players like ASML, KLA, and Lam Research
Market volatility affecting capital expenditures by semiconductor manufacturers
Regulatory changes impacting market access in key regions