Applied Materials (NASDAQ:AMAT) Chief Financial Officer Brice Hill said demand for the company’s semiconductor equipment has strengthened, driven by artificial intelligence-related investments across leading-edge logic, DRAM and advanced packaging.
Speaking with Bank of America analyst Vivek Arya at the Bank of America Global Technology Conference, Hill said the company raised its growth outlook for its semiconductor systems business to more than 30%, up from an earlier expectation of about 20% growth.
Hill said the strongest areas of demand include leading-edge logic, DRAM and advanced packaging. He said these categories are “traveling together,” with GPUs, CPUs and accelerators paired with different types of memory in AI systems.
Clean Room Space Remains the Main Constraint
Hill said current demand is being “metered by clean room space,” rather than by Applied Materials’ ability to produce tools. He said the company has added manufacturing capacity and can increase output with the right demand signals from customers and suppliers.
“The governor here is it takes three or four years to build a fab,” Hill said. He added that customers are working to expand output by optimizing existing clean room space, including changing layouts, upgrading underperforming tools, moving process technologies from one node to another and, in some cases, using 200-millimeter space for 300-millimeter purposes.
Hill said Applied Materials is receiving eight-quarter rolling forecasts from customers, which provide detailed visibility into process technologies, tool recipes, tool counts, specifications and installation timing. The company then consolidates those forecasts and shares them with its supplier base.
Services Business Outlook Also Raised
Applied Materials also increased its outlook for its services business. Hill said the company had previously expected low-double-digit growth in services but now expects mid-teens growth, with the current year likely “a little bit higher than mid-teens.”
He said services growth is being driven by two factors: the expanding installed base of equipment and new service products that increase the value of each tool. Higher utilization across DRAM, leading-edge logic and mature-node fabs is also contributing to growth.
Hill described the services business as secular in nature, noting that Applied Materials tools can be serviced for 10 to 30 years. He also said the company is introducing AI-driven service products aimed at predictive maintenance and tool upgrades.
DRAM, HBM and Advanced Packaging in Focus
On DRAM, Hill said the industry is operating at full utilization and that Applied Materials expects customers to continue adding capacity. He said DRAM currently represents about 2.3 million wafer starts per month, and Applied Materials expects 300,000 to 400,000 wafer starts of added DRAM capacity each year based on its roadmap view.
Asked about high-bandwidth memory, Hill said newer HBM generations are increasing the amount of DRAM wafer die area required. He said the trade ratio for HBM DRAM was previously around 3:1 and is moving toward 4:1 with newer generations.
Hill also said Applied Materials has gained about 10 points of DRAM wafer fab equipment share over the past decade, helped by capabilities developed for leading-edge logic that are now being used in DRAM. He said potential moves to 4F² and 3D DRAM architectures would represent further share opportunities for the company, though he declined to provide timing and said customers should address their own roadmaps.
In advanced packaging, Hill said Applied Materials sees a “huge growth area” as the industry moves from 2.5D chip connections toward 3D stacking. He cited investments in hybrid bonding, panel technology, lithography for packaging and acquisitions related to X-ray inspection and fine-line interconnects.
Margins, China Exposure and Capital Allocation
Hill said Applied Materials has improved gross margins in its equipment business, citing a reported 54.8% gross margin for that segment. He said the company has strengthened its pricing process by setting targets for each tool based on value analysis.
He also pointed to Applied Materials’ EPIC platform in Sunnyvale, where he said the company has announced 10 customer arrangements and is working with customers and universities on future technologies. Hill said the strategy is intended to help address difficult customer technology problems and support long-term margin improvement.
On China, Hill said the company’s semi systems and services exposure was 24% in the most recent quarter, excluding display. He said China’s share of global semiconductor device demand is around 30%, and that a long-term equipment demand level in that range “makes sense,” though he noted the share could be somewhat smaller in coming quarters as leading-edge demand grows quickly.
Regarding capital allocation, Hill said returning cash is not the company’s primary objective. “Our primary objective is to grow the business,” he said, citing a return on invested capital above 30%. He said Applied Materials’ first priority is investing in the business, including additional lab space and projects, while continuing dividends and buybacks. He also said the company remains active in acquisitions that add to its technology portfolio.
About Applied Materials (NASDAQ:AMAT)
Applied Materials, Inc is a U.S.-based supplier of equipment, services and software used to manufacture semiconductor chips, flat panel displays and other advanced materials. Headquartered in Santa Clara, California, the company designs and sells capital equipment and related technologies that enable production of integrated circuits, display panels and materials used across the electronics supply chain.
Applied Materials’ offerings include process equipment and factory software that support critical steps in device fabrication, such as deposition, etch, implantation, inspection and metrology, as well as systems for packaging and advanced heterogeneous integration.
