Applied Materials signals Q4 revenue decline to $6.7B amid China uncertainty and leading-edge logic delays

Earnings Call Insights: Applied Materials (AMAT) Q3 2025

MANAGEMENT VIEW

* Gary Dickerson, President and CEO, reported "record performance, fueled by strong broad-based demand for semiconductor systems and services." He announced, however, that "we expect revenue and earnings to be sequentially lower in our fourth quarter, primarily due to uncertainties in our China business." Dickerson emphasized that despite near-term headwinds, Applied remains on track for "mid-single-digit growth rate in fiscal 2025, which will be our sixth consecutive year of revenue growth."
* Dickerson highlighted the company's participation in Apple’s American Manufacturing Program, stating Applied plans "to invest more than $200 million in Arizona to establish a state-of-the-art facility for manufacturing specialized components for our equipment." He further described tracking "more than 100 new fabs or major fab expansion projects, an increase of about 10% in the past year."
* On technology, Dickerson noted that "the transition from FinFET to gate-all-around transistors with backside power delivery grows our revenue opportunity by 30% for the equivalent fab capacity," with expectations to gain "multiple points of market share when these nodes ramp in the second half of 2026 and 2027." He also shared that "our strength in leading-edge foundry supported revenue of almost $1.2 billion for our metal deposition business" and the etch business "surpassed $1 billion of quarterly revenue for the first time."
* Brice Hill, CFO, stated: "In fiscal Q3, we delivered a record quarter with growth across all 3 segments and with a robust gross margin of nearly 49%, we also achieved record non-GAAP earnings per share." Hill outlined that "total net revenue was approximately $7.3 billion, up 8% year-over-year and about $100 million above the midpoint of our guidance range."

OUTLOOK

* Hill provided guidance for Q4, projecting "total revenue of $6.7 billion, plus or minus $500 million, representing a 4.9% decrease year-over-year at the midpoint and non-GAAP EPS of $2.11, plus or minus $0.20, representing a 9% decrease year-over-year at the midpoint."
* Hill indicated, "We expect Semiconductor Systems revenue of approximately $4.7 billion, down approximately 9% year-over-year and AGS revenue of approximately $1.6 billion, down 2% year-over-year." Display revenue is expected to reach approximately $350 million, driven by OLED screen expansion.
* The company is modeling a non-GAAP gross margin of approximately 48.1% and non-GAAP operating expenses of approximately $1.31 billion with a tax rate of 12.6%.

FINANCIAL RESULTS

* Applied Materials reported "total net revenue was approximately $7.3 billion, up 8% year-over-year" with a "non-GAAP gross margin was 48.9%, up 150 basis points year-over-year."
* Non-GAAP operating expenses were $1.3 billion, while non-GAAP earnings per share reached a record $2.48, up 17% year-over-year.
* Segment breakdown included Semiconductor Systems revenue at $5.43 billion, Applied Global Services (AGS) revenue at $1.6 billion, and Display revenue at $263 million.
* The company ended the quarter with cash and cash equivalents of $5.4 billion and debt of $6.3 billion. Cash from operations was $2.6 billion, free cash flow was approximately $2 billion, and $1.4 billion was distributed to shareholders in dividends and repurchases.

Q&A

* James Edward Schneider, Goldman Sachs: Asked about the outlook for China and leading-edge logic. Hill responded, "We had very large shipments into China in 2023 and 2024. And we expected lower business in 2025. And we actually expect this to continue for several more quarters as we look forward." On leading-edge logic, Hill said, "We expected and modeled a relatively linear ramp that would accelerate through 2025 and into 2026. And we're not seeing that in the order pattern for Q4...it's just uneven."
* Stacy Aaron Rasgon, Bernstein: Inquired about China revenue strength and its impact. Hill stated, "The quarter played out just pretty much exactly as we expected, the mix across. The only thing that I highlighted in the script was there was a little bit less activity on leading edge in the quarter."
* Vivek Arya, BofA: Probed Q1 and fiscal 2026 outlook. Hill replied, "We're definitely not able yet to give any specific color for our Q1. But...the trends underneath for strong DRAM and strong leading logic, we think, are continuing."
* Christopher James Muse, Cantor Fitzgerald: Asked about China licensing and foundry visibility. Hill explained, "We do have a backlog of licenses, and we're just highlighting we did not include any revenue in our outlook from that backlog."
* Melissa Weathers, Deutsche Bank: Sought clarity on leading-edge CapEx from second-tier players. Hill responded, "We do have more concentration in our demand on leading edge than we've experienced before."
* Harlan L. Sur, JPMorgan: Asked about advanced packaging growth. Hill answered, "We're seeing about a steady pace relative to last year, minus the burst capacity...We don't see any change related to the leading-edge schedules."

SENTIMENT ANALYSIS

* Analysts expressed skepticism and concern regarding the sustainability of China revenues and the timing of leading-edge logic ramp, as well as the impact of licensing backlogs. Rasgon pressed for details on sequential declines, while Arya focused on the potential for growth to resume. The overall analyst tone was slightly negative, emphasizing uncertainty and risk.
* Management maintained a cautiously confident tone in prepared remarks, repeatedly affirming belief in long-term growth drivers and secular industry trends. During Q&A, however, responses became more measured and at times defensive, particularly regarding China visibility and leading-edge order timing. Hill frequently referenced uncertainty and limited visibility into future quarters.
* Compared to the previous quarter, both management and analysts showed increased caution, with greater emphasis on near-term headwinds and less certainty about order patterns and customer commitments.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted from projecting acceleration in leading-edge logic and DRAM to highlighting sequential declines and uncertainty, particularly tied to China digestion and export license backlogs.
* Management's tone, while positive on long-term prospects, became more reserved about near-term visibility, in contrast to the prior quarter’s optimism about durable demand trends and momentum.
* Key metrics for Q3 showed record performance, but the outlook for Q4 is for lower revenue and earnings, a reversal from the previous quarter’s expectation for continued growth.
* Analysts in the current quarter zeroed in on China revenue volatility, licensing issues, and the unevenness in leading-edge logic demand, whereas prior calls emphasized share gains and technology inflections.
* Strategic focus remained on AI, advanced logic and DRAM, but now with added caution about timing and the impact of policy and trade headwinds.

RISKS AND CONCERNS

* Management highlighted "digestion of capacity in China," a "large backlog of pending export license applications," and "nonlinear demand from leading-edge customers" as primary near-term risks.
* Hill noted, "customers are later in making their commits. And so we're definitely not able yet to give any specific color for our Q1," reflecting lower visibility.
* Analysts repeatedly raised concerns about China, licensing uncertainties, and the sustainability of leading-edge demand momentum.

FINAL TAKEAWAY

Applied Materials achieved record revenue and earnings in Q3 2025, driven by broad-based demand across semiconductor systems and services. However, management signaled caution for the upcoming quarter, with projected revenue and earnings declines due to ongoing China market digestion, licensing backlogs, and unpredictability in leading-edge logic demand. While the company remains confident in its long-term growth thesis and leadership in enabling AI and advanced semiconductor technologies, near-term visibility has diminished, and the business faces a more uneven and uncertain trajectory heading into fiscal Q4 and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/amat/earnings/transcripts]

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