Rapid Surge In Emerging Technologies To Help Applied Materials Retain Its Growth Momentum: Q2’17 Earnings Preview

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AMAT: Applied Materials logo
AMAT
Applied Materials

Applied Materials (NYSE:AMAT) is set to report its Q2 2017 earnings on May 18th. Driven by favorable industry trends, the company has witnessed strong top line growth and an expanding bottom line in the last few quarters. Owing to the strong growth momentum and a favorable outlook, Applied’s stock price has more than doubled in the last one year. Driven by multi-year inflections and new demand drivers, the company’s orders and earnings in Q1 2017 were at an all-time high. We expect this growth momentum to continue in the near term.

The year 2016 witnessed significant developments in emerging technologies such as the 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. These areas have the potential to significantly increase semiconductor spending and drive the advances in silicon technology in the future. Additionally, 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.

See our complete analysis for Applied Materials

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AMAT Pre e

The following factors could help Applied retain its growth momentum:

  • Increasing investments in 10-nanomenter and 7-nanometer technologies in both foundry and logic segments: Applied’s leading customers are aggressively pursuing 7 nm and 10 nm process technologies to cater to the demand for leading-edge processors in compute intensive applications such as Smart vehicles, Artificial Intelligence based applications, and 4K video. For example, Intel estimates its capital spending in FY’17 to be around $12 billion, which is above the 2016 figure of $9.6 billion, implying a stronger semiconductor capital equipment demand.
  • Growing opportunity in 3D NAND based technology: Due to the 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. Applied expects both the 3D-NAND market and OLED display opportunities to be three times larger than the planar NAND market and the LCD opportunities, respectively.

  • 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. Applied 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 in transitioning to OLED displays over the next few years.

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