Applied Materials Inc (AMAT) — Q3 2025 Earnings Call Transcript

Thank you. Good afternoon, and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO; and Brice Hill, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections or other statements about future events. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent Form 10-K, 10-Q and 8-K filings with the SEC. We do not intend to update any forward-looking statements. During today's call, we will also reference non-GAAP financial measures. Reconciliations of GAAP to non-GAAP results can be found in today's earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at ir.appliedmaterials.com. I will now turn the call over to Gary.

Thanks, Liz. In our third fiscal quarter of 2025, Applied Materials delivered record performance, fueled by strong broad-based demand for semiconductor systems and services. However, as you will see in our guidance, we expect revenue and earnings to be sequentially lower in our fourth quarter, primarily due to uncertainties in our China business. Even with this Q4 forecast, we remain on track to achieve a mid-single-digit growth rate in fiscal 2025, which will be our sixth consecutive year of revenue growth. In my prepared remarks today, I'll give some additional color on our near-term outlook, provide an update on the longer-term secular industry growth drivers and describe Applied's leadership position at the major device inflections that enable our customers' road maps. The dynamic macroeconomic and policy environment, including trade and tariffs, has wide-ranging implications for the semiconductor industry, increasing uncertainty and lowering visibility in the near term. For Applied's business, there are three main factors that mute our outlook for the quarter ahead. First is digestion of capacity in China. Second is our large backlog of pending export license applications, where we have taken a conservative position and assumed none of these licenses will be issued in the next quarter. And third is nonlinear demand from leading-edge customers, which is primarily linked to market concentration and fab timing. None of these near-term considerations change our perspective on the longer-term opportunities for the industry and Applied Materials. Leadership in AI remains a major focus for both companies and countries, driving large investments in infrastructure and R&D. Governments around the world, especially the United States government, are taking major steps to incentivize companies to build advanced manufacturing capacity onshore. One example of this is Apple's American Manufacturing Program, which was announced last week. We are excited to be a partner in this initiative that is designed to strengthen the end-to-end silicon supply chain in the U.S. As part of this endeavor, we plan to invest more than $200 million in Arizona to establish a state-of-the-art facility for manufacturing specialized components for our equipment. This builds on the more than $400 million we have invested in our U.S. manufacturing infrastructure over the past five years to provide the needed capacity and agility to support growing customer demand. Globally, we are now tracking more than 100 new fabs or major fab expansion projects, an increase of about 10% in the past year. In addition to robust supply chains, deploying AI at large scale requires significant innovation at every level of the technology stack from models, software and data center design to chip architectures and materials. AI's need for abundant, high-performance and energy-efficient computing is reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. This next wave of AI semiconductor innovation will be concentrated around five key areas: leading-edge logic, next-generation high-performance DRAM, high-bandwidth memory or DRAM stacking, advanced packaging to connect logic and memory chips together, and innovations in power electronics to address energy consumption within the data center and more efficient grid to data center power delivery. In each of these critical areas, major device architecture inflections are shifting value towards material science and materials engineering, growing Applied's addressable market and driving closer collaboration with customers. On top of this, these inflections create opportunities for us to grow faster than the underlying market. Based on our deep customer engagements, we have focused our investments and product portfolio on the most enabling applications, and we expect healthy market share gains as these new technologies ramp in volume production. Let me walk you through some examples. In leading-edge foundry/logic, the transition from FinFET to gate-all-around transistors with backside power delivery grows our revenue opportunity by 30% for the equivalent fab capacity, and we are on track to gain multiple points of market share when these nodes ramp in the second half of 2026 and 2027. In this past quarter, our strength in leading-edge foundry supported revenue of almost $1.2 billion for our metal deposition business. And we also secured our first wins in moly deposition for the most critical device performance applications. In DRAM, we also have strong market share, and we expect our revenue from leading-edge DRAM customers to be up around 50% in fiscal 2025. In the quarter, our strength in DRAM supported record results for our etch business, which surpassed $1 billion of quarterly revenue for the first time. In addition, we see customers adopting our new solutions to address the stringent needs of high-performance compute memory. We have recently secured new volume production positions at leading DRAM manufacturers for our next-generation gap fill system, our most advanced chemical vapor deposition product as well as our new Pioneer dielectric patterning system. Looking further ahead, when customers adopt vertical transistor or 4F-squared architectures, a transition we expect starting in 2027 and 2028, we see opportunities to win more than 5 points of incremental DRAM share. In advanced packaging, we have built a broad portfolio of solutions to enable both high-bandwidth memory and heterogeneous integration. We have high share in the packaging market, well above the company's overall wafer fab equipment share. We are well positioned for future architecture inflections and our packaging business is on track to more than double to greater than $3 billion over the next few years. In power electronics, we believe the market for data center power semiconductors could grow to $9 billion by the end of the decade. We are on track to grow our share of this market with highly differentiated solutions that position us well for the future. As our customers race to bring these complex device architecture inflections to market, we are providing advanced service solutions that support them all the way from technology transfer into their pilot lines to optimization of device performance, yield and cost in volume production. On a year-over-year basis, our service business has now grown for 24 consecutive quarters. In addition, more than two-thirds of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. In the global race for AI leadership, having first access to new technologies has incredible value. To accelerate time to market for disruptive architectures in logic, memory and packaging, we are changing the way we work with our customers and partners to increase the development and commercialization speed of next-generation technologies. This high-velocity co-innovation strategy that we established with our leading customers is supported by Applied's global EPIC platform, which provides unique physical and digital infrastructure to accelerate AI chip architecture inflections and improve R&D spending efficiency. Our new flagship R&D facility, the EPIC Center in Silicon Valley remains on track to begin operations in spring 2026. Before I hand it over to Brice, I'll briefly summarize. Applied delivered record performance in our third fiscal quarter, and we remain on track for a sixth consecutive year of growth in fiscal 2025. We expect revenues and earnings to be sequentially lower in our fourth quarter, primarily due to uncertainties in our China business. Our long-term growth thesis for the semiconductor industry and Applied Materials remains unchanged as companies and countries compete to win the race for AI leadership. And Applied is best positioned at the major device inflections that enable the AI roadmap. These inflections will grow our total market opportunity and support market share gains in the years to come. Now I'll turn the call over to Brice.

Thank you, Gary, and thank you to everyone joining us for today's call. In fiscal Q3, we delivered a record quarter with growth across all three segments and with a robust gross margin of nearly 49%, we also achieved record non-GAAP earnings per share. In Semiconductor Systems, the overall demand environment for equipment was largely in line with our expectations with broad-based customer investments across foundry/logic, DRAM and NAND. In Applied Global Services, we achieved record core services revenue with positive trends across our key performance indicators. And in Display, we recorded our second consecutive quarter of revenue growth as the industry invests in equipment to support the further adoption of OLED technology in consumer devices. Let me now turn to the financial details for Q3. Total net revenue was approximately $7.3 billion, up 8% year-over-year and about $100 million above the midpoint of our guidance range. Non-GAAP gross margin was 48.9%, up 150 basis points year-over-year. The strong margin in Q3 was driven by the combination of product and segment mix and pricing as we work to offset tariff-related headwinds. Non-GAAP operating expenses were $1.3 billion, down slightly as a percentage of revenue as we optimized our G&A spending to help offset investments in R&D to support leading-edge technology inflections for our customers' road maps. Non-GAAP earnings per share was a record $2.48, up 17% year-over-year, given the revenue growth, better profitability and share repurchases. Moving to the segments. Semiconductor Systems revenue was $5.43 billion for Q3, up 10% year-over-year, with growth in foundry/logic driven by customer investments to support the ramp of gate-all-around nodes, partially offset by decreases in the ICAPS nodes, which we define as those greater than 7 nanometers. Compared to our expectations at our last earnings call, we saw slightly less-than-anticipated growth in leading-edge spending due to a slower fab build-out schedule and stronger-than-expected spending in ICAPS. DRAM was better than expected, up year-over-year as customers focused on investments for AI-enabling advanced DRAM. We saw a significant increase in NAND, primarily driven by sales to multinational customers in China. Non-GAAP operating margin of 36.4% was up 140 basis points year-over-year. Moving to Applied Global Services. AGS delivered revenue of $1.6 billion in Q3, up 1% year-over-year with growth in core services and a decline in 200-millimeter equipment sales. Core services grew approximately 10% year-over-year, bolstered by healthy utilization rates in leading-edge foundry logic and high-bandwidth memory, along with expansion of our tools under comprehensive agreements, which represent our most advanced service levels. Non-GAAP operating margin of 27.8% was down 180 basis points year-over-year, primarily due to customer mix. Lastly, our Display business delivered revenue of $263 million with non-GAAP operating margin of 23.6%. Moving to the balance sheet and cash flows. We ended the quarter with cash and cash equivalents of $5.4 billion and debt of $6.3 billion and generated our second highest level of cash from operations in company history at approximately $2.6 billion or 36% of revenue. Capital expenditures were $584 million, including significant investments in the United States, driven by the build-out of Applied Materials Equipment and Process Innovation and Commercialization Center, or EPIC, which will be the largest and most advanced facility of its type globally. Free cash flow for Q3 was approximately $2 billion. We distributed approximately $1.4 billion to shareholders in the quarter with dividends paid of $368 million and share repurchases of approximately $1 billion. As of the end of the quarter, approximately $14.8 billion remains available to us on our share repurchase authorization. Turning to our outlook. As Gary mentioned, there are a couple of key factors contributing to our sequentially lower Q4 outlook. First, our customers in China are moderating spending following several periods of increased investments in equipment, and we expect China as a percentage of our revenue in Q4 to decrease to approximately 29%, including display. This assumes that we do not receive any approvals of our pending export license applications. Second, we expect demand from leading-edge customers to be down given the nonlinear pattern that Gary talked about earlier, resulting from market concentration and fab timing. As a result, we are seeing customers take longer to commit to orders, leading to a shorter visibility window. With these shifts in mind for fiscal Q4, we expect total revenue of $6.7 billion, plus or minus $500 million, representing a 4.9% decrease year-over-year at the midpoint and non-GAAP EPS of $2.11, plus or minus $0.20, representing a 9% decrease year-over-year at the midpoint. We expect Semiconductor Systems revenue of approximately $4.7 billion, down approximately 9% year-over-year and AGS revenue of approximately $1.6 billion, down 2% year-over-year, with growth in core services and a decline in sales of 200-millimeter equipment. In Display, we expect revenue of approximately $350 million, a significant increase year-over-year, driven by the expansion of OLED screens in consumer devices. This does not yet include revenue from our new MAX OLED system, which we announced last year and which represents a dramatically different manufacturing approach to mass producing superior OLED displays. Lastly, given the lower expected build volumes and our projected business mix in Q4, we expect non-GAAP gross margin of approximately 48.1% and non-GAAP operating expenses of approximately $1.31 billion, and we are modeling a tax rate of 12.6%. In closing, we are leveraging our robust supply chain, global manufacturing footprint, leading technology and deep customer relationships to navigate and adapt to the near-term uncertainties. Our long-term growth thesis remains intact, and we remain laser-focused on positioning our investments and portfolio to focus on the most enabling and critical applications for our customers. Thank you for listening, and we are now ready to begin the Q&A session. Liz?

Thank you, Brice.

I was wondering if you could maybe talk to the incremental source of weakness in the outlook. Specifically in China, do you see the decrease in visibility there being extended well into 2026? Or do you think that is more of a short-term thing? And then secondly, on the leading-edge logic weakness, do you have any sense of whether you expect that to recover in the next couple of quarters? Or is that similarly lower visibility into next year?

Jim, thanks for the question. So on the outlook, two factors, as you suggest. One is the lower China, and we've foreshadowed this over the last year. We had very large shipments into China in 2023 and 2024. And we expected lower business in 2025. And we actually expect this to continue for several more quarters as we look forward. It's hard to give a specific guide. As you know, those numbers have changed over time. But with such a large build in China in those 2023 and 2024, we call it digestion. It's not unexpected that we would have lower business, especially given the restrictions in our Q4 guide, much like we experienced in Q2, if you recall. And then turning to leading logic. Here, this was different than our expectations. We have underlying demand that we think is very strong. You've got 100% utilization on the leading edge. You've got reportedly more design wins. You've got CapEx going up at cloud service providers. You've got a lot of pull from AI-related technologies, especially on the leading edge in DRAM, in HBM also. And so we expected and modeled a relatively linear ramp that would accelerate through 2025 and into 2026. And we're not seeing that in the order pattern for Q4. And so at this point, it's just uneven. We attribute some companies have been waiting longer to make capital commitments in this environment that we're all going through with tariff and trade and other uncertainties. And also with the concentration on leading-edge customer concentration, it's a little bit harder to achieve an even ramp. In past years, you have multiple customers to try to achieve a level load in your factories. Now with one customer being larger than the other customers, it's more attached to their ramp and their loadings. So that's a factor in the unevenness of the ramp going forward. But I'll just say that we're not changing our expectations. We expect gate-all-around nodes to be very large. We think it will grow to be more than 300,000 wafer starts of capacity per month as that ramps. And it's just going to be a little bit uneven going forward. And as far as our visibility into following quarters, we're working on that. I think investors should know we always have high confidence in the quarter that we guide. In the out quarters, they're typically not completely scheduled. And so we're working on that for the out quarters, and that's one of the reasons why we don't guide the out quarters. So I'll have to take a rain check on answering exactly when we'll know the shape of the ramp, but we're confident that we'll ramp on leading edge going forward.

China is 35% of the revenue in the current quarter. I didn't get the impression last quarter that you expected China to be that strong. I think it was 25% the quarter before. So I guess the question is, was China significantly stronger than you expected? And if that's the case, it feels like the non-China business feels weaker than you were sort of alluding to in your comments just because the overall numbers weren't that far off of where you had guided. Just can you give me a little more color on what your expectations had been for China relative to where it came in, in the quarter relative to the rest of the business?

Yes, absolutely. Thanks, Stacy. I think the quarter played out just pretty much exactly as we expected, the mix across. And I don't know if we gave the 35% number exactly or not, but it's certainly, I think we indicated that it was growing. And yes, from our expectation, you don't know until the end what the percentage will be, but we expected it to be higher. And yes, no real change in the flow from that perspective during the quarter. The only thing that I highlighted in the script was there was a little bit less activity on leading edge in the quarter, which we highlighted. So we had said that we expected acceleration through the year. We expected nearly $5 billion of gate-all-around related purchases in 2025, and now we're seeing that be lower, probably just over $4.5 billion. So 80% growth instead of 100% growth. Those are really the dynamics. So the change for us, even in our outlook, we expected China to be lower in Q4. The change for us is just the linearity of the leading edge.

I understand. If I analyze this further, you're suggesting that China is expected to contribute around 29% of revenue, equating to approximately $35 million, which represents a decline of around $600 million. The display segment is performing about $100 million better, so it seems we're looking at a $500 million decrease in China equipment. Overall, the total equipment forecast is down more than $700 million. Regarding the additional $200 million to $250 million, is that related to the lower leading edge? Is it mainly in the foundry and logic sectors? How should I interpret the components of that forecast?

I think you got your equation right. So approximately $500 million China, approximately $500 million leading edge, which I alluded to with a $4.5 billion instead of $5 billion. And then there's some upsides in rest of world ICAPS that explain the difference that you're looking for.

Do you think the non-China leading edge is down another $500 million sequentially? Or that's what you're saying? Or that was an annual number?

That was not. So reconciling the down of $700 million, I would say it's $500 million China, $500 million leading edge and then a plus factor for rest of world ICAPS.

Gary, the question is for you. So both kind of near and medium term. So if you look at Q1, if these trends persist, should we be assuming any sequential growth into Q1, right, based on what we know. I know you only guide one quarter at a time. And then if I kind of zoom out, same question for fiscal '26, that if China, right, may not grow and if your one kind of leading-edge customer in the U.S. is going through its issues, do you think memory growth is enough, DRAM growth is enough for Applied to grow overall as a company? Just if you could just give us the contours of how you're thinking about Q1 and fiscal '26, even if it is not in terms of absolute dollars. But just the shape and direction, I think, would be extremely helpful to investors on this call.

Vivek, I'll start. For our Q1 guidance, as I've mentioned earlier, there is more uncertainty and reduced visibility in the current environment. Customers are taking longer to finalize their commitments, so we can't provide specific details for Q1 just yet. However, as you suggested, we believe the trends for strong DRAM and leading logic are continuing. We need more time to evaluate the linearity of demand, especially regarding leading-edge technology. This year, we expect to either break records or come close in DRAM. Last year, there were several quarters with shipments to China customers, which won't be the case this year. Leading-edge memory players are growing nearly 50%, as Gary noted. DRAM is performing very well. As for leading logic, we see numerous positive factors, including significant performance advantages and design momentum, with 100% utilization on leading-edge processes and increased cloud CapEx from cloud service providers. There is a lot of momentum in that area, which we believe will support the leading edge, but we need to monitor the linearity as we progress over the next few years. Regarding your question about whether memory growth and leading-edge advancements will be sufficient to counter a weaker growth year in China compared to '24, we can't say for certain, but it will be lower. This is similar to our outlook for 2025, where we stated that growth in leading edge and DRAM would offset any slowdown in China. We will need to assess how this develops for '26 as well.

I guess I was hoping to probe the different areas of weakness that you cited for October. So for the first part, with China, it sounds like for many of your peers that the concentration is the six large players who don't require licenses. So I'm curious why your shipments could be so robust through July, but now in October, licenses are now the challenge. And then from a foundry perspective, can you be more specific? Is that just timing of clean room space availability? What's causing the lack of kind of visibility there, particularly given that utilization, like you cited, is running at 100%. And then on the HBM side, can you clarify what you're seeing there? Is that a function of waiting on contract pricing for 2026 before signing for tools or something else?

Okay, C.J., thank you. First, regarding China, I believe the situation unfolded as anticipated. A good question is why there’s more business in Q3 than Q4; it likely relates to strategic scheduling by customers to have more deliveries in Q3. There were various uncertainties that resolved at different rates during the first half of the year. Thus, our delivery schedule and business developments aligned with our expectations. I would say Q4 has returned to the levels we’ve been anticipating throughout the year, though it is lower than what we experienced in 2024. It’s important for investors to know that there are new fabs and significant investment happening in China, but it’s not yet at the rate we expect for 2024. Regarding leading logic, we model our customers' factories, their capacity additions, and the applications involved. I can state that our model assumed a more linear growth pattern than what we're witnessing. There haven’t been significant changes in customer availability; while there are some variations, they are not substantial. We simply expected a linear ramp that we’re not observing. We will collaborate with our customers as we plan for the upcoming quarters.

Can I just clarify on China? You talked about waiting on licenses. Could you speak to that?

Yes, we have a backlog of licenses, and I want to emphasize that we have not factored any revenue from that backlog into our outlook. It has been growing in recent quarters and is becoming a significant amount in terms of the number of licenses. The government is aware of this, but we are being conservative by not including it in our projections. To clarify, the customers we are currently serving and our outlook do not depend on those licenses. We are confident in our guidance, and there are no contingencies.

I also wanted to ask about the leading edge, particularly regarding the second-tier players. There is clearly a greater degree of uncertainty regarding their capital expenditure forecasts for companies like Intel and Samsung. Can you help us understand what you are incorporating into your own planning? What assumptions are you making about their spending outlook and how it may relate to your own forecasts?

Yes. Thanks, Melissa. When we take this question, we don't talk about specific customers. But when we take this question, what we do highlight is we're up to date with our customers and their forecast. So we typically update the medium-term forecast with our customers twice a quarter, and that will be the case for those customers. And we highlighted that we do have more concentration in our demand on leading-edge than we've experienced before. And that's probably the best we can say, but I think we definitely understand where they are in their plans today.

Advanced packaging, a lot of good stuff happening there. It was a $1.7 billion business for the team last fiscal year. I think it's grown at about a 35%, 40% CAGR over the prior four years, lots of inflections, right, HBM3 to HBM4, 2.5D to 3.5D packaging. Can the team just throw us up like what type of growth are you expecting this fiscal year in advanced packaging? And is this segment also being impacted by the weaker advanced logic spending dynamics that you're seeing in the second half?

Thanks, Harlan. I'll start, and I think Gary will add on here. In advanced packaging, we are seeing a steady pace compared to last year, excluding the initial burst capacity we experienced in HBM at the end of last year. So I would characterize it as being similar to last year in terms of pacing for that business. Additionally, we do not observe any changes related to the leading-edge schedules and purchasing behaviors. Now, Gary, regarding the positioning.

Yes, packaging is the area where Applied Materials has the highest market share. We offer a broad range of products and are the largest supplier of materials innovation within packaging. Our integrated packaging research and development center in Singapore collaborates closely with many of our leading customers to innovate next-generation architectures. We have a robust pipeline of new capabilities, including an integrated hybrid bonding system and other technologies that will enhance our market share in packaging. As mentioned earlier, we are on track to more than double this business, exceeding $3 billion in the coming years. Personally, I believe that AI and energy-efficient computing are among the key areas impacting power and performance. Therefore, I am dedicating significant time to work with our customers, and we are collaborating with stakeholders in the ecosystem on new architectures that will greatly influence energy efficiency and create additional opportunities for Applied Materials. We have clear visibility into this segment of our business, which holds the highest share and is well-positioned, and we are indeed on track to more than double our revenue in this area to over $3 billion in the next few years.

I had a question for Brice, and sorry for harping on China sales. A clarification on the question. The first one on the clarification, your April quarter China revenues were $1.8 billion and July was $2.6 billion. Did the liberation day in the month of April push some of your China sales from April into July quarter? And then on the question on October quarter weakness, you said China is $500 million. How much is the licensing amount you backed out of that? And if that comes through, how to think about the revenue upside in October from getting the licenses and any implications on gross margin?

Okay. Thanks, Chris, for the question. So on the first one, you're definitely remembering the dynamics correctly. There was a lot of uncertainty towards the end of our Q2 as I think some of the trade and tariff uncertainties were resolved towards the end of our quarter. So it was we were scrambling to ship what we had planned on shipping. But as I articulated last time, we pretty much made the quarter exactly as we expected, even though there was a lot of uncertainty in the last few weeks of that quarter. So as we think about the higher number in our Q3 results here for China, I don't think it was a push from Q2. That's not the dynamic. It was just more business, and I assume there's reasons at each customer for making that quarter larger. But I would also say that the Q2 and Q4 are more indicative of the level of business we've been expecting this year given some digestion in China. And then on the licensing, I wouldn't look for upside to our outlook quarter. I think even if that situation changes, it will take time to plan and build equipment or turn on services. So I don't think there's any immediate upside that anyone should expect from that. We're just highlighting that it is affecting the trajectory of the business, which is unfortunate.

Is there a way to quantify that licensing amount dollars or no?

No, we're not going to offer that, but it is a large number of licenses.

I noticed that you increased your forecast for leading edge DRAM growth for the current fiscal year from 40% to 50%. However, you mentioned that the fiscal Q3 DRAM figures were slightly better than expected, even though they were down sequentially. This suggests that in the October quarter, there might be a slight rebound. So my question is whether this is just a temporary spike given the timing uncertainties with your leading customers, or if there is potential for more sustained growth into the early part of fiscal '26 for leading edge DRAM.

Yes. Thanks for the question, Charles. Yes, I certainly don't want to draw the conclusion that there's any pop or some unusual increment there. We view DRAM as very strong. We view what's happening in DRAM to be sustainable from a trend perspective without making a specific guide. So like we said, it should be either a record year or a second-best year this year. And it's really those leading edge customers growing. And I think our investors know underneath what's happening for DRAM is you have HBM growing at 30% to 40%, depending on which report you look at. About 15% of DRAM capacity is allocated towards HBM. There's a trade-off, as you know, between making high-bandwidth memory and not in terms of the amount of silicon required. So there's a significant demand pull in DRAM. And our forward-looking outlook and our perspective is that it's not a blip.

Just to clarify regarding the commentary on leading edge DRAM spending, the timing and impact on next quarter's October revenue seems to be primarily focused on advanced foundry. Additionally, I understand that at full scale, gate-all-around could reach approximately 300,000 wafers per month. As we exit this year, it appears we might be around 10% or slightly higher than that, indicating we have a considerable runway for expansion.

Brian, thanks for the question. So you're right. Our comments on concentration are directed towards leading logic, not DRAM. I'm sure there's some of the same factor in DRAM. But in terms of the nonlinearity of builds and the things that we're working on, that's directed towards a foundry comment, leading logic comment. And we just went through DRAM. We think that's strong. It continues to be strong. And then on the gate-all-around nodes, based on our numbers of $4.5 billion and what we shipped last year, $2.5 billion, we'd estimate close to 100,000 wafer starts of capacity are in the field or will be in the field as we close the quarter. And so you're in the first three innings of the build-out there from a gate-all-around, at least the initial node and then, of course, there'll be subsequent nodes.

I guess a two-part question on China. One is how significant was the multinationals in China? That sound like it was a source of strength last quarter. Was that very significant? And then going forward, you've given China as a percentage of revenue and what you thought in the past, and that's something you talked about for Q2. I guess what I'm hearing now is that the Q2, Q4 China revenue numbers, we should kind of stay at those levels over the next couple of quarters. And it sounds like that happens regardless of whether or not you get incremental licenses. Is that the correct interpretation?

Yes, Chris, thank you for your question. We did see revenue from multinationals in our third quarter, and it was substantial. While I can't disclose the exact figure, it certainly contributed to our revenues for that period. There is a small amount expected in the fourth quarter as well. Could you please repeat the second part of your question? I can't read my notes.

That's Okay. You had given in the past your expectation as a percentage of revenue. So is it sort of Q2, Q4 levels, we'll just take that and assume that's flat the next couple of quarters regardless of whether or not you get incremental licenses.

Yes, I think in that range. So we were okay to share that with our guide, we're probably 15% to 20% down for China relative to 2024. And that's probably the right level to think about for the next few quarters.

So I just wanted to build on the question or the response to Jim Schneider's question. So you talked about in China, you have the visibility that lets you kind of guide for a pretty stable reset to revenues for the next few quarters. Just want to come back to the logic/foundry sort of leading-edge part of your business. You talked about how you update with customers kind of a couple of times a quarter. So just as you see this now, is it that a visibility for the next few quarters isn't possible or the spread is too wide? I just wanted to understand why we have kind of a reasonable shot here in China and maybe why that doesn't exist in logic/foundry leading edge?

Yes. Thanks, Tim. I think I definitely wouldn't want to create the perspective that we have more visibility in China than we do in the other end markets. That's not the case. I think what's shading our comments on China is just our expectation that it can't run at the same rate in the short term that we saw in 2024. We know there was a lot of incentives to make the level of investment in 2024. So we've been expecting it to be lower than 2024 until utilizations across all those factories become higher. So I guess that's more of intuition matched by, of course, what we're hearing from the customers and the accounts. On the leading edge, it's a good question. And what we're doing is just realizing that we had a lot of effort during COVID put into building good visibility with our customers into multiyear demand and multiyear build plans. And in this uncertain environment, what we're saying is we've kind of fallen off that. Customers have been less certain and that added visibility that we had put in place just isn't there right now. We do have a good perspective of factories and capacity that's being put in place. And so then it comes down to the actual build order and linearity, and that's what we're working on.

So sorry for harping on the leading-edge logic piece here. But so on that $4.5 billion of GAA revenue, how would you characterize your share position kind of one year into this GAA ramp? And has this tracked in line with expectations? Or are there things that haven't gone as planned? And I'm asking this because just $500 million is not nothing. It's a bit of a step down from the $5 billion that you earlier mentioned. Just want to get assurance that this isn't a share issue.

Thank you for your question, Shane. We have significant clarity regarding the developments in architecture for our leading-edge logic customers. The key developments vital for AI and energy-efficient computing are gate-all-around and backside power distribution. As mentioned earlier in the call, we anticipate that revenue for Applied will grow by approximately 30%, maintaining the same number of wafer starts as we see growth in these two areas over the coming years. Applied is in a strong position with all leading-edge logic customers. Our interactions with customers have become earlier, more in-depth, and broader than ever before. When considering gate-all-around or backside power in transistors and wiring, Applied possesses highly enabling technologies, and these are areas where there is significant demand for our integrated systems. The manufacturing of these chips involves over 2,000 steps, with some materials being only a few atoms thick. This creates complex interfaces that significantly affect overall electrical performance. We are witnessing greater adoption of integrated systems, with increased steps and technologies being consolidated into single platforms. There is a strong indication that we are surpassing expectations as the first and next generations of gate-all-around ramp up. We are also well-positioned to excel in backside power. These elements are crucial for our customers to secure their key AI project wins, and we are highly confident in our ability to gain market share and achieve substantial revenue growth in the future.

Just to follow up on the previous question. In terms of the ramps, given your more than 50% share on gate-all-around and backside power, when do you see that start to get more material, if you can give us some more color there?

Yes, thank you for the question, Vijay. We won't provide specific details at this time, but we do anticipate ramping up. In the previous quarter, we expected continued acceleration, and currently, we need to work on our loading plan for the upcoming quarters. We'll have to wait for more visibility as we collaborate with our customers. Generally, we anticipate an increase in investment over the long term. We consider leading-edge logic and DRAM to be the two fastest-growing end markets. We believe we are well-positioned in both markets, not only due to our exposure but also because of the technologies that will enable us to gain market share. This is the strategy we have implemented for the company, but we will need to wait as we engage with our customers over the next few quarters.

Got it. And then quickly on the OpEx side, Brice, just with the revenues being a little challenged there. Any thoughts on where OpEx should trend? I think it's like 16% is your long-term target. Where do you see that trending on OpEx?

Yes. Thanks for the question. We've been closer to 18% for some time. I think 16% was an aged number, probably from the model of years ago. But to your point, given the revenue guide, we'll be very cautious on spending as we go through the next quarter. And so you should see us behave that way.

Could you provide some insights on the ICAPS business? I understand there are challenges in China, but have you noticed any stabilization in the non-China ICAPS segment? Should we expect both China and non-China to continue being a hindrance to growth in the upcoming quarters?

Thanks for the question, Joe. We still see lower utilizations across the ICAPS. These are our mature nodes, which include IoT, communications, auto, power, and sensors, for those who may be unfamiliar with the acronym. As we've mentioned for several quarters, with utilizations being low and some end markets slowing down, we've expected investment levels to remain low. However, we did observe some positive signs in the quarter, particularly on the industrial side. Additionally, we are noticing an increase in investments in non-China regions of ICAPS this quarter. This will be a space to monitor going forward. We believe the ICAPS market will grow over time, but it depends on how China manages overall market digestion in the future. Thanks for the question.

Thank you, and thank you, everybody, for attending today. In summary, during this period of lower visibility, we're leveraging our global supply chain and manufacturing footprint to stay flexible and adapt to a dynamic range of scenarios. As I've highlighted in the past, we understand that quarterly growth may be uneven at times, but that doesn't deter us from our strategy to focus on the highest growth areas of the market, which are directly enabling secular trends like AI. Thank you. And Liz, please close the call.

Thank you, Brice. I'd like to call your attention to some upcoming investor events. On August 28, Brice will attend the Deutsche Bank Technology Conference. And on September 9, Gary will attend the Goldman Sachs Communacopia and Technology Conference. And then lastly, a replay of today's call will be available on the Investor Relations website by 5:00 p.m. Pacific Time today. Thank you for your continued interest in Applied Materials.