Applied Materials Earnings Call Insights: Transition to Memory Order Environment and Seasonality

Applied Materials, Inc. (NASDAQ:AMAT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Transition to Memory Order Environment

Terence Whalen – Citi: Congratulations on the strong results, and also wanted to pass my congratulations and best of luck off to George as well. The first question then I have is related to a comment that you made about, you see foundry spending being about 45% of WFE, I believe in the comment you made. As I look at the order profile, it looks like foundry was close to three quarters of your orders. So, my question is how do you see the transition from a more foundry dominated order environment to a memory order environment, how do you see that evolving and handing off throughout the middle to later part of the year?

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Michael R. Splinter – Chairman and CEO: If you look inside our numbers close to three quarters of the orders in Q1 are from foundry. As we think about the progression through the year we do have to have broader foundry participation. But we also need to see logic investment pick up fairly dramatically in the second half along with NAND Flash spending for capacity and then for 3D NAND technology. So that’s kind of the progression. We should start to see that by the end of our Q2 or the beginning of our Q3 that transition as foundry comes down as a percentage overall in the other areas and WFE starting to rise.

Terence Whalen – Citi: Then the second question, the follow-up question is around a comment that I believe Gary made around some of the advances in transistor technology in FinFET creating a really good opportunity to gain some share and gain some tool record positions. That seems to be obviously showing up in some of the Taiwan order patterns that we are seeing with Taiwan being very strong. I’m wondering, if you feel like you have as good a competitive position with the other Korean partner in FinFET?

Gary E. Dickerson – President: If you look at the key enabling technologies for the transistor, epi, PVD, implant, thermal processes, many of these we have 70%, 75% market share overall and in the area around the foundry customers that are ramping, gate-last technology or FinFET technologies, the market share is probably even higher. So this certainly provides a great opportunity for us to grow share. When I think about our overall share position, in 2012, in 300-millimeter, we gained share, a small amount of market share. We look at 2013 as an opportunity to even accelerate that; and ’14, when the 20-nanometer gate-last is adopted by a number of foundry customers, we’ve said, that that creates an opportunity for our CapEx to go up 30% at those customers. So we are really in a great position building momentum through this year into 2014.

Seasonality

Krish Sankar – Banc of America Securities Merrill Lynch: The question I had was the first one, Mike if you take your wafer fab equipment guidance, let’s assume, you get to the upper end of the range driven by higher foundry, NAND coming back. Would you still see the seasonality of a front half loaded year that we saw last year? ‘

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Michael R. Splinter – Chairman and CEO: This year is certainly a different year than last year. The foundry part of the investment, that’s driven by mobility and the mobility consumers that largely buy in the latter half of the year, really in the fourth quarter that seasonality is still there. But especially in this kind of odd calendar year, we see more investment in logic to mute that. We think we’ll see more investments in NAND Flash this year, which also mutes the accentuated seasonality that we had last year. I would just echo the point about gaining momentum here as we move into this calendar year with the strong orders that we’re seeing on the front-end from the foundry.

Krish Sankar – Banc of America Securities Merrill Lynch: Then just a quick follow-up for Gary. If I look at the 3D NAND, obviously the memory guys have been working on it for a while, and we haven’t seen it yet put into production, but let’s assume that maybe it’s a 2014 opportunity what is the incremental SAM expansion for Applied, given your diverse product line?

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Gary E. Dickerson – President: Again, we do see it as a 2014 timing, similar to the 20 nanometer gate-last ramp for our customers, so that’s one of the things that makes us very optimistic about building the momentum from a market share perspective. In the 3D NAND technology there are a number of very long deposition steps. If you look at the multilayer stacks that are very favorable to us and roughly we look at the incremental CapEx opportunity for Applied on the order of 25%. It gets better as they are more layers when you’re building these multilayer stacks, but around 25% increase in CapEx opportunity.

A Closer Look: Applied Materials Earnings Cheat Sheet>>