Maker of machinery employed in semiconductor manufacturing, Applied Materials (NASDAQ:AMAT) reported results ahead of analysts' expectations in Q1 FY2024, with revenue flat year on year at $6.71 billion. Guidance for next quarter's revenue was also optimistic at $6.5 billion at the midpoint, 2.7% above analysts' estimates. It made a non-GAAP profit of $2.13 per share, improving from its profit of $2.03 per share in the same quarter last year.
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Applied Materials (AMAT) Q1 FY2024 Highlights:
- Revenue: $6.71 billion vs analyst estimates of $6.49 billion (3.4% beat)
- EPS (non-GAAP): $2.13 vs analyst estimates of $1.91 (11.8% beat)
- Revenue Guidance for Q2 2024 is $6.5 billion at the midpoint, above analyst estimates of $6.33 billion
- Free Cash Flow of $2.10 billion, up 68.2% from the previous quarter
- Inventory Days Outstanding: 147 in line with previous quarter
- Gross Margin (GAAP): 47.8%, up from 46.7% in the same quarter last year
- Market Capitalization: $154.9 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 mediocre, averaging 14.4% annually. This quarter, its revenue declined from $6.74 billion in the same quarter last year to $6.71 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).
Even though Applied Materials surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 0.5% year on year. This could mean that the current downcycle is deepening.
Applied Materials may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 2% next quarter, analysts are expecting revenue to grow 1.4% 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 147, which is 4 days above its five-year average, suggesting that the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Applied Materials's Q1 Results We were impressed by how significantly Applied Materials blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock is up 6.9% after reporting and currently trades at $200.54 per share.
