Key Takeaways From Applied Materials’ Q4 Earnings

by Trefis Team
Applied Materials
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Building on its strong growth momentum since the last few quarters, Applied Materials (NYSE:AMAT) reported record revenue and earnings for Q4 to end fiscal 2017 on a high note. Emerging technologies, such as the Internet-of-Things (IoT), big data, and artificial intelligence, are driving strong growth in the industry. Innovation and solid execution has enabled Applied to grow faster than the market by expanding its presence and gaining share. As its customers continue to make large investments to advance semiconductor and display technology, Applied’s growth momentum is likely to continue in the near future. For Q1, Applied expects revenue between $4.0-4.2 billion (+24% y-o-y).

During the quarter, the company saw strong growth in both its Semiconductor and Display segments. Further, Applied’s operating margins improved by 4.1 percentage points during the quarter, because of a surge in its revenues and controlled expenses. Driven by multi-year inflections and new demand drivers, the company’s orders and earnings in Q4 were at an all-time high.

Inflections In Mobile & Screen Technology Will Continue To Strengthen The Display Market

Applied is on track to book more than $2 billion of orders in the Display segment. As the technology and manufacturing become more complex, the company is confident that it is in a unique position to drive growth. Key factors that will drive growth in the display market are:

  • Demand for large format TVs: The average screen size, be it for TV or mobile, has increased over the years and demand continues to grow. As Applied’s customers optimize factories for these bigger screen sizes, they are investing in new Gen 10.5 capacity, which on average require significantly more investment compared to a Gen 8.5 factory.
  • Increasing investment in mobile OLED: Estimates indicate that two-thirds of new smartphones could have OLED displays by 2021, and screen manufacturers are accelerating their investment plans to support this growth. The company has established the leading position in thin-film encapsulation, which enables OLED smartphones.

We have a $37 price estimate for Applied Materials’ stock, which is below the market price.

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