Applied Materials ( AMAT ) reported its Q1 2017 earnings on February 15th.(Fiscal year ending October). During the quarter, the company saw strong growth in both its Semiconductor systems and Display segments. Further, Applied's operating margins improved by 8 percentage points during the quarter, because of a surge in its revenues. Driven by multi-year inflections and new demand drivers, the company's orders and earnings in Q1 were at an all-time high. We can expect this growth momentum to continue in the near term. For the next quarter, Applied expects revenue to come at $3.5 billion, which translates to a year over year growth of 44 percent.
The table below summarizes the company's growth in the quarter:
Source: Sec filings
We believe that the following factors will continue to drive Applied's growth going ahead:
- Increasing investments in 10-nanomenter and 7-nanometer technologies in both foundry and logic segments: Driving these investments is a strong demand by Applied's customers to cater to the demand for leading-edge processors in compute intensive applications such as Smart vehicles, Artificial Intelligence based applications, and 4K video. There is a rapid advancement in emerging technologies such as Internet of Things (IoT), virtual reality, augmented reality, big data, artificial intelligence, and self-driving cars. These new technologies will be key sources driving the growth for Applied going ahead. The company claims that capital equipment spending has become less cyclical and more normalized over time, because of an increasing demand in these emerging areas.
- Growing opportunity in 3D NAND based technology: Due to performance and power advantages of 3D NAND, Applied's customers are rapidly upgrading their manufacturing capacity to cater to the growing 3D NAND demand. Building 3D-NAND chips require depositing, removing and modifying materials with a lot of precision. We believe Applied's expertise in material engineering positions it uniquely in the market, which will continue to benefit it going ahead as its customers shift to 3D NAND based technology.
- Shift to advanced technologies in Display: The company's recent surge in display revenues is being driven by large format TVs and an increasing investment in OLED displays by its customers. According to the company, large format TVs are expected to grow at a rate of 50%, compared to the single-digit growth of TV's overall. Furthermore, the company is seeing a significant market opportunity in OLED display equipment, as its key customers are ramping up their investment in this technology to gain a leadership position in the market. Applied claims to be building a strong product portfolio to support its customers to support their transition to OLED displays over the next few years. The uptick in display orders for Applied suggests that this segment can be a major revenue growth driver for the company in the future.
We are in the process of updating our model of Applied Materials
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