Applied Materials, Inc. Presents at Citi’s 2020 Global Technology Virtual Conference, Sep-08-2020 11:40 AM - NasdaqGS:AMAT

NasdaqGS:AMAT

Daniel J. Durn, the Former Senior Vice President and Chief Financial Officer of Applied Materials, Inc., shared several insights during the Citi’s 2020 Global Technology Virtual Conference presentation. Below is a detailed summary of his statements:

Overview of Semiconductor Market

• Market Performance: Despite the pandemic and geopolitical challenges, the semiconductor and semiconductor capital equipment markets are experiencing a strong year. Applied Materials expects the market to continue performing well in 2021.
• Company Performance: Applied Materials significantly outperformed the market and its peers in 2019 and continues to do so in 2020. The company sees strong performance across all its business segments.

Market Share and Performance

• Market Share Gain: Applied Materials gained 8 points of market share in its PVD, CVD, and epi business in 2019. Its etch business is the fastest-growing, and its inspection business is growing at over 40%.
• Employee and Supplier Appreciation: Durn praised the efforts of Applied Materials employees and suppliers, noting that the company has returned to pre-COVID levels of output and that the supply chain is responding well.

Industry Growth

• Semiconductor Sales Growth: Third-party research suggests that the semiconductor industry will reach $1 trillion by 2030, and the wafer fab equipment (WFE) industry will grow to over $100 billion.
• New Normal for WFE Investments: While the industry is currently in the mid-to-high 50s, it is expected to reach $60 billion or more in the near future, setting a stepping stone for further growth.
• Structural Growth: The industry will experience structural growth with higher highs and higher lows, and the amplitude of cyclicality will become more compressed over time.

Memory Market

• Memory Business Strength: In the first half of 2020, Applied Materials’ memory business increased by 17%, compared to a 3% increase for its closest peers.
• Memory Outlook: Applied Materials does not expect a significant spike in memory investments in the second half of the year, but it does anticipate a disciplined approach to capacity and bit supply to meet demand.

Foundry/Logic Market

• Market Insights: Applied Materials has a broad customer footprint, giving it unique insights into the market. The company holds #1 positions in foundry/logic, DRAM, and packaging, and a #2 position in NAND.
• Drivers of Foundry/Logic Investments: The data economy, artificial intelligence, and the Internet of Things (IoT) are driving growth. The trend towards intelligence and automation in supply chains is also contributing to nondiscretionary spend.

China Market

• China Wafer Fab Equipment Market: Spending in 2020 is expected to be around $9.5 billion, up from $6.5 billion in 2019. The incremental spend is focused on technology roadmaps and both 200mm and 300mm investments.
• Slow and Steady Development: China’s ecosystem is developing slowly and steadily, with a disciplined build towards a sustainable industry.

Display Business

• Cyclical Bottom: The display business is currently at a cyclical bottom, but concurrent strong investment cycles are expected in 2022.
• Future Opportunities: Technologies like OLED and flexible/foldable displays offer opportunities for growth, potentially increasing the market size to the mid-20s.

Services Business

• Recurring Nature: The services business, including spares and service, is a significant portion of Applied Materials’ revenues, with a high degree of predictability due to long-term service agreements.
• Growth Potential: The services business has grown at a compound annual growth rate of 12% over the past six years and is expected to continue growing faster than the installed base.

Silicon Business

• Outperformance: Applied Materials expects to outperform the wafer fab equipment market in 2021, driven by new etch and process control products.
• Key Products and Markets: The company’s outperformance is broad-based, covering areas such as etch, inspection, and various device types.

Financial Model

• $5 Run Rate: Applied Materials is nearing a $5 run rate, with display at a cyclical bottom. The company views this as a stepping stone rather than an end state.
• OpEx and Gross Margins: The company is disciplined with discretionary spending, with nearly 70% of OpEx dedicated to R&D. Gross margins are influenced by the mix of business, with services and display typically below the corporate average.

Kokusai Transaction

• Deal Closure: Applied Materials is optimistic about closing the Kokusai transaction, with constructive conversations ongoing with Chinese regulators.

Customer-Specific Questions

• Microprocessor Company’s Move to Foundry: The decision by a microprocessor company to go fab-lite or fabless and use a foundry will not significantly impact overall market size. Applied Materials is well-positioned in both logic and foundry markets.
• Deposition Market Trends: EUV migration is beneficial for Applied Materials, as the company is posting record revenues alongside the technology’s adoption. The company sees increasing opportunities in etch and multi-patterning.
• Materials Innovations: Applied Materials plays a key role in developing new materials and solutions, working closely with customers to understand their roadmaps and deliver innovative technologies.

Services Business Model

• Gross Margin Expansion: There is potential for gross margin expansion in the services business through performance enhancements and leveraging new technologies like virtual reality.

Risk Management

• Entity List: Applied Materials focuses on innovation, flexibility, and responsiveness to changing circumstances. The company aims to be agile and adapt to new rules and regulations as they arise.