Applied Materials, Inc. Presents at 15th Annual Needham Virtual Technology & Media Conference, May-20-2020 12:15 PM - SEHK:4336

SEHK:4336

**- Initial WFE outlook for 2020 was a 10% to 15% year-over-year increase, with a strong focus on foundry/logic and memory.

• Foundry/logic demand remains strong, with a broadening order book and multiple customers investing across various nodes.

• Memory market is balanced across device types, with the key swing factor being wafer starts per month and potential greenfield investments.

• China domestic spend is expected to increase by $2 billion to $3 billion, with the recent announcement from a major Chinese participant pushing the estimate to the top end of the range.

• Macro conditions show some softness in specialty nodes due to the impact on automotive, industrial, and travel sectors.

• Supply chain disruptions due to shelter-in-place orders in the Bay Area and Malaysia significantly affected operations, but the company is working to mitigate these issues.

• Logistics costs have increased due to the shift from commercial air freight to alternative channels, creating an economic headwind.

• The company expects most suppliers to return to pre-COVID levels of output by the end of fiscal Q3, with a 2-quarter period to make up for lost volumes.

• Unmet demand of $650 million in the April quarter may be partially addressed in fiscal Q3, depending on the recovery slope of the supply chain.

• The company is confident in meeting the new export control regulations for China, with minimal impact on business operations.

• The Kokusai Electric acquisition is on track, with approvals secured in 5 of 6 geographies, and constructive engagement with Chinese regulatory authorities.

• Display revenue is expected to be similar to 2019 levels, with a strong back-half load driven by steady demand.

• No evidence of over-ordering by Chinese customers, with investments aligning with the slow, steady development of the ecosystem.**

**- Michael Sullivan reiterated the company's position on export controls, stating that they are working closely with the U.S. Government and trade associations to understand and comply with new regulations.

• He confirmed that the company expects to meet government standards by the end of June, when the new rules become effective, without significant disruptions to their business.

• Sullivan clarified that the recent rule changes, particularly regarding military end-use, do not significantly impact Applied Materials' operations. The company feels increasingly comfortable with their compliance strategy as they continue to engage with the government.

• He addressed the concern about manufacturing locations, emphasizing that the company's diverse and flexible manufacturing network allows them to comply with regulations without needing to rely on specific manufacturing sites.

• Regarding the Huawei and Hisilicon restrictions, Sullivan stated that these do not impose new licensing requirements on Applied Materials, and the company does not expect significant disruptions to their business.

• On the topic of emerging and foundational technologies, Sullivan noted that while the Export Control Reform Act was passed in 2018, there have been no recent updates or new regulations affecting the company.

• Sullivan also provided an update on the Kokusai Electric acquisition, stating that the company remains on track for the originally announced timeline, despite the challenges posed by COVID-19. They have received approvals in five of six required geographies and are constructively engaged with Chinese regulatory authorities.**