Applied Materials (AMAT.US) Q4 conference call: CEO responds to concerns about mismatch of production capacity, says no customer delays pickup system production capacity plans to double in 2028

Zhitong Finance App learned that Applied Materials (AMAT.US) released results for the fourth quarter of the 2026 fiscal year (ending October 25, 2026) after the US stock market on November 12: revenue of US$10.41 billion, up 53% year on year, reaching a record high, higher than FactSet analysts' unanimous expectations of US$10.3 billion; non-GAAP earnings per share of US$4.16, an increase of 92% year on year, also a record higher than expected US$4.06; GAAP net profit of US$2,718 million, GAAP EPS of $3.40 (YoY + 43%). After the financial report was released, the stock price rose by more than 2%, then the increase narrowed to about 1%. In response to analysts' concerns about “mismatch between gigawatt data center production capacity and chip production capacity, and customer delays in picking up goods,” CEO Gary Dickerson clearly responded during a conference call: “The answer is no. No customer said they didn't want to get the equipment as soon as possible... We keep getting requests from customers asking us to climb the hill faster and deliver it early.” Management also proposed aggressive expansion plans: by 2028, system output will double from the fourth quarter of FY2026, and the wafer factory equipment (WFE) market is expected to grow by more than 30% in 2027, and the company is expected to outperform the market once again.

Focus and Response

The central focus of this conference was not the financial figures themselves — revenue, EPS, and guidance all exceeded expectations — but demand-side sustainability: as the market began to worry about the mismatch between AI data center construction (gigawatt-scale electricity production capacity) and chip production capacity, which in turn led to delays in equipment orders, whether applied materials could maintain rapid growth. Dickerson responded that no customer delayed pickup, and all customers are requesting early delivery; CFO Brice Hill added that the company is in short supply, especially in the DRAM and advanced logic fields, and that the PC and smartphone markets have not fully recovered, posing a demand buffer. Hill also acknowledged that there are “pinch points” (pinch points) in the supply chain. “If all supplies were in place perfectly, the Q1 number could have been higher, but the impact was not significant.” The stock price reacted moderately to earnings reports, or was related to the high level after the previous continuous sharp rise.

Record quarter and fiscal year

Q4's revenue of US$10.41 billion increased 14% month-on-month and 53% year-on-year, the largest quarterly dollar increase in the company's history. The non-GAAP gross margin was 50.6% (+250bp year over year), and the non-GAAP operating margin of 35.3% (+670 bps year over year) set a record, making it the 14th consecutive quarter of year-on-year gross margin expansion. Operating cash flow of US$3.3 billion and free cash flow of US$2.6 billion both set single-quarter records. The company repurchased $2 billion in a single quarter, the largest quarterly repurchase in over eight years.

FY2026 full year

Full-year revenue of US$34.45 billion (+21%), rising for the seventh year in a row; non-GAAP EPS of $12.89 (+37%), management said the profit growth rate was about double the revenue growth rate, reflecting operating leverage. Annual operating cash flow of US$8.87 billion (+11%), free cash flow of US$6.2 billion (+9%) after deducting capital expenses of US$2.7 billion; annual returns of US$4.75 billion to shareholders (repurchases of 3.18 billion plus dividends of 1.57 billion dollars).

Segment performance

The semiconductor systems business recorded a record revenue of US$8 billion (+64% YoY), with sales in the Korean and Taiwan markets reaching record highs, DRAM and advanced packaging revenues; PVD, CVD, ALD, epitaxial, etching, CMP, and process control revenues all set records. Segment non-GAAP gross margin of 55.2% (+240bp), operating margin 39.0% (+940bp). Applied Global Services (AGS) recorded a record revenue of $1.9 billion (+26%); revenue of $517 million from other businesses (including display) was in line with expectations.

Industry judgment: AI drives multi-year expansion

Dickerson said AI is adding a “rapidly growing and incremental” layer of demand for semiconductors. Advanced logic and DRAM fabs are operating at full capacity, and NAND utilization is rapidly picking up. Management quoted: Cloud capital expenditure is expected to increase by more than 50% in 2027, totaling more than 1 trillion US dollars; about 60% of the capital cost of AI data centers is silicon, of which more than 85% is advanced foundry logic, DRAM, and advanced packaging — these three are the fastest growing parts of WFE in 2027, which will drive about 75% of WFE growth by 2030, which is an area where applied materials have been invested for many years to establish a leading position.

Capacity expansion and supply chain

The company raised its demand forecast for suppliers every quarter of 2026, and is checking production capacity progress with more than 2,000 suppliers on a quarterly basis. The CFO said the demand plan has been extended to 2030, with the goal of doubling system output in 2028 compared to Q4'26 and more than doubling manufacturing and laboratory production capacity by 2030. The medium-term constraint is clean room production capacity: in 2027, more than 20 fab climbing projects were tracked, and more than 10 major new construction and expansion projects were added for the third quarter in a row. Many of these will not be put into operation until 2029-2030, indicating that demand in the 5- and 10-year dimensions is higher than previously planned.

Advanced packaging and process control

The company's advanced packaging revenue is expected to grow by about 90% in 2026, and the inspection and measurement (process control) business is expected to grow by more than 50%; the company serves about 55% of the WFE market and remains number one in CVD, PVD, epitaxial, CMP, ion implantation, heat treatment, electron beam and conductor etching. In terms of hybrid bonding (hybrid bonding), management said that it covers about 80% of the steps in this process and has been mass-produced and applied in advanced logic 3D packaging, and all storage customers are using it for HBM evaluations. Intel, Kioxia, BESI, and UCLA were added to the EPIC R&D platform, bringing the total number of partners to 15.

Business and capital allocation in China

The CFO expects the share of shipments to China to be “less than 25%” in 2027 (25% in Q4, 27% in FY2026), and China will grow less than the AI-driven market, but the company is gaining share in China's 28nm investment. In terms of capital allocation, the company's repurchase authorization balance is US$10.8 billion, and will continue to return 80% to 100% of free cash flow to shareholders.

Next quarter guidance

FY2027 Q1 (14-week quarter) guidance: Revenue of US$11.1 billion ± 500 million, median value +58% year over year, higher than agreed expectations (approximately US$10.85 billion, Yahoo! Finance/Financial Services Association summary scale); non-GAAP EPS of $4.35 ± 0.20 (+83%), higher than the forecast of $4.23-4.24. Among them, semiconductor systems were about US$8.7 billion (+69%), AGS broke US$2 billion (+28%) for the first time, and others about US$400 million; gross margin was about 50.8%. The company suggests that the 14-week quarter will benefit AGS. It is expected that Q2 AGS revenue will be close to the Q1 level, and Q2 OpEx will account for about 15% of revenue.

Full Meeting Minutes

Attendees: Michael Sullivan (Corporate Vice President, Investor Relations), Gary Dickerson (President and CEO), Brice Hill (Senior Vice President, CFO)

Management statement

**Michael Sullivan (Investor Relations) ** introduced the compliance reminder. The company speakers were CEO Gary Dickerson and CFO Brice Hill. He specifically stated that the “2026 calendar year” mentioned today refers to the second quarter of fiscal year 2026 to the first quarter of fiscal year 2027.

Gary Dickerson (President and CEO):

This quarter's results are at the upper end of the guidance range, and both revenue and profitability have reached record highs. Applied Materials delivered a record 2026 fiscal year, achieving the seventh consecutive year of growth. I want to thank our global employees and supply chain partners for maintaining customer trust during an unprecedented climb in the industry. As a year-end conference call, I will first briefly review the 2026 performance, then discuss the market environment, and finally talk about how to build the most enabling combination of applied materials to advance the AI computing roadmap.

In fiscal year 2026, our revenue increased by more than 21%, and profit growth nearly tripled, reflecting the operating leverage in our business model. Based on the median value of the Q1 guideline, we expect semiconductor systems revenue to grow by more than 40% for the 2026 calendar year. With the strong long-term growth of AI computing-driven semiconductors and fab equipment (WFE), applied materials are growing faster than the WFE market because we have established a leading position in the most enabling and most valuable technology for AI computing. The excess performance is due to the growth of the serviceable market and a significant increase in share in advanced foundry logic and DRAM. The revenue of the advanced packaging business is expected to increase by about 90% for the 2026 calendar year, and the inspection and measurement business is expected to grow by more than 50%.

Demand for advanced semiconductors far exceeds supply, and the industry needs years of investment in building new fabs to bridge the gap between supply and demand. Our judgment is that 2027 will be another record year for the market and applied materials. Currently, demand for WFE is expected to increase by more than 30% year on year, and the company has a strong foundation to outperform the market once again. The growth rate of the industry depends on how fast the entire end-to-end semiconductor ecosystem expands from clean room construction to equipment components and raw materials supply.

Applied Materials is taking a number of actions to ensure that production capacity and resources are in place: closer demand planning with customers; the largest customer gave us an 8-quarter rolling forecast and earlier orders; while deepening collaboration with suppliers — I recently met with more than 250 key supplier executives to align expectations of rising production capacity with service preparations under various growth scenarios.

In AI data centers, about 60% of capital costs are silicon, and more than 85% of the silicon content is advanced foundry logic, DRAM, and advanced packaging. These three have the greatest impact on the AI computing roadmap. They are expected to be the fastest growing part of WFE in 2027, and will collectively drive about 75% of WFE growth by 2030. This is the area where Applied Materials has strategically invested in the past few years to build the industry's most enabling mix. As it gains share at major technological inflection points, we are expected to continue to outperform the market in 2027 and beyond.

In mid-October, we unveiled the EPIC Center in Silicon Valley and hosted an investor breakfast in San Francisco. At the conference, we shared three topics: the unprecedented opportunities brought by the AI era, the unique advantages of applied materials capabilities and combinations, and how to create more value for customers and obtain more value from applied materials.

As global AI deployment accelerates and applications rapidly unfold, the battle for AI computing leadership comes down to two interrelated contests, and applied materials are at the core of both. The first was a technology leadership competition, achieved by speeding up the chip and packaging roadmap and increasing the “number of tokens per watt per second” of the data center; the second was a production capacity competition, that is, rapidly climbing new fabs while optimizing the output and yield of existing plants.

Applied Materials has created three leading combinations of material innovation, integrated innovation, and yield innovation. The cornerstone of material innovation is a comprehensive and interconnected technology portfolio: we serve approximately 55% of the WFE market and remain number one in CVD, PVD, epitaxial, CMP, ion implantation, heat treatment, electron beam, and advanced logic and DRAM conductor etching. At advanced nodes, smaller characteristic sizes, three-dimensional structures, and the introduction of new materials have brought enormous process complexity. The interaction between process steps is critical, especially in interface engineering when the material layer thickness is only 1-2 nm. This is why co-developing deposition, etching, processing, inspection and measurement technologies from the beginning of development and solving integration challenges is a unique and powerful advantage of applied materials.

We've also built world-class integration, modeling and simulation teams and a complete laboratory infrastructure to accelerate innovation in transistors, cabling, storage, and advanced packaging. As yield and output become more critical to customers, we are bringing new yield innovations to market: we have the highest resolution and fastest electron beam imaging, plus the industry-leading AI-enabled service AIX. Electron Beams and AIX make the R&D learning cycle faster, transfer and certification of new technologies to trial production lines faster, and produce more good products in mass production. We have the largest networked installation in the industry — more than 37,000 reaction chambers (chambers) are connected to AIX, and the annual growth rate is over 20%.

Material innovation, integration innovation, and yield innovation are all accelerated by the EPIC platform. EPIC allows customers and partners to develop technology side by side with applied materials, obtain next-generation technology earlier, accelerate the learning cycle, and achieve mass production with high yield and high yield faster. For applied materials, EPIC means we were designed earlier on new chips and package architectures, better understand customer multi-generation roadmaps, and improve R&D productivity. Since our last call, we've added 4 new EPIC partners: Intel, Kioxia, BESI, and UCLA, bringing the total number of announced EPIC collaborations to 15.

In the investor campaign, we also set out value creation goals for 2025-2030: increase WFE share by more than 2 percentage points, increase service revenue of a single installed tool by more than 20%, and increase gross margin and operating profit margin by 5 and 10 percentage points, respectively. I am confident that substantial progress towards these goals will be achieved in 2027.

Summary: The 2026 fiscal year set a record, and the semiconductor systems business is expected to grow by more than 40% in the 2026 calendar year. We have established a leading position in advanced foundry logic, DRAM, and advanced packaging — the most critical enabler area for AI computing and the fastest growing part of WFE in 2027. 2027 will be another record year for the industry and another year of excessive performance for applied materials. AI is driving the multi-year expansion of semiconductor demand, and applied materials have never been in a better position to lead and outperform the market.

Brice Hill (Senior Vice President, CFO):

This quarter, we achieved the third consecutive quarter of double-digit month-on-month and year-over-year growth in revenue, operating profit, and non-GAAP EPS. Q4 is also the 14th consecutive quarter of year-over-year gross margin expansion, reflecting the customer value of our product and service portfolio. We expect to outperform the market this calendar year, with strong growth in DRAM, advanced foundry logic, and advanced packaging, which is an area where we continue to invest.

All of the leading metrics we track continue to rise: cloud capital expenditure is expected to grow by more than 50% in 2027, totaling well over $1 trillion; AI token usage is growing exponentially; the increase in the variety of AI models is spawning more applications and bringing positive economic returns to service providers and early adopters (including application materials themselves). AI is already the daily work of applied materials: more than 80% of employees use tools such as Microsoft Copilot and Anthropic's Claude, as well as special tools in the field of material discovery and engineering; all software developers use AI, increasing average productivity by more than 40%. Our monthly token consumption has increased more than 50 times this year, and is expected to increase significantly in 2027.

AI continues to drive strong incremental growth in wafer demand. Advanced logic and DRAM fabs are operating at full capacity, NAND is not far away, and ICAP (investment in mature technology) is currently in a healthy range.

In the short term, the focus is on expanding supply chain capacity and producing more systems. We have raised our demand forecasts for suppliers every quarter this year, and suppliers are working with us to address the continuously rising demand outlook for 2027. We've mapped our supply chain, and our team and partners are managing card points to deliver another year of strong growth. In the medium term, cleanroom production capacity is still a key constraint on how much equipment the industry can absorb. Fortunately, in 2027 alone, we are tracking more than 20 fab climbing and production line expansion projects, and have formed a new team to use AIX technology to help customers accelerate the climb and maximize wafer output and yield.

In the long run, customer demand signals were very positive: for the third consecutive quarter, more than 10 major fabs and expansion projects were added to our tracking list. Many of these new projects are not expected to be put into production until 2029 and 2030, indicating that demand for logic and storage in the 5- and 10-year dimensions is far higher than previously planned. We are already working with our customers to anticipate demand until 2030. To support customer growth, we are investing to double system output from Q4'26 levels by 2028 and more than double manufacturing and laboratory capacity by 2030.

FY2026 review: Revenue increased by more than 21% to $34.4 billion; non-GAAP gross margin increased 130 bps to 50.1%; non-GAAP EPS increased 37% to $12.89. Both semiconductor systems and AGS achieved double-digit revenue growth, and the gross margin of both divisions increased by about 150 bps. Operating cash flow of US$8.9 billion (+11%), free cash flow of US$6.2 billion (+9%) after deducting capital expenses of US$2.7 billion. Over $4.7 billion was distributed to shareholders throughout the year, including nearly $3.2 billion in repurchases and $1.6 billion in dividends.

Q4 results: The largest quarterly dollar increase in the company's history, with a record revenue of US$10.4 billion, +14% month-on-month and +53% year-on-year. Non-GAAP gross margin rose to 50.6%, +20 bps month-on-month and +250 bps year-over-year, benefiting from a favorable product portfolio and higher pricing. The non-GAAP operating margin expanded to a record 35.3%, +130 bps month-on-month and +670 bps year-over-year. The share of non-GAAP Opex in revenue fell by 430 bps to 15.2% year over year, reflecting strong operating leverage. Non-GAAP EPS was a record $4.16, +19% month-on-month and +92% year-over-year. We plan to continue to promote gross margin expansion by launching more enabling products and sharing the value they create for customers; at the same time, we will rely on AI and automation strategies to expand the scale of support functions under the premise of minimising personnel growth, and further enhance operating leverage and profit margins.

Segment performance: Semiconductor systems revenue reached a record $8 billion, +14% month-on-month and +64% year-on-year, with Korea and Taiwan markets breaking records. DRAM grew strongly as expected, and revenue from both DRAM and advanced packaging reached record levels. At the product level, deposition revenue for PVD, CVD, ALD, and epitaxial, as well as revenue from etching, CMP, and process control, all set records. Segment non-GAAP gross margin increased by 240 bp to 55.2% year over year, and non-GAAP operating margin increased by more than 940 bp to 39% year over year. AGS recorded revenue of US$1.9 billion, +26% year over year, and both service and spare parts revenue set records; segment gross margin increased 100 bp to 35.1% year over year, and non-GAAP operating margin increased nearly 170 bp to 30.5%. Other business revenue of $517 million was in line with expectations.

Cash flow and shareholder returns: Q4 operating cash flow reached a record $3.3 billion, capital expenditure fell to $684 million month-on-month, and free cash flow reached a record $2.6 billion. More than $2.4 billion was distributed to shareholders this quarter, including $2 billion in repurchases and $421 million in dividends. With a repurchase authorization balance of $10.8 billion, we continue to expect to distribute 80%-100% of free cash flow to shareholders over the long term.

Q1 outlook: It is important to note that Q1 is a 14-week quarter, which will benefit AGS revenue growth in that quarter. We expect the company's revenue to be $11.1 billion ± 500 million, with a median value of +58% YoY; non-GAAP EPS of $4.35 ± 0.20, or +83% YoY. Among them: semiconductor systems revenue of approximately US$8.7 billion (YoY +69%); AGS's first US$2 billion quarter (YoY +28%); and other businesses approximately US$400 million. Non-GAAP gross margin is expected to rise to about 50.8% (+170bp year over year), non-GAAP OpEx is about US$1.7 billion, and the non-GAAP tax rate is about 13%. To facilitate modeling after the 14-week quarter, we expect Q2 AGS revenue to be close to the Q1 level, and Q2 OpEx to be about 15% of revenue.

Summary: AI continues to add rapidly growing incremental demand to the industry. Our investment in this wave has led to a rich and growing portfolio of highly enabling products and services. Our technical leadership in the most critical markets has been reflected in strong revenue growth and gross margin expansion. The focus on operating leverage led to record operating margins, strong cash flow, and shareholder returns, including the largest quarterly buyback in over eight years. Customer demand remains visible for a long time, and we expect 2027 to be another record year, and we are already investing more to a higher level beyond next year. We have high confidence in our strategy and will show continued progress in terms of share acquisition, gross margin expansion, and operating leverage.

Q & A session

CJ Muse (Cantor Fitzgerald): How has the demand environment changed in the past 3 months? What's the visibility until 2028/2029? What do you think of splitting by foundry/logic, DRAM, and NAND? What is the implied increase in shipments between the doubling of output and the doubling of production capacity in 2030?

Brice Hill (CFO): Customer demand has continued to increase over the past 90 days. For the third consecutive quarter, more than 10 new projects were added to the factory tracking list (new FABs and existing FABs converted and upgraded). The advanced logic and DRAM market is limited, and customers are doing their best to increase production capacity and advance project time. Output will double in 2028 — “We've just completed a quarter of $8 billion, you can calculate that”; the 2030 doubling of production capacity is to cover various growth scenarios, and we share all information with suppliers.

Gary Dickerson (CEO): Adding to that, in addition to advanced logic and DRAM, there is huge demand for advanced packaging — the business grew by about 90% this year, and growth is also very strong in 2027 and beyond.

CJ Muse (Q): How do you work with suppliers and their upstream partners? Do you provide support such as prepayment?

Brice Hill: We have over 2000 suppliers. First, ensure that the rolling forecast for the eight quarters is conveyed in detail to the supplier so that they can plan the output; second, check the actual progress on a quarterly basis. Suppliers are motivated to invest on their own — “We don't think there are any roadblocks to higher demand scenarios”. There will be quite a few card points, and almost all suppliers will need to increase production capacity and manpower.

Tim Arcuri (UBS): What are the terminal market structure assumptions for Q1? Consider the strong growth of Q4 DRAM.

Brice Hill: The Q1 trend is similar to Q4. DRAM and advanced logic are strong, and both markets are limited. The structure is expected to be roughly the same throughout 2027. Advanced DRAM and advanced packaging are the strongest growth points; the new change in 2027 is that ICAP (mature logic technology) will resume growth.

Gary Dickerson: In addition, ICAP will grow much faster outside of China in 2027.

Tim Arcuri (Q): Is there a situation where customers delay pickup — that is, there is a risk of mismatch between gigawatt-scale electricity production capacity and chip production capacity?

Gary Dickerson: “No, very clear, the answer is no. No customer said they didn't want to get the device soon. I've been traveling a lot lately... We keep getting requests from customers asking us to climb the hill faster and deliver sooner.”

Vivek Arya (Bank of America Securities): If data center construction slows down in 2027 or 2028, what impact will it have on WFE forecasts? Are customers planning for the long term and won't cancel due to a short-term slowdown?

Gary Dickerson: I meet with the CEOs of major customers every month, and all I hear is that they ask us to expand production faster. Demand for computing will continue to rise, and I don't see any signs of worrying about expanding production too fast — “the opposite is true; people want us to pull goods early and climb the slope faster”.

Brice Hill: Demand exceeds supply, especially in DRAM and advanced logic. Furthermore, the PC, smartphone, and smart TV markets are still limited — even if data center demand slows down, there is still a significant buffer.

Vivek Arya (Q): At the beginning of last year, the company expected semiconductor systems to grow by more than 20%, and actually close to 40%; why are they getting better? Is WFE's growth of over 30% in 2027 the bottom line? Can 2027 repeat 2026?

Brice Hill: Growth is constrained by cleanroom supply. Last year, customers increased output by adding new clean rooms, advance projects, and upgrading production lines.” At the end of the day, the macro equation is determined by the cleanroom available for use.”

Stacy Rasgon (Bernstein Research): Applied Materials will grow by more than 40% in 2026, how much will WFE actually grow in 2026? When WFE increases by more than 30% in 2027, will the excess performance be similar to 2026?

Brice Hill: We outperformed WFE in 2026, and will do the same in 2027, based on our leading position and favorable product portfolio in advanced logic, DRAM, and advanced packaging. Our business grew by more than 40%, and WFE was slightly below that figure.

Stacy Rasgon (Q): Competitors mentioned that recent supply constraints have affected their outlook. Are applied materials also affected?

Brice Hill: We also have some card points.” If everything had been perfectly supplied, our Q1 numbers could have been slightly higher. It's not a significant impact.” We are working closely with all our suppliers to achieve three consecutive quarters of double-digit output growth, and we expect to continue to increase output every quarter this year.

Gary Dickerson: All customers are demanding fast shipping, and the calculation demand is very strong. The team has performed well in expanding production, and there is more work to be done in 2027, but we are in a very strong position to overperform.

Atif Malik (Citi): DRAM roadmap: Some storage vendors will switch to 3D DRAM instead of 4F². What are the product positions and opportunities for applying materials to both?

Gary Dickerson: Please refer to the Investor Breakfast Slides: We are taking our share in the new version of 6F²; as we evolve to 4F² and 3D DRAM, both the Serviceable Market (SAM) and our share will increase by multiple percentage points.” DRAM is a very strong segment for us, and we are much larger than our closest process equipment competitors.” The monthly SAM delivered per million wafers increased significantly from 6F² to 4F² to 3D DRAM. We have deep co-innovation relationships with all companies.

Atif Malik (Q): AGS growth - installed capacity increased 20% per year, single service revenue increased 20% - what do you think of next year?

Brice Hill: The long-term guideline is about 10% of the median (about 15%): installed capacity increased by 5%-10% per year, and revenue per unit increased by 5%-10% per year. Driven by a unique factor that this year's ecological utilization rate is close to 100%, there will be no such additional benefits in future years.

Krish Sankar (TD Cowen): Inventory has only increased for a limited time, and the number of inventory days has dropped by 10 days, so why not increase inventory more aggressively? And what do you think of the semiconductor systems business in the April quarter?

Brice Hill: Inventory increased by approximately $300 million to $6.9 billion this quarter.” I would love to have more inventory.” We have achieved three consecutive quarters of double-digit output growth and will continue to work hard. There are no specific guidelines for the April quarter; output is expected to increase every quarter this year.

Krish Sankar (Q): Much of this year's DRAM WFE growth is due to technology conversion (conversion). Will the transition slow down in 2027, greenfield (greenfield) investment accelerate, or will the transition continue?

Gary Dickerson: Both will happen: customers are doing their best to upgrade while significantly increasing their greenspace investments. I've never seen an industry place so much emphasis on yield and output innovation. More than 37,000 reaction chambers are connected to AIX services enabled by AI, driving strong demand for AGS businesses.

Harlan Sur (J.P. Morgan Chase): Process control is expected to grow by more than 50% this year, faster than the overall system business; advanced packaging inspection platforms will be launched next year, and customer attention to yield and cost will increase. Will process control continue to outperform overall semiconductor systems next year?

Gary Dickerson: Both the electron beam and optical businesses have grown by more than 50% this year; electron beam is double that of recent competitors.” Electron beams—you can't fix problems you can't see.” The collaboration between electron beam imaging and process equipment innovation is stronger than ever before. The optical business has a number of major innovations in advanced packaging.” Process Control (PTC) will once again see very strong growth in 2027”, and Applied Materials as a whole will also see strong growth.

Harlan Sur (Q): AGS's operating profit margin exceeded 30% for two consecutive quarters, and the incremental profit margin was above 35%-40%. What is AGS's assumption in the company's overall operating profit margin target of 40% in 2030?

Brice Hill: AGS' gross margin and operating margin will continue to rise. The new products provide customers with great value in yield and output management, and AGS is a contributor to the company's overall goals.

Jim Schneider (Goldman Sachs): What is the pace of gross margin expansion in the next 4-6 quarters? In addition to the product portfolio, is there room for operational improvements or pricing increases?

Brice Hill: The increase in output overcame the cost of expanding production, and the new tool was more expensive.” Faster semiconductor market growth is good for gross profit margins, and pricing is also good for gross profit margins.” The Q4 and Q1 outlook includes the cost of adding new and training employees to expand production. For the rhythm, please refer to Q4 and Q1.

Gary Dickerson: The market positioning is very favorable; we are leading the way in advanced foundry logic, DRAM, and advanced packaging, and high-value products bring smooth benefits to semiconductor system gross margins. Profit margins are expected to improve significantly in 2027, and value can be shared with customers when new technologies are mass-produced.

Jim Schneider (Q): What are the expectations for the Chinese business in FY2027? The impact on gross margin?

Brice Hill: China will grow, but not as much as an AI-driven market.” Looking ahead to 2027, the share associated with China or shipments to China is likely to be less than 25% of the business.”

Chris Caso (Wolfe Research): On cleanroom space constraints: visibility into 2028? Will cleanroom supply limit WFE growth in 2028 and beyond?

Brice Hill: Think of it as an envelope that expands year by year. Of the more than 10 new projects added this quarter, a large number of factories will not open until 2029 and 2030. The WFE growth rate over the past 10 years is expected to be even greater in the future, and AI demand is incremental.

Chris Caso (Q): The progress and timeline of hybrid bonding, particularly its adoption driven by AI reasoning?

Brice Hill: Currently used in some 3D packaging solutions with advanced logic; all storage customers are evaluating HBM.” We think this is a very important technology, critical to the 3D and advanced packaging markets.”

Gary Dickerson: Hybrid bonding is important for I/O density and reduced cabling length, and is a top topic of customer communication. Logic is already being used in mass production.” We service approximately 80% of the hybrid bonding steps”, which has a very high share in the HBM stack. Cooperation with BESI, combined with strong positioning in neighboring steps, will drive significant growth in the packaging business.

Joe Quatrochi (Wells Fargo Bank): If non-Chinese ICAP strengthens next year and China also grows, why should we not think that the margin of outperforming WFE in 2027 will accelerate?

Brice Hill: Global customers seem to be completing their digestion cycle, and overseas customers are investing more in production capacity. In China, for customers in the serviceable market, “we think we are gaining a share in 2026”, mainly thanks to investments in the 28 nm category.

Joe Quatrochi (Q): The growth rate of advanced packaging has increased again. What is the structure of HBM/storage and foundry logic? What do you think of 2027?

Brice Hill: Most of the packages in 2026 were HBM-related, and 2026 saw huge growth.

Gary Dickerson: HBM will still be strong in 2027; customers are focusing on new packaging architectures and making the board size as large as possible. The leading portfolio built by Applied Materials over many years, plus the acquisition of NEX, provides a smooth wind for 2027 and beyond.

Melissa Weathers (Deutsche Bank): The pace of 2027: How will the first half of the year be distributed? Is it necessary to model major cleanroom dynamics?

Brice Hill: “Production is expected to increase every quarter this year.” There are currently no major developments unknown in terms of clean rooms.

Melissa Weathers (Q): The trajectory of “other” businesses (displays, etc.) and pressure on gross margin?

Brice Hill: Shows strong business performance in Q4'26, exceeding $500 million. Please model it at around US$400 million per quarter, with a gross margin of about 40%, operating profit margin of about 20%; other businesses are about break-even. Shows that the profits of the business are used to invest in other neighboring businesses.

Concluding remarks

Brice Hill: “I am pleased that our investments are driving strong financial results, including record quarterly revenue growth and continued gross margin expansion. I look forward to seeing you all in Santa Clara this quarter, and I look forward to meeting you at conferences such as RBC (New York), UBS (Scottsdale), Wells Fargo (Dana Point), and Barclays (San Francisco).”