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Applied Materials’ Earnings versus the Semiconductor Space

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Applied Materials’ forecast for industry spending

Applied Materials (AMAT) reported weaker guidance for the third fiscal quarter as Semiconductor Systems customers adjusted their capacity, planning for slowing smartphone sales. However, AMAT believes the current decline in smartphone sales wouldn’t impact overall wafer fab equipment spending, which is expected at around $100 billion in 2018 and 2019.

Any weakness in smartphone sales would be offset by strength in the data center, IoT (Internet-of-Things), and AI markets. Moreover, the new technology is more capital-intensive, and suppliers are making disciplined investments, so capital spending could remain healthy throughout 2018 and 2019.

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Memory capital spending

AMAT reduced its estimates for NAND (negative AND) investments in 2018. It now expects NAND investment to remain at the higher end of the 2017 investment. However, it expects DRAM (dynamic random access memory) investments to increase as customers increase capacity and upgrade their technology to manufacture high-performance server DRAM. The company also expects spending in China (FXI) to increase.

Applied Global Service 

AMAT expects its Service revenue to grow 23% to $963 million next quarter and 15% YoY in fiscal 2018. The growth would be driven by increasing tools in its long-term service agreements and high demand for new service products that reduce the time to ramp up production.

Display

AMAT expects its Display revenue to grow 75% YoY to $717 million next quarter as the slowdown in smartphone sales is offset by strong demand for OLED (organic light emitting diode) in TV. However, AMAT is optimistic about OLED technology and expects its adoption to increase because of the performance and power advantages of OLED screens.

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