Applied Materials, Inc. Presents at Cowen’s 48th Annual 2020 Virtual Technology, Media & Telecom Conference, May-28-2020 11:50 AM - SEHK:4336

SEHK:4336

Based on the document "Applied Materials, Inc. Presents at Cowen’s 48th Annual 2020 Virtual Technology, Media & Telecom Conference, May-28-2020 11:50 AM_2020-05-28_Applied Materials, Inc._Daniel Durn.txt", here is a detailed list of what Daniel Durn has said:

1. Military End User and Huawei: Daniel Durn asserts that Applied Materials, Inc. spends $2 billion annually on R&D, emphasizing its role as a highly innovative company with strong intellectual property (IP) protection. He states that the company believes in free and fair trade, considering it fundamental to the semiconductor industry. In response to the Department of Commerce's rules regarding Huawei, Daniel Durn mentions that the company has received guidance and interpretations from various sources including government officials, advisers, and internal teams. He explains that they are confident in their path to comply with the rules by the end of June, without causing significant disruption to their business. He also mentions that they have operational flexibility to adapt to changes in the interpretation of the rules.

2. Display Business and ECCNs: Daniel Durn clarifies that the display business, not included in the Export Control Classification Numbers (ECCNs), does not fall under the Department of Commerce regulations related to Huawei. He further states that the process of compliance for business with Applied Materials, Inc. (like SMIC, YMTC, and CXMT) will follow a similar procedure, regardless of the device type or technology node, ensuring consistency in approach.

3. Supply Chain Recovery: Daniel Durn characterizes the supply chain recovery process in stages: first, suppliers being designated as part of critical infrastructure, opening their factories, and restoring staffing and output levels to pre-COVID levels. Second, recovering from lost volumes due to supply chain disruptions, which he expects to occur over the next couple of quarters (fiscal Q4 and fiscal Q1). Lastly, addressing logistical channel disruptions, where goods are transported using commercial aircraft routes, which have been impacted due to reduced capacity in the commercial airline industry. He anticipates this aspect to take longer, as behavior patterns may influence commercial airline capacity for an extended period.

4. Lead Times and Health of Supply Chain: Daniel Durn indicates that lead times are influenced by the health of the supply chain. During the initial lockdown orders, lead times stretched due to supply chain disruptions. Since then, as the supply chain recovers, lead times have shortened. He attributes this to improvements in supplier health, returning to business as usual and reaching pre-COVID levels.

5. Investor Communication Approach: Daniel Durn discusses the company's communication strategy with investors during periods of elevated macroeconomic risk. He advocates for providing more visibility over a longer horizon than one quarter, especially when the industry's ecosystem is opaque. This approach aims to be helpful and offer hope to investors amidst heightened uncertainty.

6. Industry Mega Trends: Daniel Durn argues that despite near-term challenges, such as weakness in sectors like autos, industrials, and consumer, the long-term opportunity in the semiconductor industry remains robust. He points to increased demand for work-from-home solutions, supply chain localization, and automation, suggesting these trends are strengthening rather than weakening compared to six months prior.

7. Capacity Deployment and Investment Cycle: Daniel Durn notes that customer investment cycles for new capacity are longer-term strategies, influenced by factors beyond immediate demand. He suggests that while there might not be a direct correlation between short-term events and immediate capacity deployment, the industry's mega trends indicate a higher long-term potential for growth.

8. Memory Market Outlook: Daniel Durn forecasts that the memory market's swing factor will be in the second half of the calendar year, particularly in calendar Q4. He observes a shift towards more balanced spending patterns across memory devices (DRAM and NAND) compared to previous years, indicating a recovery that is not solely NAND-led.

9. Performance Drivers and Share Gain: Daniel Durn highlights the company's strong performance across various business segments, including PVD, thermal, epi, implant, and optical inspection products. He emphasizes the company's leadership in technology and innovation, expecting continued growth in share gain as long as customers are spending, and underscores the importance of maintaining a strong position in semiconductor manufacturing processes.

10. WFE Expectations: Daniel Durn refrains from providing specific expectations for WFE (Wafer Fab Equipment) this year, citing a desire to gather more data. However, he shares that the company expects strong growth in its systems business, up in double digits for the fiscal year, against a backdrop of uncertainty regarding market conditions (flat, down a little, or up a little).

11. Operational Response to COVID: Daniel Durn discusses the company's investments in operational resilience during the pandemic, including social distancing measures, surge labor capacity, and efficient logistics to ensure uninterrupted service to customers.

12. Cost Structure and Discretionary Spending: Daniel Durn outlines the company's cost structure, noting that 65% of costs are variable and 35% are fixed. He commits to maintaining discipline in discretionary spending, prioritizing research and development (R&D) expenditures and adjusting spending based on the current environment, aiming for long-term value creation.

13. Kokusai Transaction Progress: Daniel Durn reports on the company's progress towards closing the Kokusai transaction, highlighting broad customer support and engagement with regulators. He reassures that the company intends to continue share repurchases, albeit temporarily scaled back, leading up to the transaction closure, with plans to resume repurchases post-closure.

14. Dividend Increase: Daniel Durn mentions that the company recently increased its dividend by almost 5%, reflecting its commitment to shareholder returns and maintaining a strong financial position.

In summary, Daniel Durn provides insights into the company's strategic positioning, operational resilience, technological leadership, and financial management in response to global challenges and industry dynamics.