Overview of Applied Materials Silicon Systems segment

Applied Materials’s (AMAT) Silicon Systems Group (or SSG) develops, manufactures, and sells manufacturing equipment used to fabricate semiconductor chips. Semiconductor chips are typically built on a silicon wafer base to create an integrated circuit. These chips include myriad circuit components—transistors and other devices—that are connected by multiple layers of wiring. According to Gartner, Intel (INTC) dominates the semiconductor industry.

Applied Materials provides systems to create a diverse range of devices and enable various processes to be performed in chip fabrication, including:

• chemical vapor deposition
• physical vapor deposition
• electrochemical deposition
• rapid thermal processing
• ion implantation
• chemical mechanical planarization
• wet cleaning
• atomic layer deposition wafer metrology
• inspection and systems

If Applied Materials’s SSG segment posts good results, it will benefit exchange-traded funds (or ETFs) such as the Technology Select Sector SPDR (XLK), the VanEck Vectors Semiconductor ETF (SMH), and the PowerShares QQQ Trust (QQQ). These ETFs have significant exposure to Applied Materials.

As seen in the above chart, among all the company’s operating segments, SSG is its largest source of revenue. It contributed 66%, 64%, and 64% toward overall revenues in 2014, 2013, and 2012, respectively. The SSG segment contributed $5.98 billion to the overall revenues of $9.07 billion in FY14.

On a quarter-over-quarter and year-over-year basis, SSG revenues rose 15.4% and 25.0% respectively. However, on a sequential basis, it declined 2.8% to $1.43 billion, as compared to $1.48 billion in 3Q14. Later in the series, we will explore the factors that caused this decline.

Integrated device manufacturers and foundries use Applied Materials’s semiconductor manufacturing systems to build and package memory, logic, and chips. This segment researches, builds, and sells equipment for integrated circuit manufacturing.