Applied materials show strong results in Q3

Applied materials (AMAT -1.85%)a leader in semiconductor manufacturing equipment and services, announced its financial results for the third quarter of fiscal year 2024 on August 15.

The company reported revenue of $6.78 billion, beating the midpoint of management’s guidance of $6.65 billion by 1.9%. Non-GAAP diluted earnings per share (EPS) came in at $2.12, compared to the expected range of $1.83 to $2.19.

Overall, the quarter was marked by revenue growth, margin improvement and strong performance in key business segments.

Source: SEC documents. Expectations based on management guidance as provided in the 2024-05-16 earnings report.

Understanding applied materials

Applied Materials is a leading supplier of semiconductor chip manufacturing equipment, services and software. Its main segments include semiconductor systems, global applied services, and display and adjacent markets.

The company’s recent focus has been on leveraging its technology leadership in semiconductor manufacturing equipment and expanding its global services and support capabilities.

Quarterly highlights

During the third quarter of fiscal 2024, Applied Materials posted strong financial performance across several metrics. Revenue rose 5.5% year-over-year to $6.78 billion, supported by rising sales of semiconductor systems, which reached $4.92 billion, up 5.3% year-over-year previous. The Applied Global Services segment also posted solid numbers, with revenue up 7.9% year-over-year to $1.58 billion.

The company’s gross margin improved year-over-year, with GAAP gross margin at 47.3%, up 1.0 points from the prior year, and non-GAAP gross margin at 47.4%, also up with 1.0 point. Operating margins showed a similar trend, with GAAP operating margin at 28.7% and non-GAAP operating margin at 28.8%.

However, not all values ​​showed positive trends. The display and adjacent markets segment saw a decline in operating margin, falling to 6.4% from 13.6% in the year-ago period. This indicates potential competitive or cost pressures in the display market.

On the cash front, the company generated $2.39 billion in cash from operations and returned $1.19 billion to shareholders through share buybacks and dividends. This indicates strong cash generation capacity and a commitment to shareholder returns.

Strategic areas of focus

The company’s main focus areas include maintaining technology leadership in semiconductor manufacturing equipment, expanding its global services and customer support, and capitalizing on its strong position in the display market and adjacent markets. Applied Materials continues to invest heavily in research and development (R&D) to drive innovations in areas such as gate-all-around (GAA) transistors and high-bandwidth memory, which are crucial to future technological advances.

Applied Materials also boasts a robust intellectual property portfolio with more than 19,600 active patents, underscoring its strong capabilities in innovation and technology leadership.

Looking ahead

Looking ahead, Applied Materials provided guidance for the fourth quarter of fiscal 2024, with revenue expected to be approximately $6.93 billion, plus or minus $400 million. Non-GAAP diluted earnings are expected to be between $2.00 and $2.36 per share.

Management remains bullish on the company’s outlook, driven by advances in AI and continued demand for semiconductor manufacturing equipment. However, the company must manage potential risks related to customer concentration and geopolitical tensions, particularly with significant revenue exposure to China.

Investors should watch how the company addresses these challenges and capitalizes on its technological innovations to maintain growth in the coming quarters.