Applied Materials Inc (AMAT) Q3 2025 Earnings Call Highlights: Record Performance Amidst China ...

Total Net Revenue: Approximately $7.3 billion, up 8% year-over-year. Non-GAAP Gross Margin: 48.9%, up 150 basis points year-over-year. Non-GAAP Operating Expenses: $1.3 billion. Non-GAAP Earnings Per Share: $2.48, up 17% year-over-year. Semiconductor Systems Revenue: $5.43 billion, up 10% year-over-year. Applied Global Services Revenue: $1.6 billion, up 1% year-over-year. Display Revenue: $263 million. Cash and Cash Equivalents: $5.4 billion. Debt: $6.3 billion. Cash from Operations: Approximately $2.6 billion. Free Cash Flow: Approximately $2 billion. Shareholder Distributions: $1.4 billion, including dividends and share repurchases. Q4 Revenue Outlook: $6.7 billion, plus or minus $500 million. Q4 Non-GAAP EPS Outlook: $2.11, plus or minus $0.20. Q4 Non-GAAP Gross Margin Outlook: Approximately 48.1%.

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Release Date: August 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Applied Materials Inc (NASDAQ:AMAT) delivered record performance in the third fiscal quarter of 2025, driven by strong demand for semiconductor systems and services. The company achieved record non-GAAP earnings per share and a robust gross margin of nearly 49%. Applied Materials Inc (NASDAQ:AMAT) is on track for a sixth consecutive year of revenue growth, with a mid-single-digit growth rate expected for fiscal 2025. The company is investing over $200 million in Arizona to establish a state-of-the-art facility for manufacturing specialized components, enhancing its US manufacturing infrastructure. Applied Materials Inc (NASDAQ:AMAT) has a strong position in advanced packaging, with plans to more than double this business to over $3 billion in the coming years.

Negative Points

Revenue and earnings are expected to be sequentially lower in the fourth quarter due to uncertainties in the China business. The company faces challenges with a large backlog of pending export license applications, impacting its outlook. Non-linear demand from leading-edge customers, linked to market concentration and fab timing, is affecting visibility and order patterns. The dynamic macroeconomic and policy environment, including trade and tariffs, is increasing uncertainty and lowering visibility in the near term. China's revenue as a percentage is expected to decrease in the fourth quarter, with a continued moderation in spending from Chinese customers.

Q & A Highlights

Q: Can you discuss the sources of weakness in the outlook, particularly in China, and whether this decrease in visibility will extend into 2026? A: Brice Hill, CFO, explained that the lower business in China is expected to continue for several more quarters due to the digestion of capacity from large shipments in 2023 and 2024. For leading-edge logic, the demand is strong, but the order pattern is uneven due to market concentration and fab timing. The company remains confident in the long-term ramp of gate-all-around nodes.

Story Continues

Q: Was China significantly stronger than expected in the current quarter, and how does this affect the non-China business? A: Brice Hill, CFO, stated that the quarter played out as expected, with China contributing 35% of revenue. The leading-edge logic saw less activity than anticipated, resulting in a slight adjustment in growth expectations from $5 billion to just over $4.5 billion for gate-all-around related purchases in 2025.

Q: What are the expectations for Q1 and fiscal 2026, considering the trends in China and leading-edge logic? A: Brice Hill, CFO, noted that while there is uncertainty in Q1 due to later customer commitments, strong trends in DRAM and leading-edge logic are expected to continue. The company anticipates that growth in these areas will offset any slowness in China for fiscal 2026.

Q: Can you provide more details on the advanced packaging business and its growth expectations? A: Gary Dickerson, CEO, highlighted that advanced packaging is a high market share area for Applied Materials, with plans to more than double the business to over $3 billion in the coming years. The company is well-positioned with a strong pipeline of new capabilities and co-innovation with leading customers.

Q: How is the company addressing the challenges with export licenses in China, and what impact does this have on revenue? A: Brice Hill, CFO, mentioned that there is a significant backlog of export licenses, but the company has not included any revenue from these in the outlook. The current guidance is not contingent on receiving these licenses, and any changes would take time to impact revenue.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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