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AMAT’s Global Services Revenue Rises Even in a Downturn

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Applied Global Services

Applied Materials (AMAT) has noted that the semiconductor industry is transitioning to a new era of AI in which semiconductors are being included in automotive and Internet-of-Things devices. The need for higher computing power is driving the adoption of advanced capital-intensive technologies such as extreme ultraviolet lithography, 3D structures, scaling techniques, advanced packaging, and new materials.

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AMAT’s AGS (Applied Global Services) segment helps semiconductor manufacturers ramp up production on new equipment, improve equipment yields and performances, and optimize their output and operating costs. It also provides upgrades, spares, remanufactured earlier-generation equipment, and factory automation software. Its service revenue rises along with its equipment revenue.

Applied Global Services’ earnings

AMAT has long-term service agreements with 20% of its installed base, which ensures recurring revenue irrespective of equipment sales. The AGS segment’s revenue rose 4.3% YoY (year-over-year) to $984 million in the second quarter of fiscal 2019, while the Semiconductor Systems segment’s revenue fell 27% YoY. The above graph shows that the AGS segment’s revenue growth slowed as declines in the Semiconductor Systems segment’s revenue were offset by recurring revenue from long-term service agreements.

As the Semiconductor Systems segment’s revenue continues to fall through fiscal 2019, AMAT expects its AGS segment’s revenue growth rate to slow. For the third quarter of fiscal 2019, it expects its AGS revenue to fall 3.8% YoY to $990 million.

AMAT expects to increase its AGS revenue by doubling its long-term service agreements from more than a 20% installed base at present to a ~40% installed base by the end of the year. The company is also developing advanced service products that use data science to help customers accelerate production ramp-ups on new technologies and achieve desired yields at lower costs.

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