Applied Materials (AMAT) Q4 FY2025 Earnings Call Transcript

Date: November 13, 2025 | Source: Motley Fool / Applied Materials IR (published script, verbatim)

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Gary Dickerson (President and CEO, Applied Materials): Welcome back, Mike. Applied Materials delivered fiscal fourth quarter results above the midpoint of our guidance to complete another record year. 2025 was our sixth consecutive year of growth, and over this period, we have grown revenue and earnings at annualized rates of approximately 12% and 20%. These results are made possible by our passionate and dedicated employees around the world. Over the past twelve months, we have built new capabilities, strengthened our product portfolio, and streamlined our organization to prepare for the opportunities ahead. Applied is in a tremendous position to benefit as AI computing fuels secular growth in semiconductors and wafer fab equipment.

As this is our year-end call, I'll begin with a brief review of our performance in 2025, then I'll provide our latest market outlook, and finally, I'll describe how our inflection-focused innovation strategy enables us to extend our leadership in the most valuable and fastest-growing areas of the market as next-generation technologies ramp in volume production in 2026 and beyond.

Looking back at fiscal 2025, while it was a growth year for Applied, our growth rate was tempered due to increased trade restrictions and an unfavorable market mix. Over the past twelve months, multiple trade rule changes have reduced the size of our accessible market in China. Overall, China declined to 28% of our total systems and service revenues in fiscal 2025 and to 25% for our fourth quarter. In the areas of the market where we can operate, we are competing well and maintaining market share.

Outside of China, the fastest-growing areas of the market in 2025 were segments where Applied had low or no share. In leading-edge foundry logic, investment was more oriented toward advanced lithography. We believe this is a positive leading indicator for process equipment demand in 2026. NAND, where historically Applied has lower market share, is on track to approximately double in 2025, even though it remains a relatively small portion of the wafer fab equipment market. In DRAM, where Applied has strong process technology leadership, overall spending is tracking to be approximately flat for calendar 2025. Nevertheless, we strengthened our leadership position in DRAM, growing revenues from leading-edge customers by more than 50% over the past four fiscal quarters.

As we look ahead to 2026, we expect the spending mix to play more to Applied's strengths with leading-edge foundry logic, DRAM, and advanced packaging being the fastest-growing areas of the market.

I recently returned from an extended trip to Asia. My discussions with customers and partners reinforce my view that opportunities for the semiconductor industry and Applied Materials have never been greater. Our customers are engaging with us to ensure we are ready to support significant production ramps in the coming years. AI has reached a tipping point that is accelerating investment in next-generation computing infrastructure and advanced silicon. Today, we are seeing a virtuous cycle of innovation and demand — advances in performance, energy consumption, and cost of AI computing open up new AI applications that in turn significantly increase demand for AI compute capacity. Recent third-party forecasts predict that the semiconductor industry will grow at a compound annual rate between 10 to 15% over the next five years, driving a healthy increase in wafer fab equipment spending. We expect 2026 to be another growth year for Applied, with our revenue being weighted toward the second half of the calendar year.

AI computing is not only fueling growth but also reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. Foundational semiconductor technology plays a critical role in increasing performance and bringing down the cost of AI in the data center and at the edge. Today, major technology inflections are underway in five key areas: leading-edge logic, high-performance DRAM, high-bandwidth memory or DRAM stacking, advanced packaging for heterogeneous integration, and power electronics. At Applied, our core strategy is inflection-focused innovation. We partner with our customers to see technology inflections early, we focus our research and development on the most critical and valuable challenges on their roadmaps using deep, co-innovation engagement models, and we create highly differentiated solutions by connecting our broad portfolio of capabilities and technologies.

The three products we recently launched at SEMICON West are great examples of how this strategy works. Our new Xterra epitaxy system enables higher performance gate-all-around transistors for two nanometers and beyond. Xterra creates void-free source drain structures that provide higher transistor speeds that are especially critical for AI computing. The Xterra system integrates Epi cleaning and etch, resulting in a 40% improvement in uniformity and 50% lower gas usage compared to traditional Epi. Connects is the industry's first integrated die-to-wafer bonder. Hybrid bonding enables significant improvement in performance, power consumption, and costs for both complex multichip packages and die stacking. Connects is a six-step integrated system with onboard metrology that provides higher accuracy bonding, smaller interconnect pitches, and higher yields for new logic and memory packaging architectures. ProVision 10 is designed to improve yield in 3D devices and further extends our leadership in e-beam metrology. E-beam metrology is critical for 3D devices as it can see through multiple layers of 3D chips and provide multilayer images to identify defects in buried structures. This system is the first to use cold field emission technology for metrology, which increases image resolution by 50% and imaging speed 10 times compared to conventional thermal field emission technology.

Overall, Applied is very well positioned at the most valuable technology inflections and in areas of the market that will grow fastest as AI is deployed on a large scale. The process tool of record positions that we have established over the past several years give us confidence that we will extend our strong leadership position in logic, DRAM, and packaging as advanced technology nodes ramp in volume production.

Another key theme we consistently hear from our customers and our customers' customers is that co-optimization of the technology stack is more critical than ever. We are expanding our deep multiyear co-innovation engagements that focus on system technology co-optimization. Our high-velocity co-innovation model provides chip makers and chip designers much earlier access to next-generation process technology to accelerate their new chip and system architectures. This is a core value proposition of Applied Materials' equipment and process innovation and commercialization platform, or EPIC. Construction of the platform's flagship facility, the Epic Center in Silicon Valley, is on track, and we are excited to begin operations next year.

Our co-optimization strategies extend well beyond R&D. As our customers race to bring these complex new device architecture inflections to market, we are providing advanced service solutions that help them rapidly transfer new technology into their pilot lines and then rapidly optimize device performance, yield, and cost in volume production. In 2025, our core service business delivered another year of double-digit growth, with more than two-thirds of our service revenue generated from subscriptions. In AGS and across Applied, we are rapidly adopting AI and digital tools. This enables us to drive higher velocity and productivity, innovate the way we work, and streamline our organization to meet the opportunities ahead.

Before I hand over to Brice, I'll quickly summarize. Fiscal 2025 was our sixth consecutive year of growth, even as trade restrictions and an unfavorable market mix trimmed our growth rate for the year. As we look ahead, large-scale AI adoption will drive substantial investment in AI computing infrastructure, including advanced semiconductors and wafer fab equipment. Applied's inflection-focused innovation strategy positions us for another record year in 2026 as we gain share at the highest value technology inflections in the fastest-growing areas of the market. As next-generation technologies ramp in volume production over the coming years, we will extend our leadership in logic, DRAM, and packaging. Brice, over to you.

Brice Hill (Senior VP, Chief Financial Officer, Applied Materials): Thank you, Gary. Thanks, everyone, for joining today's call. I am pleased that Applied delivered record annual revenue, gross margin dollars, operating profit, and earnings per share in fiscal 2025. Looking ahead into 2026, I believe we are in a great position to benefit from favorable market trends. Based on growing demand for AI data center capacity, we forecast that leading-edge foundry logic, DRAM, and high-bandwidth memory will be the fastest-growing areas of the semiconductor equipment market. We have strong leadership positions in these segments today, and we have targeted our R&D investments to create new products and technologies that will enable even faster and more energy-efficient transistors, chips, and systems, and drive growth for Applied.

In addition, we have been working closely with our customers to better understand their longer-term demand expectations and align our supply chain and manufacturing slots to meet their needs for advanced capacity. Based on our conversations with our customers and other industry players, we are preparing our operations and service organizations to be ready to support higher demand beginning in 2026.

Next, I'll briefly summarize our fiscal 2025 results versus fiscal 2024. Revenue grew 4% to $28.4 billion, with growth across all of our segments. Semiconductor systems revenue was up 4%, growing even as the impact of trade restrictions significantly reduced our access to the market in China. The impact of these restrictions was equivalent to around 10% of the China market in fiscal 2024, and more than double that amount in fiscal 2025. On a global basis, we generated record foundry systems revenue along with record DRAM sales outside China. And we posted record revenue in both Taiwan and Korea. Applied Global Services revenue grew 3% to a record $6.4 billion. The recurring parts, services, and software portion of AGS grew by double digits in the year, while the 200-millimeter equipment business declined. Display revenue grew by 20%.

I am pleased that we increased non-GAAP gross margin by 120 basis points to 48.8%, the highest level in twenty-five years. We shipped a richer mix of advanced systems and increased prices broadly, helping to more than offset cost increases. Non-GAAP operating expenses grew 5%, primarily driven by a 10% increase in R&D investments. At the end of the year, we announced actions to reduce headcount and enable us to scale Applied more productively as we capture the growth opportunities we see in 2026 and beyond. We continue to shift spending to strategic areas, adding people in fields like advanced analytics that are critical to the speed and efficiency of our R&D programs and operations. Non-GAAP earnings per share increased 9%. We generated nearly $8 billion in cash from operations. Free cash flow of $5.7 billion included elevated capital spending of $2.3 billion, over half of which was used in building the new Epic Center in Silicon Valley, which will open next year and become the most advanced, collaborative semiconductor equipment and process innovation facility in the world. We distributed approximately $6.3 billion to shareholders.

We paid $1.4 billion in cash dividends, and the quarterly dividend per share was increased by 15% during the year to 46 cents. Operating income from Applied Global Services more than covered the dividend payment. We allocated $4.9 billion to our share repurchase program and reduced shares outstanding by more than 3%.

Turning to fiscal Q4, we delivered revenue and non-GAAP EPS above the midpoint of guidance. China revenue declined to 29% of total company revenue, which is in line with our longer-term average and well below a peak of 45% in 2024. Non-GAAP gross margin was at the midpoint of guidance and up 60 basis points year on year, while non-GAAP operating expenses were slightly higher than our expectation and up 3% year on year. Turning to the segments, Semiconductor Systems and AGS revenue exceeded our expectations for the quarter, while non-GAAP operating margin for both segments declined along with revenue on a year-on-year basis. Lastly, Display revenue exceeded our expectation for the quarter and was up 68% year over year.

Next, I'll share several reporting changes we are making that will help us drive further efficiency gains and also give investors more visibility into our semiconductor and services businesses. First, as of Q4 fiscal 2025, our display business is being reported in corporate and other. There is no change to our display strategy. This change will increase our operational efficiency and enable investors to see all of our semiconductor systems revenue in one place. Also, as a result, Applied Global Services will consist entirely of recurring revenue. This will make it easier for investors to track our subscription-like growth and services. Finally, as of 2026, we are fully allocating corporate support costs to our businesses. This change will have the effect of reducing semiconductor systems and AGS operating margins, but also give our teams better visibility and opportunity to optimize these costs.

Now I'll share our guidance for Q1, which includes the reporting changes I just outlined. We expect company revenue of $6.85 billion, plus or minus $500 million, and non-GAAP EPS of $2.18, plus or minus 20 cents. Within this outlook, we expect semiconductor systems revenue of around $5.025 billion. AGS should generate revenue of around $1.52 billion. Corporate and other revenue should be around $305 million, composed primarily of display revenue. We currently expect non-GAAP gross margin to be approximately 48.4% in Q1 and remain at that level until volumes ramp to support higher demand beginning in the second half of the calendar year. Non-GAAP operating expenses should be around $1.33 billion, which is up only slightly from fiscal Q4 because the actions we recently took are mostly offsetting the increase we normally see in Q1 due to the timing of annual merit increases and equity compensation expenses. Finally, we are modeling a tax rate of around 13%.

In summary, our customers are indicating to us that wafer fab equipment spending is likely to accelerate beginning in 2026. In addition, we see a positive fab equipment spending mix developing for Applied. AI data center investments translate to strong demand for our most enabling products in leading-edge foundry logic, DRAM, and high-bandwidth memory, along with advanced services that help our customers accelerate ramps and yields. Thank you for listening. Now, Mike, let's begin the Q&A.

Mike Sullivan (Head of IR, Applied Materials): Thanks, Bryce. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up question. Operator, let's please begin.

Questions & Answers

C.J. Muse (Cantor Fitzgerald): Yes. Good afternoon. Thank you for taking the question. I guess, Gary, the world has clearly changed since NVIDIA reported August 26 and discussed $3 to $4 trillion in AI infrastructure spending. Curious, given your trip to visit with clients, over the very near term, how your conversations have evolved in the last few months, how has your visibility changed, and how are you preparing your supply chain for this likely tremendous growth?

Gary Dickerson (President and CEO, Applied Materials): Hi, C.J. Thanks for the question. Yeah. I have been spending a lot of time with customers and just came back from a long trip to Asia. AI is the biggest focus for all of our customers. It's driving the WFE mix to segments driven by AI, leading-edge foundry logic, and DRAM where Applied has strong number one positions. Applied is in deep high-velocity co-innovation relationships with all of these different customers. We have very high share. If you look at the transistor for gate-all-around or backside power, in leading-edge foundry logic, we have very strong visibility and co-innovation relationships with customers over four technology nodes a decade out in the future. So very high visibility in terms of our position. The other thing that I heard and we've been seeing over the last couple of months is a major improvement in customer demand visibility. Customers are planning large ramps of advanced factories and they want to make sure our supply chain operations and service teams are ready to deliver. So we're getting more than one year visibility, in some cases, two years visibility with a number of these different customers. And, of course, the improved visibility is critical to our ability to ensure on-time delivery to customer needs. But I'd say that's, C.J., the biggest thing that's changed in the last couple of months.

C.J. Muse (Cantor Fitzgerald): Very helpful. And then maybe, Bryce, you announced the headcount reduction over the last quarter. I'm curious how we should think about that and the implications to gross margins and OpEx into the first half of calendar '26. Perhaps versus the second half given the ramp that you've talked about?

Brice Hill (Senior VP, CFO, Applied Materials): Yeah. Thanks, C.J. So on the reduction, if you look at our Q1 spend in our guide, you'll see that we don't have the uplift that we typically have for our annual pay raises and the share-based compensation increases in Q1. So you'll be able to quantify the rough change in that quarter from that perspective. That was a years-long program that we worked on to increase velocity and productivity across the company. And for the balance of 2026, we'll add back some skills that we need to fill in for the company. So it's really a wholesale evaluation of all the staffing models we have across the entire company.

Gary Dickerson (President and CEO, Applied Materials): C.J., maybe I'll add one another aspect to this. In strategic planning, we had a big focus on innovating the way we work, including AI and digital technologies. And driving, like Bryce said, higher velocity and productivity. That's really at the foundation of how companies compete. So huge focus, especially on velocity, across all of Applied Materials, and then streamlining our organization to optimize future performance. And as we went through these changes, we also wanted to make sure, as I talked about, we see significant demand coming from our customers. So we wanted to make sure as we're doing this overall company and workforce optimization, to improve the performance of Applied, we're also ready to meet those major customer ramps in '26 and then going forward.

Krish Sankar (TD Cowen): Thanks for taking my question. Gary, my first question is, as you mentioned, you're clearly gaining share in new technologies like gate-all-around and backside power delivery. But when I look at your leadership product, it seems like PVD is moving to ALD. On the CVD, CMP, and etch side, besides the usual US and Japanese competitors, there's increasing domestic China competition. I'm kind of curious how to think about the momentum in those leadership products for the next two, three years as you see increasing competition both globally and from China.

Gary Dickerson (President and CEO, Applied Materials): We have very strong positions in gate-all-around and backside power. Besides being number one in process equipment for leading logic and foundry, we're also number one in DRAM and advanced packaging, especially for high-bandwidth memory. And those are the most important segments for AI energy-efficient computing, and leading-edge foundry, logic, and DRAM will be the fastest-growing segments in '26 and for the next several years. The biggest change we've seen in our competitive position in the near term is trade restrictions. We used to serve the entire global WFE market before restrictions were implemented. And then in the last month of 2024 and the first month of 2025, the restrictions significantly increased for us. And we could no longer serve China's DRAM market and some of the ICAPs market. So our impact grew to well over 20% of the China WFE market. And non-US equipment companies don't have the same restrictions. And so restricted customers can buy from those companies even if they would rather buy from Applied. And we've put a lot of time and studied this topic very carefully. Where we can compete, we are doing very well. China has returned to normalized levels — kind of mid-twenties on our semi-business and systems and AGS. Looking ahead, we don't anticipate significant new restrictions. We believe that our share in China ICAPs where we can compete was flat from 2024 to 2025. PVD is doing great where we can compete. We grew PVD in '25. We have a positive outlook in '26. PVD is enabling low-resistance wiring, and that's critical for faster and more energy-efficient chips. Applied is the clear leader in wiring innovation. On the leading edge, we do have an increase in demand for the integrated products, including selective ALD and selective moly, which we just had some big wins in the most critical applications.

Brice Hill (Senior VP, CFO, Applied Materials): It's approximately $125 million, Krish, for Q1 and approximately the same number in Q4 for the 200mm movement from AGS to semi. So, we're moving that from our services business to our equipment business. And we think that'll be easier for us to manage and easier for investors to understand those two different reportable segments.

Vivek Arya (Bank of America): Thank you for taking the question. You mentioned you expect fiscal 2026 mix to work in your favor. You also mentioned the significant growth in the back half. I'm curious, do you think there is a potential for WFE to grow high single-digit, close to double-digit next year and for Applied to outperform that?

Brice Hill (Senior VP, CFO, Applied Materials): We do expect strong growth in '26 led by leading edge and DRAM. The headwind that we have, we do still expect some digestion in China and in ICAPs. So it's kind of a similar situation relative to 2025, but we think leading edge will be very strong. DRAM will be very strong. These are pulled by the headline of the AI solutions in those spaces. And then a little bit of digestion on the ICAP side, but we do think it will be a growth year. On the affiliate rule, that came out and affected our Q4 and then was suspended. We had shared that $110 million would be affected in our Q4. We didn't ship that in Q4, but we will ship that in Q1. So that's included in our guide for Q1. And then the $600 million is still a good estimate for what's in the rest of 2026.

Gary Dickerson (President and CEO, Applied Materials): On the WFE per gigawatt, we think the best way to think about this is about 15% of leading-edge wafer starts and DRAM wafer starts are allocated towards AI data center solutions. So if you think about capacity planning, that's growing at a mid-30s CAGR across the industry. The two fastest-growing segments for '26 and going forward are leading-edge foundry logic and DRAM, including high-bandwidth memory. And in both of those cases, again, we're clear number one. We're gaining share, high visibility in gate-all-around. And I think longer term, if you look at gate-all-around backside power, we're positioned to capture more than 50% of our served market. And then DRAM high-bandwidth memory, we're in a really great position there. As FinFET ramps, we have strong leadership in FinFET, which is going to be adopted in DRAM four f squared. And then in HBM, future generations will adopt hybrid bonding where we also have clear leadership. We announced Connects at SEMICON West. So the mix is definitely working in our favor.

Stacy Rasgon (Bernstein): For the first one, Bryce, this second half lift in demand, so what does that imply for the trajectory in the first half? Are you thinking revenue stays kind of in this ballpark until we hit the second half, or does it grow a little bit and then it grows a lot?

Brice Hill (Senior VP, CFO, Applied Materials): For the semi-business, Stacy, we think it'll be flattish until we see that growth. We will see a little growth in the AGS business. We expect AGS to be growing at low double digits, and that's fairly continuous growth through the course of the year. For the semi-business in the short term, it'll be flattish until, like, our Q4 and our Q1 of next year — that's when it matches the calendar. So we'll see a significant uplift there from leading edge, especially. And until then, it'll be slower growth. The 48.4% guide for Q1 is good for this level of business, and in Q1 we're also expecting a normal share from a China shipment perspective — in the order of 29% and less than that for AGS and our semi-business. When we do get to the second half, added volume will help with cost improvements. Most of the 120 basis point uplift that we had in 2025 was driven by price improvement. So we'll continue with that program, but it takes time to affect the margins.

Gary Dickerson (President and CEO, Applied Materials): Stacy, this is Gary. One thing I'd say in terms of margins, I do think that we will be able to drive sustainable improvements in margins over time. Our customers' profitability has improved significantly. As we continue to work with our customers enabling those innovations that are critical for AI, bringing new products to market, I believe that we can sustainably drive our margins higher going forward.

Timothy Arcuri (UBS): Thanks a lot. Bryce, I'm trying to understand China a little better. So all these affiliates were banned, and then they got reinstated. And the way that China usually operates is that when they were rushing to get in front of the ban, and now I would think that they're gonna come back, and they're gonna just try to get as much equipment as they can as fast as they can. So is the add-back not gonna be more than $600 million, and in fiscal Q1, are you taking slots away from other customers to give to them?

Brice Hill (Senior VP, CFO, Applied Materials): Thanks for the question, Tim. So, yeah, for the first quarter, $110 million is in the quarter. Those tools are built and will ship. For the balance, we weren't building those tools. We didn't know we would be able to ship them, and so it's going to take time to do the supply chain and actually make the builds, and we'll have to finalize the date with the customers. So they may have interest in working that process as quickly as possible, but I would just say the good way to think about this is cycle time, and we'll spread it through the year.

Timothy Arcuri (UBS): Okay. And then, Gary, I want to go back to PVD. So this is about 30% of your business. And it does seem a little bit like ALD is eating into this franchise a little bit. How do you sort of protect that franchise?

Gary Dickerson (President and CEO, Applied Materials): We have new leaders for our top customers, and we have deep visibility into their technology roadmap for four generations. I can tell you, we have high confidence. PVD is gonna continue to ramp. I mentioned a hundred miles of wiring in an advanced chip. And we are the leader in wiring. One of those integrated platforms, we combined selective ALD together with PVD and five other technologies. That's part of what's enabling those hundreds of miles of wiring. Applied is really unique in being able to deliver those kinds of innovations. And that is enabling a 50% improvement in resistivity. It's a billion-dollar business for us every year. Another innovation that we just won with leading-edge logic companies is integrating selective Moly with PVD into an integrated platform for the most critical applications for our customers. So, Tim, very high visibility. It's a great business. It's gonna keep growing in '26 and keep growing as we go forward.

Adam Mullen (Citi): Hi. Thank you for taking my questions. Bryce, I understand that the China commentary you're expecting China to kind of stay at the mid-twenties level for the silicon products into next year. The assumption is that domestic China spending is coming down next year. Why would it be lower than the mid-5% and especially China is growing?

Brice Hill (Senior VP, CFO, Applied Materials): For Q1, that just happens to be what's in the mix. But we do expect it, if we do have the digestion that we're expecting in China, then we will see it lower during the course of the year. And they'll be more than offset by the strength in Leading Edge and DRAM that we highlighted earlier. I think we've been wrong for two years in a row forecasting a digestion related to China, and it's stronger each year. We could be surprised on the upside as we go through. Our information on a macro level suggests that there is factory capacity from a space perspective to ramp across the industry. We don't think the capacity is limiting the ramp at this point.

Charles Shi (Needham): Thanks for taking my question. I have a follow-up on China. You did mention outside of restrictions, you are not losing share. But your European peer, the closest one, reported much stronger China revenue growth this year — probably growing at 100% year-on-year. You're probably declining more than 10% year-on-year. So just really trying to reconcile how you're losing share.

Brice Hill (Senior VP, CFO, Applied Materials): I think the nuance is, if we look at the accounts that we can support, we're holding our share and competing well in China. And just take the macro number, we certainly lost share in China. If you go back to 2024, just over 10% of the market was restricted for US companies. If you go to 2025, it's more than doubled. So we certainly lost share in China because a larger portion of the market is inaccessible to us. But when we look at the accounts that we can sell to, we feel we're competing very well.

Gary Dickerson (President and CEO, Applied Materials): We can't comment on other people. Certainly for us, NAND, the global NAND in China, is not a significant business. DRAM, however, really was restricted at the beginning of our fiscal year; we have very high share in DRAM. If you look at the leading DRAM companies, last year, I think our business was up something like 50%. And so for Applied, DRAM going away had a really big impact on us. The other part of that is not only the DRAM, but it's NAND. You have multinational NAND companies that are in China. And in our mix, that's the lowest area for us. So Gary talked about the DRAM impact. The other impact is NAND. And both of them in that equation, on a global basis, we think is changing.

Joe Quatrochi (Wells Fargo): Yes. Thanks for taking the question. I was wondering if you could help us understand what was the size of the HBM impacting business in fiscal 2025 and how did that grow?

Brice Hill (Senior VP, CFO, Applied Materials): It's a little bit lower than it was in 2024. So 2024 was buoyed by the high shipments at the end of the year for HBM. So essentially, it's been running at the same level for 2025. As we look forward, we think we're well-positioned for advanced packaging. We still think that business will be growing significantly along with the AI data center.

Gary Dickerson (President and CEO, Applied Materials): Applied is number one in high-bandwidth memory. We're still on track to what we discussed before. We've grown the business around $500 million to about $1.5 billion today. And we're on track still to double this business to $3 billion or more over the next few years. There's an enormous focus for our customers to go to larger packaging sizes so they can connect more GPUs, CPUs, and all these different computing components to improve performance and power. And so Applied is extremely well-positioned in HBM, and we're also well-positioned as these technologies ramp in the future. So I think high confidence in being able to double this business again over the next few years.

Shane Brett (Morgan Stanley): Thank you for letting me ask the question. The first question is, you mentioned that your revenue from leading-edge customers grew 50% in 2025.

Brice Hill (Senior VP, CFO, Applied Materials): When you do the year-over-year comparison, it looks flat for us from a DRAM perspective, but what was happening in 2024 we shipped a significant amount of business to China customers. And so we basically have the same business in 2025 without the China customers. So all of that business went to the internationals, and that equated to approximately 50% growth for them. And we do expect DRAM to strengthen as we go into '26. It should be healthy growth across the customers for DRAM investments.

Gary Dickerson (President and CEO, Applied Materials): Certainly, I mentioned earlier high-bandwidth memory. That's one segment where Applied is clear number one, and that is helping us. DRAM companies are driving innovation. They're moving to FinFET going forward. That puts Applied in a good position. Even to gain more share, go forward. We have a strong position in capacitor scaling. We have a really strong etch share in DRAM, and we've achieved patterning share gains. As these DRAM companies adopt hybrid bonding for HBM, as they adopt FinFET, as they adopt four f squared, the vertical channel transistor architecture, in all of those areas we're positioned to gain share as those new technologies ramp.

Jim Schneider (Goldman Sachs): Good evening. Thanks for taking my question. Relative to the strength of 2026 across leading-edge logic and DRAM, can we guess which one might grow stronger than the other and which one might surge first?

Brice Hill (Senior VP, CFO, Applied Materials): Sure, Jim. We think leading-edge will be the strongest grower with DRAM second, so that's our forecast.

Gary Dickerson (President and CEO, Applied Materials): I think both of them are gonna grow at a pretty strong rate. But in terms of revenue, it depends on fab timing. That's why we talked about the second half of calendar '26, and those were the discussions I had with a lot of Asian customers when I was traveling and the dramatic improvement in visibility.

Jim Schneider (Goldman Sachs): Maybe as a quick follow-up, you have both margins expecting to increase in the back half once you get better absorption on costs. Are there any other underlying initiatives you're doing to improve gross margins operationally?

Brice Hill (Senior VP, CFO, Applied Materials): On the gross margin side, if you look at 2025, up 120 basis points from 2024, the majority of that really has been improvements in our pricing processes. We revamped our entire pricing program across the company. We're also working on cost reductions. The cost reductions were offset to some degree by tariff headwinds and by some of the inventory management. So the real driver during the year was the price improvements. And those will continue as we go into '26. So at the calendar second half, as we get more volume and you get some time for those to work, we should be able to improve the gross margins.

Brice Hill (Senior VP, CFO, Applied Materials): Thanks, Mike. I'm excited that the investments we're making in leading-edge foundry logic, DRAM. I wish everyone a nice Thanksgiving, and I look forward to seeing many of you soon at the UBS Conference in Scottsdale. Mike, please close the call.

Mike Sullivan (Head of IR, Applied Materials): Alright. Thank you. And I'd like to let everybody know that a replay of this call is gonna be available on the IR page of our website by 5 PM Pacific time today.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.