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What’s Going on in AMAT’s Display Division?

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AMAT’s Display division

Semiconductor Systems is Applied Materials’ (AMAT) core business. However, it’s also expanding its presence in the display market as capital investment is increasing in this space. Increasing capital investment is being driven by the transition of smartphones and other consumer electronics from LCD (liquid crystal display) to OLED (organic light-emitting diode) displays and the introduction of Gen 10.5 substrates for TV manufacturing and OLED displays.

AMAT’s Display division supplies products such as chemical and physical vapor deposition and array tests that help display manufacturers such as Samsung (SSNLF) Display and LG Display overcome major technical challenges in OLED manufacturing.

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Display division’s earnings

Fiscal 1Q18 was weak for AMAT’s Display division, with its revenue falling 33% sequentially to $455 million, representing 11% of the company’s revenue. This weakness was expected, but the company expects growth to pick up again in fiscal 2Q18. AMAT expects its Display revenue to rise 27% sequentially and 48% YoY (year-over-year) to $578 million.

Fiscal 2018 revenue guidance

OLED is flexible, which should allow smartphone manufacturers to use it to develop curved screens and foldable screens in the future. Moreover, AMAT expects OLED adoption to expand beyond smartphones to other visual computing devices such as self-driving cars and VR/AR (virtual/augmented reality). Given the strong growth opportunity in the OLED space, AMAT has been investing in new display technologies.

On the company’s fiscal 1Q18 earnings call, its CEO, Gary Dickerson, stated that the company expects its Display division’s revenue to grow more than 30% YoY to $2.5 billion in fiscal 2018 driven by the strong sales of 10.5G LCD equipment and new OLED form factors in the smartphone sector. If AMAT meets its fiscal 2Q18 guidance, its Display revenue could stand at $1 billion in fiscal 1H18. In order to hit its annual revenue target of $2.5 billion, the Display segment would have to deliver at least 15% sequential growth in fiscals 3Q18 and 4Q18.

Next, we’ll look at AMAT’s Services division.

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