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Semiconductor machinery manufacturer Applied Materials (NASDAQ:AMAT) reported Q2 CY2024 results exceeding Wall Street analysts’ expectations, with revenue up 5.5% year on year to $6.78 billion. The company expects next quarter’s revenue to be around $6.93 billion, in line with analysts’ estimates. It made a non-GAAP profit of $2.12 per share, improving from its profit of $1.90 per share in the same quarter last year.
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Applied Materials (AMAT) Q2 CY2024 Highlights:
- Revenue: $6.78 billion vs analyst estimates of $6.67 billion (1.6% beat)
- Adjusted Operating Income: $1.95 billion vs analyst estimates of $1.88 billion (3.6% beat)
- EPS (non-GAAP): $2.12 vs analyst estimates of $2.02 (4.9% beat)
- Revenue Guidance for Q3 CY2024 is $6.93 billion at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 47.3%, in line with the same quarter last year
- Inventory Days Outstanding: 142, down from 148 in the previous quarter
- Free Cash Flow Margin: 30.8%, down from 36.2% in the same quarter last year
- Market Capitalization: $166.9 billion
Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ:AMAT) is the largest provider of semiconductor wafer fabrication equipment.
Semiconductor ManufacturingThe semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales GrowthApplied Materials’s revenue growth over the last three years has been unremarkable, averaging 8% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $6.43 billion in the same quarter last year to $6.78 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
While Applied Materials beat analysts’ revenue estimates, this was a sluggish quarter for the company as its revenue only grew 5.5% year on year. Despite these results, we believe Applied Materials is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.
Applied Materials’s management team believes its revenue growth will continue, guiding to 3.1% year-on-year growth next quarter. Analysts expect the company to grow its revenue by 8.5% over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Applied Materials’s DIO came in at 142, which is one day above its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Applied Materials’s Q2 Results We enjoyed seeing Applied Materials exceed analysts’ revenue and EPS expectations this quarter. We were also glad its inventory levels shrunk. Overall, this quarter had some key positives. The stock remained flat at $210.30 immediately following the results.
