Applied Materials (AMAT -0.67%), the global leader in materials engineering solutions, reported its fiscal 2024 second-quarter earnings on Thursday, May 16. The results topped management's guidance, with revenue hitting $6.65 billion, which was flat year over year. Non-GAAP diluted EPS came in at $2.09, near the top end of the guided range of $1.79 to $2.15.
Overall, the quarter showcased positive revenue and earnings performance despite some segment-specific challenges.
| Metric | Q2 FY 2024 | Management Guidance | Q2 FY 2023 | Change (YOY) |
|---|---|---|---|---|
| Net revenue | $6.65 billion | $6.5 billion | $6.63 billion | 0.3% |
| Non-GAAP EPS | $2.09 | $1.79 to $2.15 | $2.00 | 4.5% |
| Gross margin | 47.4% | NA | 46.7% | 0.7 pp |
| Operating margin | 28.8% | NA | 28.8% | Unchanged |
| Net income | $1.72 billion | NA | $1.58 billion | 9% |
Source: Expectations based on management's guidance, as provided in the Feb. 15, 2024, earnings report. YOY = year over year; GAAP = generally accepted accounting principles; pp = percentage points.
About Applied Materials
Applied Materials specializes in materials engineering solutions used to produce virtually every new chip and advanced display in the world. The company's segments include Semiconductor Systems, Applied Global Services (AGS), and Display and Adjacent Markets. Its ability to innovate in semiconductor and display technologies makes it a crucial player in the tech industry's supply chain.
Recently, the company has focused on advanced memory and artificial intelligence (AI) applications, leading to increased demand for its products. Key success factors include technological advancements, strong customer relationships, and a robust service segment that stabilizes revenue streams.
Second-quarter highlights
The quarter was marked by significant financial and operational achievements as well as some challenges. Here's a detailed look at notable developments:
Semiconductor systems performance
- The segment generated $4.9 billion in revenue, down slightly year over year.
- Operating margins improved slightly to 34.7% from 34.5%.
- There was a notable shift in sub-segment demand, with DRAM sales rising to 32% of the segment's revenue (up from 11%).
Applied global services (AGS)
- Revenue increased to $1.53 billion from $1.43 billion in 2023's Q2.
- Margins grew to 28.5% from 26.9%, reflecting strong service demand and operational efficiency.
Display and adjacent markets
- Revenue rose to $179 million from $168 million in the prior year's quarter.
- Operating margins fell sharply to 2.8% from 9.5%, indicating potential cost pressures.
One-time events and dividend
- Adjusted free cash flow saw a significant 44% year-over-year decline to $1.14 billion (from $2.04 billion).
- The company distributed $1.09 billion to shareholders, including $820 million in share repurchases and $266 million in dividends.
Forward guidance
For the third quarter of fiscal 2024 (ending July 30), management guided for net revenue to be approximately $6.65 billion, plus or minus $400 million. The non-GAAP diluted EPS is expected in the range of $1.83 to $2.19.
Investors should keep an eye on:
- The ongoing performance and margin stability in the Semiconductor Systems segment.
- Continued growth and profitability in the AGS segment.
- Addressing margin pressures in the Display and Adjacent Markets.
Management's guidance suggests confidence in stable revenue and EPS moving forward. Continued investment in R&D to drive future growth sets an optimistic outlook.
