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Could AMAT Achieve New Revenue Milestones in Fiscal 2017?


Aug. 14 2017, Updated 9:08 a.m. ET

Applied Materials’ revenue milestones

Applied Materials (AMAT) is in the middle of a multiyear inflection, as the fourth technology shift has encouraged semiconductor companies to upgrade their manufacturing equipment. The new technology is material-intensive, driving demand for SME (semiconductor manufacturing equipment).

AMAT’s leading position in the SME market has helped it benefit from this trend. The company has been setting new earnings records for the past four quarters and is likely to set another record in fiscal 3Q17[1. fiscal 3Q17 ended July 30, 2017] as well.

Applied Materials’ revenues rose 45% YoY (year-over-year) to $3.5 billion in fiscal 2Q17. Its foundry and display equipment sales rose by triple digits while its memory, logic, and services revenues rose by double digits.

Fiscal 2Q17 was the sixth quarter in which Applied Materials beat analysts’ revenue estimates. The quarter was included in 14 of the past 15 quarters in which it reported YoY revenue growth.

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Revenue drivers

Applied Materials’ revenues are primarily driven by strong growth in its Semiconductor segment, which accounts for more than 70% of the company’s revenues. This growth more than offsets weakness in the company’s Display segment, which accounts for only 12% of the company’s revenues.

In calendar 1Q17, Applied Materials’ 45% YoY revenue growth was faster than rival KLA-Tencor’s (KLAC) 28% YoY revenue growth but slower than Lam Research’s (LRCX) 64% YoY growth. Lam Research had a higher share in the memory market, which is currently in its up cycle. KLA-Tencor’s growth is slower, as it has a higher share in the logic sector.

From a geographical perspective, Applied Materials witnessed strong growth in its key Asia-Pacific markets of Korea (EWY), Taiwan, and Japan, as its key customers are located in these markets. In fiscal 2Q17, Applied Materials saw growth revive in the United States and Europe.

Revenue guidance for fiscal 3Q17

Growth momentum is still high in the SME market, and Applied Materials (AMAT) is set to make new revenue milestones in fiscal 2017 and 2018. For fiscal 3Q17, AMAT expects to report revenues of $3.7 billion at the midpoint of the guidance, representing YoY growth of 30% or sequential growth of 3.7%.

During the same quarter, KLAC and LRCX reported YoY revenue growth of 2% and 49%, respectively. Their growth rates have slowed slightly but are still strong. In our view, Applied Materials is likely to meet its revenue guidance in fiscal 3Q17.

AMAT’s outlook seems favorable if its earnings are viewed on a YoY basis. However, its earnings could generate concern when looking at sequential growth. Next, we’ll look at the company’s potential risks.


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