AMAT’s Q1 Revenue Outlook Surprises Investors

Applied Materials (AMAT) posted a fiscal 2019 fourth-quarter revenue beat and a strong fiscal 2020 first-quarter outlook yesterday. The company generated $3.75 billion in revenue in the fourth quarter, which translates to flat YoY (year-over-year) revenue growth. Its revenue came in nearly 2% higher than Wall Street’s estimate of $3.68 billion. Moreover, its revenue beat its expectation of $3.53 billion–$3.68 billion.

AMAT’s flat revenue: Better or worse?

Applied Materials’ revenue have been falling for the past three quarters. However, the rate of slowdown has been decreasing, particularly in the past two quarters. This is a positive sign with respect to its top line. In line with this trend, the company posted flat revenue growth in the fourth quarter of fiscal 2019. CEO and President Gary E. Dickerson said on the company’s fiscal 2019 fourth-quarter earnings call, “I’m pleased to report our results for the quarter were at the top end of guidance, driven by a healthy uptick in demand for semiconductor equipment combined with strong execution across the company.”

AMAT’s revenue by segment

Applied Materials operates across three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. In the fourth quarter of fiscal 2019, its revenue from the Semiconductor Systems segment rose nearly 2.5% YoY. This segment is its major revenue contributor, accounting for more than 60% of its total revenue. On the other hand, its other segments (which account for the remainder of its revenue) didn’t see growth. Revenue from its second major revenue contributor, the Applied Global Services segment, was flat, while revenue from the Display and Adjacent Markets segment slumped 12% YoY.

A 48% YoY increase in foundry, logic, and other sales led to a revenue increase in the Semiconductor Systems segment. Moreover, this subsegment contributed 58% of the Semiconductor Systems segment’s revenue. In contrast, DRAM (dynamic random-access memory) and flash sales dropped in double digits, pulling total revenue growth down in the segment.

Despite the Applied Global Services segment’s flat revenue, it came in better than expected for the quarter. As per Applied Materials, the subscription part of this segment is experiencing positivity in the market.

Revenue by geography

Based on geography, Applied Materials generated most of its revenue from China, followed by Taiwan. In the fourth quarter, its revenue from China rose 5.5% YoY, while its revenue from Taiwan bounced 55% YoY. On the other hand, its revenues from Japan, Korea, Southeast Asia, and Europe fell YoY in the same period.

Semiconductors behind AMAT’s revenue guidance beat

For the first quarter of fiscal 2020, Applied Materials expects its revenue to rise 5%–13% YoY. It expects a 22% YoY increase in revenue from the Semiconductor Systems segment, and it remains positive that its foundry, logic, and other sales will continue to contribute to the segment’s revenue. Moreover, the company’s outlook is nearly 10% higher than Wall Street’s estimate for the first quarter of fiscal 2020. Applied Materials’ optimistic attitude has helped its sector to see an upside.