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What to Expect from Applied Materials’ Fiscal 3Q17 Earnings

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Part 8
What to Expect from Applied Materials’ Fiscal 3Q17 Earnings PART 8 OF 11

Why the Global Services Division Is Important for AMAT’s Earnings

Applied Global Services division

Applied Materials (AMAT) is witnessing strong growth in Semiconductor Systems and is likely to witness strong growth in the Display segment once the issue of supply constraints is resolved. These segments’ revenues are dependent on equipment sales.

One segment that is stable and generates recurring revenues even during the downturn is AGS (Applied Global Services). AGS helps semiconductor and display manufacturers ramp up production of new equipment, improve equipment yield and performance, and optimize output and operating costs. AGS also provides upgrades, spares, remanufactured earlier-generation equipment, and factory automation software.

Why the Global Services Division Is Important for AMAT’s Earnings

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While AGS has a recurring revenue stream, its revenue growth depends on the revenue growth of other two segments. Hence, AGS’s revenue contribution has been stable at ~20%–21%. KLA-Tencor (KLAC) earns 21%–24% of its revenues from its Service segment.

Applied Global Services’ earnings

AGS revenues rose 14% YoY (year-over-year) to a record $724 million in fiscal 2Q17. On a sequential basis, AGS revenues rose 7% as 11.6% growth in Semiconductor Systems revenues was slightly offset by its 7.3% decline in Display revenues.

For fiscal 3Q17, Applied Materials expects AGS revenues to rise 13% YoY to $742 million. This represents sequential growth of only 2.5%. The sequential growth is likely to slow as Semiconductor Systems’ sequential revenue growth is expected to slow to 5%.

Despite the sequential weakness, annual growth remains strong for AMAT, and that is driving optimism among analysts and investors. Next, we’ll look at the company’s stock performance.

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