Applied Likely To Report Strong Q1’17 Results On The Back Of Healthy Semiconductor Equipment Demand

Leading semiconductor equipment manufacturer, Applied Materials (NYSE:AMAT) is set to report its Q1’17 earnings on February 15th. (Fiscal years end with October.)  The company’s stock price has more than doubled over the last year. This is because of the strong growth in Applied’s revenues over the last couple of quarters. Driving this surge is the investment in manufacturing capacity by semiconductor companies to satisfy an anticipated strong demand for 3D NAND Flash memory products. It is worth noting that Applied specializes in the etch and deposition equipment, the demand for which has picked up as these types of equipment are used in the manufacturing of 3D NAND. These factors have likely driven Applied’s sales growth in Q1 as well. Applied booked orders worth $3 billion in Q4, which was a 25% increased as compared to the same quarter in 2015, and the implication of this growth should be visible in this quarter results. We can expect the revenue growth trend to continue in the near term.

Inflection Driven Investments To Continue Driving Growth

Inflection driven investments such as the 3D NAND transition and a shift to OLED display have been major factors driving growth for Applied Materials in the last few quarters. 3D-NAND increases storage capacity through higher density circuit structures, which lowers the cost per gigabyte and yields higher performance for use in solid-state storage devices. Applied expects both 3D-NAND market and OLED display opportunities to be three times larger than the planar NAND market and the LCD opportunities, respectively.

Building 3D-NAND chips require depositing, removing and modifying materials with a lot of precision. The thin film encapsulation in OLED display also requires an equally high precision. We believe Applied’s expertise in material engineering positions it uniquely in the market, which will benefit it going ahead as major technology inflections come into play.

Furthermore, the company’s leading customers are aggressively pursuing 7nm and 10 nm process technologies. This is likely to fuel growth for the company in 2017 and beyond. It should be noted that Intel estimates its capital spending in FY’17 to be around $12 billion, which is above the 2016 guidance of $9 billion, implying a stronger semiconductor capital equipment demand.

However, There Is More That Needs To Be Noted

The year 2016 witnessed significant developments 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. In the Q4’16 earnings call, Applied acknowledged that these areas have the potential to significantly increase semiconductor spending and drive the advances in silicon technology in future. Furthermore, the company also believes that capital equipment spending has become less cyclical and more normalized over time, because of an increasing demand in these areas.

For more details, please refer to our complete analysis for Applied Materials

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