Applied Materials, Inc.

Date: December 19, 2023.

Company’s Overview

Applied Materials (AMAT) is a leading provider of manufacturing equipment, services, and software for the semiconductor, display, and related industries. With its diversified technology capabilities, Applied delivers products and services that improve device performance, power, yield, and cost. The company operates in over 190 countries and has a strong global presence across its three core segments: Semiconductor Products, Applied Global Services, and Display and Adjacent Markets.

Applied Materials is a global leader in the semiconductor manufacturing equipment market, with a market share of approximately 26% as of 2023. The company’s primary competitors include Lam Research (LRCX) with approximately 23% of the total market share, Tokyo Electron (TEL) with 14% and KLA Corporation (KLAC) with 13%.

The Company’s revenue proportions by business segment for the most recent fiscal year are composed by:

Related Risks

The Company faces numerous risks that could impact its business, including economic conditions, competition, technology advancements, supply chain disruptions, regulatory changes, cybersecurity risks, complexity of semiconductor manufacturing, declining use of older technologies, increasing use of automation and outsourcing, reliance on key customers, slower growth of the display industry, and exposure to emerging markets.

While these risks pose challenges, Applied Materials’s strong track record of innovation and execution should help the company navigate these hurdles and maintain its position in the semiconductor manufacturing equipment industry.

Its management has taken proactive steps to address the risks it faces, including investing heavily in research and development to maintain its competitive edge, building a resilient and secure supply chain to minimise disruptions, expanding into new markets to tap into growing demand, strengthening cybersecurity measures to protect its intellectual property and data, exploring new business models to generate recurring revenue, and enhancing operational efficiency to streamline processes and reduce costs. These initiatives demonstrate the company’s commitment to navigating the challenges of the semiconductor industry and maintaining its leadership position.

Company’s Profitability

Revenues from 2021 to last quarter report:

• Applied Materials revenue for the quarter ending October 31, 2023 was $6.723B, a 0.39% decline year-over-year.
• Applied Materials revenue for the twelve months ending October 31, 2023 was $26.517B, a 2.84% increase year-over-year.
• Applied Materials annual revenue for 2023 was $26.517B, a 2.84% increase from 2022.
• Applied Materials annual revenue for 2022 was $25.785B, a 11.8% increase from 2021.
• Applied Materials annual revenue for 2021 was $23.063B, a 34.07% increase from 2020.

Meanwhile the revenues from 2010 till 2023 are:

** The 2024 and 2025 figures are the revenues that the analysts expect.

Net income from 2021 to last quarter report:

• Applied Materials net income for the quarter ending October 31, 2023 was $2.004B, a 25.96% increase year-over-year.
• Applied Materials net income for the twelve months ending October 31, 2023 was $6.856B, a 5.07% increase year-over-year.
• Applied Materials annual net income for 2023 was $6.856B, a 5.07% increase from 2022.
• Applied Materials annual net income for 2022 was $6.525B, a 10.82% increase from 2021.
• Applied Materials annual net income for 2021 was $5.888B, a 62.7% increase from 2020.

And from from 2010 till 2023 is:

** The 2024 and 2025 figures are the net income that the analysts expect.

EPS from 2021 to last quarter report:

• Applied Materials EPS for the quarter ending October 31, 2023 was $2.38, a 28.65% increase year-over-year.
• Applied Materials EPS for the twelve months ending October 31, 2023 was $8.11, a 9.01% increase year-over-year.
• Applied Materials 2023 annual EPS was $8.11, a 9.01% increase from 2022.
• Applied Materials 2022 annual EPS was $7.44, a 16.25% increase from 2021.
• Applied Materials 2021 annual EPS was $6.4, a 63.27% increase from 2020.

Management

On November 8, 2023, Applied Materials announced a $4 billion investment in research and development over the next three years. This investment will focus on developing new technologies for the semiconductor industry, including advanced packaging, extreme ultraviolet (EUV) lithography, and artificial intelligence (AI)-powered manufacturing solutions.

On December 1, 2023, it was announced a new strategic partnership with Intel to develop and deliver advanced manufacturing solutions for Intel’s next-generation chip technologies. This partnership will leverage Applied Materials’s expertise in semiconductor manufacturing equipment and Intel’s leadership in chip design to accelerate the development and production of leading-edge semiconductors.

On December 8, 2023, the company announced a new cloud-based platform called Applied Foundries Cloud (AFC). AFC will provide foundry customers with a secure and scalable platform for managing their manufacturing operations. The platform will also offer real-time visibility into manufacturing processes, enabling customers to optimise their yield and productivity.

Guidance

Applied Materials’s management has provided guidance for the fourth quarter and full year of fiscal year 2024.

The company expects revenue to be between $6.3 billion and $6.7 billion for the fourth quarter, and between $24.5 billion and $25.5 billion for the full year.

Gross margins are expected to be between 44% and 46% for the fourth quarter, and between 43% and 45% for the full year.

Shares Outstanding

Applied Materials has a share repurchase program. As of October 31, 2023, the company had $10.7 billion remaining under its current repurchase authorization. The company has repurchased over $30 billion of its common stock since 2016.

Asset-to-Liability Ratio

Applied Materials’s asset-to-liability ratio as of October 31, 2023, was 2.57. This means that the company has $2.57 in assets for every $1 in liabilities.

Applied Materials’s asset-to-liability ratio is slightly higher than the average for the semiconductor manufacturing equipment industry, which is 2.33. This suggests that Applied Materials is in a stronger financial position than its peers.

Current Ratio

Regarding its current ratio, as of October 31, 2023, was 3.91. This means that the company has $3.91 in current assets for every $1 in current liabilities.

Applied Materials’s current ratio is above the industry average of 3.54, which suggests that the company has a strong liquidity position.

DCF Analysis

According to DCF analysis, AMAT’s stock price is undervalued. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

It is notable that the Company is constantly generating high revenues in conjunction with an increasing gross profit margin of more than 47%. AMAT has an insane 33% ROIC, which means that for every $1 that Applied Materials invests in its business, the company is generating $0.33 of profit.

The company’s revenue growth is expected to continue, with analysts projecting an average annual growth rate of 7.0% from 2023 to 2027.

The consensus rating for AMAT stock is “Moderate Buy” based on the current 1 sell rating, 6 hold ratings, and 19 buy ratings.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.