Applied Materials (AMAT.US) Q4 Earnings Call: CEO Responds to Capacity Mismatch Concerns, Says No Customer Delayed Delivery; System Capacity Expected to Double by 2028

According to the news service Zhihui Finance APP, Applied Materials (AMAT.US) released its financial results for the fourth quarter of fiscal 2026 (ending October 25, 2026) after the US stock market closed on November 12: revenue reached $10.41 billion, up 53% year over year, a historical high and above the FactSet analyst consensus estimate of $10.3 billion; non-GAAP EPS was $4.16, up 92% year over year, also a record, and above the expected $4.06; GAAP net income was $2.718 billion with GAAP EPS of $3.40 (up 43% year over year). After the earnings release, the stock price initially rose more than 2% before narrowing gains to about 1%. Addressing analyst concerns about a "gigawatt-scale data center capacity and chip capacity mismatch leading to customers delaying deliveries," CEO Gary Dickerson made it clear on the conference call: "The answer is no. No customer has indicated they don’t want the equipment as soon as possible … we continue to receive requests from customers to accelerate ramp-up and deliver early." Management also unveiled an aggressive expansion plan: to double system output by 2028 compared to Q4FY26 levels, and forecast that the wafer fab equipment (WFE) market will grow by more than 30% in 2027, with the company expected to outperform the market again.

Focus and Response

The core focus of this meeting was not the earnings numbers themselves—revenue, EPS, and guidance all solidly beat expectations—but the sustainability of demand: As the market starts to worry about a mismatch between AI data center construction (gigawatt-level power capacity) and chip capacity leading to delayed equipment orders, can Applied Materials keep up its high-speed growth? Dickerson responded that no customers are delaying deliveries; all are requesting early shipments. CFO Brice Hill added that demand outstrips supply, especially in DRAM and advanced logic, and that the PC, smartphone, and other markets have yet to fully recover, providing a demand buffer. Hill also acknowledged that there are "pinch points" in the supply chain: "If everything in supply arrived perfectly, Q1’s numbers could have been a bit higher, but the impact is limited." The moderate stock reaction was likely due to the previously strong rally and the current high share price.

Record Quarter and Fiscal Year

Q4 revenue of $10.41 billion rose 14% sequentially and 53% year over year, the largest single-quarter dollar increase ever for the company. Non-GAAP gross margin was 50.6% (up 250bp year over year); non-GAAP operating margin was a record 35.3% (up 670bp year over year), the 14th consecutive quarter of expanding year-over-year gross margins. Operating cash flow was $3.3 billion and free cash flow was $2.6 billion, both record highs for a single quarter. The company repurchased $2 billion in shares, the largest quarterly buyback in more than eight years.

Full Fiscal Year 2026

Total annual revenue was $34.45 billion (+21%), the seventh consecutive year of growth; non-GAAP EPS was $12.89 (+37%), with management noting that profit growth was roughly double revenue growth, reflecting operational leverage. Annual operating cash flow was $8.87 billion (+11%), and after $2.7 billion in capital expenditures, free cash flow was $6.2 billion (+9%); a total of $4.75 billion was returned to shareholders for the year ($3.18B in buybacks + $1.57B in dividends).

Segment Performance

Semiconductor Systems revenue was a record $8 billion (+64% year over year), with sales in Korea and Taiwan both hitting all-time highs and both DRAM and advanced packaging revenues hitting records; PVD, CVD, ALD, epitaxy, etch, CMP, and process control revenues all set records. Segment non-GAAP gross margin was 55.2% (+240bp) and operating margin was 39.0% (+940bp). Applied Global Services (AGS) revenues hit a record $1.9 billion (+26%); other businesses (including display) contributed $517 million as anticipated.

Industry Outlook: AI-Fueled Multi-Year Expansion

Dickerson stated that AI is adding a "rapidly growing and incremental" layer of demand for semiconductors, with advanced logic and DRAM fabs operating at full capacity, and NAND utilization rising quickly. Management cited: 2027 cloud capex is expected to grow over 50% to exceed $1 trillion; about 60% of AI data center capital costs are silicon, with over 85% of that being advanced foundry logic, DRAM, and advanced packaging—these three segments are expected to be the fastest-growing parts of WFE in 2027, driving about 75% of WFE growth by 2030, and are exactly the areas where Applied Materials has been investing for years to establish a leading position.

Capacity Expansion and Supply Chain

The company has raised supplier demand forecasts every quarter throughout 2026, coordinating quarterly with over 2,000 suppliers on capacity schedules. The CFO said demand planning now stretches out to 2030, with the goal to double system output by 2028 compared to Q4’26, and more than double manufacturing and lab capacity by 2030. The medium-term constraint is cleanroom capacity: Over 20 wafer fabs’ ramp projects are being tracked for 2027, with more than 10 major new build and expansion projects added for the third consecutive quarter, many of which won’t come online until 2029–2030, indicating demand levels over both five- and ten-year timeframes exceed earlier planning.

Advanced Packaging and Process Control

For calendar 2026, advanced packaging revenue is expected to grow by about 90%, and inspection/metrology (process control) is forecast to rise by over 50%; the company serves about 55% of the WFE market and maintains No. 1 positions in CVD, PVD, epitaxy, CMP, ion implantation, thermal processing, e-beam, and conductor etch. Regarding hybrid bonding, management says Applied covers about 80% of the process steps and is already in volume production for some advanced logic 3D packaging; all memory customers are evaluating it for HBM adoption. EPIC R&D platform partners now include Intel, Kioxia, BESI, and UCLA, bringing the total to 15.

China Business and Capital Allocation

The CFO expects shipments to China will be "below 25%" in 2027 (actuals: 25% in Q4, 27% for all of fiscal 2026). Growth in China will lag behind AI-driven markets, but the company is gaining share in China’s 28nm-class investments. On capital allocation, the company's share repurchase authorization stands at $10.8 billion; it will continue to return 80%-100% of free cash flow to shareholders.

Next Quarter Outlook

Q1 FY2027 (a 14-week quarter): Revenue guidance is $11.1B ± $0.5B, with the midpoint up 58% year over year and above the consensus (roughly $10.85B as per Yahoo Finance/Financial Press summaries); non-GAAP EPS guidance is $4.35 ± $0.20 (+83%), higher than the expected $4.23–$4.24. This includes about $8.7B for Semiconductor Systems (+69%), over $2B for AGS (+28%), and about $400 million for other businesses; gross margin is expected around 50.8%. The company noted the 14-week quarter is a tailwind for AGS, and expects Q2 AGS revenue to be similar with Q2 OpEx about 15% of revenue.

Full Meeting Transcript

Attendees: Michael Sullivan (Corporate Vice President, Investor Relations), Gary Dickerson (President & CEO), Brice Hill (Senior Vice President & CFO)

Management Remarks

**Michael Sullivan (Investor Relations)** After formal disclosures, he introduced CEO Gary Dickerson and CFO Brice Hill as the company spokespersons. He specifically noted: references to "calendar 2026" refer to Q2FY26 to Q1FY27.

Gary Dickerson (President & CEO):

This quarter’s results were at the high end of guidance, with revenue and profits at all-time highs. Applied Materials delivered a record fiscal 2026, marking seven years of consecutive growth. I’d like to thank our global employees and supply chain partners for maintaining customer trust during this unprecedented industry ramp. As this is our year-end call, I’ll briefly review our FY26 results, discuss the market environment, and finally explain how Applied Materials is building the industry’s most enabling portfolio to advance the AI compute roadmap.

In fiscal 2026 our revenue grew over 21%, with profit growth almost double that, demonstrating operational leverage in our business model. Using the midpoint of our Q1 guidance, we expect Semiconductor Systems revenue for calendar 2026 to grow over 40%. As AI compute drives strong long-term growth for semiconductors and WFE, Applied Materials is growing faster than the WFE market, thanks to leading technologies in the most enabling, highest-value segments for AI compute. Our outperformance comes from growing our addressable market and notably gaining share in advanced foundry logic and DRAM. For calendar 2026, advanced packaging revenue is forecast to grow about 90% and inspection/metrology revenue by more than 50%.

Advanced semiconductor demand is far outpacing supply, and the industry needs years of new fab investment to close the supply-demand gap. We believe 2027 will be another record year for both the market and Applied Materials, with WFE demand expected to grow over 30% year over year and the company having a strong foundation to again outperform. Industry growth rates hinge on how quickly the end-to-end ecosystem can expand—from cleanroom buildout to equipment components and raw materials.

Applied Materials is taking multiple actions to ensure capacity and resources are in place: doing demand planning more closely with customers, with major customers providing us with eight quarters of rolling forecasts and earlier orders; and deepening collaboration with suppliers—I recently met with over 250 key supplier executives to align on capacity ramp expectations and readiness for various growth scenarios.

In AI data centers, about 60% of capital costs are silicon, over 85% of which is advanced foundry logic, DRAM, and advanced packaging. These three areas have the most impact on the AI compute roadmap and are where WFE is growing fastest for 2027; combined, they’re projected to drive about 75% of WFE growth by 2030. This is where Applied Materials made strategic investments over the past years—building the industry’s most enabling portfolio. With our share gains at major technology inflection points, we expect to continue outperforming in 2027 and beyond.

In mid-October, we unveiled the EPIC Center in Silicon Valley and hosted an investor breakfast in San Francisco, where we shared three themes: the unprecedented opportunities of the AI era; the unique strengths of Applied Materials’ capabilities and portfolio; and how we create more value for and capture more value from our customers.

As global AI deployments accelerate and adoption spreads rapidly, the race for AI compute leadership boils down to two interrelated competitions—both of which place Applied Materials at the core. The first is the competition for technology leadership—advancing the chip and packaging roadmaps, maximizing the number of tokens processed per watt per second in data centers. The second is a capacity race—rapidly ramping new fabs while optimizing output and yields at existing facilities.

Applied Materials has built three leading portfolios: materials innovation, integration innovation, and yield innovation. The foundation for materials innovation is a complete, interconnected technology set; we serve about 55% of the WFE market and maintain No. 1 positions in CVD, PVD, epitaxy, CMP, ion implantation, thermal processing, e-beam, and conductor etch for advanced logic and DRAM. At leading nodes, shrinking features, 3D structures, and new materials add tremendous process complexity. Interactions between process steps are critical, especially when material layers are only 1–2nm thick. That’s why co-developing deposition, etch, process, inspection, and measurement technologies from the start—to solve integration challenges—is Applied’s unique strength.

We’ve also built world-class integration, modeling, and simulation teams and full lab infrastructure to accelerate innovation in transistors, interconnect, memory, and advanced packaging. As yield and output become ever more crucial for customers, we’re bringing new yield innovations to market: the industry’s highest-resolution, fastest e-beam imaging, plus our leading AI-powered AIX services. E-beam and AIX enable faster R&D learning cycles, faster new tech transfers on pilot lines, and more good die at mass production. We have the industry’s largest connected installed base—over 37,000 chambers linked to AIX, growing over 20% per year.

Materials innovation, integration innovation, and yield innovation are all accelerated by our EPIC platform. EPIC lets customers and partners co-develop with Applied for earlier access to next-gen technology, faster learning, and high-yield, high-volume manufacturing. For Applied, EPIC means being designed in earlier on new chip and packaging architectures, gaining deeper insight into customers’ multi-generational roadmaps, and improving R&D productivity. Since the last call, we added 4 EPIC partners: Intel, Kioxia, BESI, and UCLA, bringing the total announced to 15.

At our investor events, we shared 2025–2030 value creation goals: Gain over 2 points of WFE share, lift service revenues per installed tool by more than 20%, and improve gross and operating margins by 5 and 10 points, respectively. I believe we’ll make tangible progress toward these goals in 2027.

In summary: Fiscal 2026 was a record year, with Semiconductor Systems expected to grow over 40% for calendar 2026. We have established leadership in advanced foundry logic, DRAM, and advanced packaging—the most critical enablers for AI compute and the fastest-growing WFE segments in 2027. 2027 will be another record year for both the industry and Applied Materials’ outperformance. AI is fueling multi-year semiconductor demand expansion; Applied has never been in a stronger position to lead and outperform the market.

Brice Hill (Senior Vice President & CFO):

This quarter marked the third consecutive period of double-digit sequential and year-over-year growth in revenue, operating profit, and non-GAAP EPS. Q4 was also the fourteenth straight quarter of year-on-year gross margin expansion, reflecting the value our product and service portfolio delivers to customers. We expect to outperform the market in this calendar year, with strong growth in DRAM, advanced foundry logic, and advanced packaging—the areas we continue to invest in.

All of our tracked leading indicators continue to trend up: 2027 cloud capex forecast to rise more than 50% to well over $1 trillion; AI token usage increasing exponentially; the proliferation of AI models is spurring new applications and positive economic returns for service providers and early adopters, including Applied itself. AI is now a part of daily work at Applied Materials: over 80% of employees use Microsoft Copilot, Anthropic’s Claude, and specialized materials discovery and engineering tools; all software developers use AI, seeing over 40% productivity gains on average. Our monthly token consumption has grown more than 50-fold this year and is expected to increase significantly by 2027.

AI continues to drive strong incremental wafer demand, advanced logic and DRAM fabs are at full capacity, NAND is not far behind, and ICAP (mature technology investments) remains healthy.

In the near term, our focus is on scaling up supply chain capacity and shipping more systems. This year, we raised supplier demand forecasts each quarter, and suppliers are working with us to support increased 2027 outlooks. We mapped our supply chain, and teams are managing pinch points to deliver another year of strong growth. In the medium term, cleanroom capacity remains the key constraint to how much equipment the industry can absorb. Fortunately, in 2027 alone we’re tracking more than 20 wafer fab ramps and line expansions; and we’ve built new teams and use AIX to help customers accelerate ramps and maximize wafer output and yields.

Longer term, customer demand signals are very strong: for the third straight quarter, over 10 major new and expansion fab projects were added to our watch list. Many of those new projects are expected to come online in 2029 and 2030, indicating logical and memory demand over five- and ten-year horizons is much higher than previously planned. We’re now jointly forecasting with customers out to 2030. To support customer growth, we’re investing to double system output by 2028 (vs. Q4’26) and more than double manufacturing and lab capacity by 2030.

Review of fiscal 2026: Revenue grew over 21% to $34.4 billion; non-GAAP gross margin increased 130bp to 50.1%; non-GAAP EPS grew 37% to $12.89. Both Semiconductor Systems and AGS posted double-digit revenue growth, with both segments’ gross margins up roughly 150bp. Operating cash flow was $8.9 billion (+11%), and free cash flow was $6.2 billion (+9%) after $2.7 billion in capex. Over $4.7 billion was returned to shareholders for the year, including nearly $3.2 billion in buybacks and $1.6 billion in dividends.

Q4 results: The company posted its largest-ever single-quarter dollar increase, with record revenue of $10.4 billion, up 14% sequentially and 53% year over year. Non-GAAP gross margin rose to 50.6%, up 20bp q/q and 250bp y/y, driven by favorable product mix and higher pricing. Non-GAAP operating margin expanded to a record 35.3%, up 130bp q/q and 670bp y/y. Non-GAAP OpEx as a percentage of revenue fell 430bp y/y to 15.2%, illustrating strong operational leverage. Non-GAAP EPS hit a record $4.16, up 19% q/q and 92% y/y. We plan to drive further gross margin expansion by launching more enabling products and sharing value created for customers, and to further boost operating leverage and margins by scaling support functions through AI and automation with minimal headcount growth.

Segment performance: Semiconductor Systems recorded a record $8 billion in revenue, up 14% sequentially and 64% year over year, with Korea and Taiwan at all-time highs. DRAM grew strongly as expected, and both DRAM and advanced packaging revenues were at record levels. On product dimensions, record revenues were achieved in PVD, CVD, ALD, epitaxy (deposition), etch, CMP, and process control. Segment non-GAAP gross margin improved 240bp y/y to 55.2%, and non-GAAP operating margin rose more than 940bp y/y to 39%. AGS posted record $1.9 billion in revenue, up 26% year over year, with both service and spares revenues at highs; segment gross margin improved 100bp y/y to 35.1%, and non-GAAP operating margin nearly 170bp to 30.5%. Other revenue was $517 million, in line with forecasts.

Cash flow and shareholder return: Q4 operating cash flow was a record $3.3 billion, with capex down quarter over quarter to $684 million and free cash flow a record $2.6 billion. Over $2.4 billion was returned to shareholders for the quarter, including $2 billion in buybacks and $421 million in dividends. The buyback authorization stands at $10.8 billion, and we continue to expect to return 80%-100% of free cash flow to shareholders over the long term.

Q1 outlook: Note that Q1 is a 14-week quarter, which will be favorable for Q1 AGS revenue growth. We expect company revenue of $11.1B ± $0.5B, with a midpoint up 58% y/y; non-GAAP EPS $4.35 ± $0.20, up 83% y/y. Breakdown: about $8.7B for Semiconductor Systems revenue (+69% y/y); AGS’s first $2B+ quarter (+28% y/y); other businesses about $400 million. Non-GAAP gross margin is expected to rise toward 50.8% (up 170bp y/y), non-GAAP OpEx about $1.7 billion, and a non-GAAP tax rate around 13%. For Q2 modeling, we expect Q2 AGS revenue similar to Q1 and Q2 OpEx to be about 15% of revenue.

In summary: AI continues to drive rapid incremental industry demand growth. Our investments in this wave have produced a rich and expanding enabling product and service portfolio. Our technology leadership in the most critical markets is reflected in strong revenue growth and gross margin expansion. By focusing on operational leverage, we’ve delivered record operating margins, strong cash flow, and shareholder returns, including the largest single-quarter buyback in over eight years. Customer demand visibility remains long, and we expect 2027 to be another record year, with increased investments for even higher levels beyond next year. We have high confidence in our strategy and will show sustained progress in share gains, gross margin expansion, and operational leverage.

Q&A Section

CJ Muse (Cantor Fitzgerald): How has the demand environment changed over the past 3 months? What’s the visibility to 2028/2029? How does it break down by foundry/logic, DRAM, NAND? What is the implied shipment growth for doubling output by 2028 and doubling capacity by 2030?

Brice Hill (CFO): Over the past 90 days, customer demand has continued to increase. For the third consecutive quarter, more than 10 projects (new fab builds and major upgrades) were added to our tracking list. Advanced logic and DRAM markets are constrained—customers are doing all they can to increase capacity and accelerate timelines. Output will double by 2028—"We just completed an $8 billion quarter; you can do the math." Doubling capacity by 2030 is meant to cover various growth scenarios, and we share all information with suppliers.

Gary Dickerson (CEO): I’d add that, other than advanced logic and DRAM, there’s huge demand for advanced packaging—this year, the segment grew about 90%, and growth in 2027 and beyond is also very strong.

CJ Muse (follow-up): How do you cooperate with suppliers and their upstreams? Do you provide advance payments and other support?

Brice Hill: We have over 2,000 suppliers. First, we ensure our eight-quarter rolling forecast is communicated in detail so they can plan output. Second, we check actual progress quarterly. Suppliers are motivated to invest themselves—"We don’t think higher demand scenarios face any roadblocks." There will be pinch points, and almost all suppliers will need to add capacity and staff.

Tim Arcuri (UBS): What are the end market assumptions for Q1? DRAM grew strongly in Q4.

Brice Hill: The Q1 pattern is similar to Q4; DRAM and advanced logic remain strong and both are supply-constrained. The 2027 structure is expected to be much the same—advanced DRAM and advanced packaging are the strongest growth areas. The new thing for 2027 is ICAP (mature logic technology) returning to growth.

Gary Dickerson: Additionally, ICAP will grow much faster in regions outside China for 2027.

Tim Arcuri (follow-up): Is there any indication of customers delaying deliveries—i.e., is there a risk of gigawatt-scale power capacity mismatches vs. chip capacity?

Gary Dickerson: "No, absolutely not. No customer has said they don’t want to receive equipment as soon as possible. I’ve travelled a lot recently … we continue to get requests to accelerate ramp and deliver even earlier."

Vivek Arya (Bank of America Securities): If data center construction slows in 2027 or 2028, what’s the impact on WFE forecasts? Are customers planning long-term and unlikely to cut back due to a short-term slowdown?

Gary Dickerson: I meet monthly with main customer CEOs; the message is always "please ramp faster." Compute demand will continue to rise and I see no sign of concern about overexpanding capacity—"In reality, it’s quite the opposite: people want us to pull in deliveries and ramp more quickly."

Brice Hill: Demand exceeds supply, especially for DRAM and advanced logic. Also, PC, smartphone, and smart TV markets are still constrained—even if data center demand softens, there is significant buffer.

Vivek Arya (follow-up): At the start of last year, the company expected over 20% growth in Semiconductor Systems; the actual result is close to 40%. Why did things get better? Is 30%+ WFE growth in 2027 a floor? Can 2027 repeat 2026?

Brice Hill: Growth is dictated by cleanroom supply. Last year, customers added cleanrooms, pulled in projects, and upgraded lines to boost output. "Ultimately the macro equation is governed by the amount of usable cleanroom."

Stacy Rasgon (Bernstein Research): Applied grew over 40% in 2026; how much did WFE actually grow? If WFE is up 30%+ in 2027, will the outperformance look like 2026?

Brice Hill: We outperformed WFE in 2026, and will again in 2027, because of our leadership and favorable portfolio in advanced logic, DRAM, and advanced packaging. Our business grew more than 40%; WFE was slightly below that.

Stacy Rasgon (follow-up): Competitors mentioned recent supply constraints hurt their outlook—did Applied Materials also feel the impact?

Brice Hill: We have some pinch points too. "If all supply was perfectly in place, our Q1 numbers would be a bit higher. It’s not a major impact." We work closely with all suppliers and have grown output double digits for three consecutive quarters and expect to increase each quarter this year.

Gary Dickerson: Every customer wants shipments as fast as possible; compute demand is very strong. The team is doing a great job ramping output. There’s more to do in 2027 but we’re well positioned for strong outperformance.

Atif Malik (Citi): Regarding the DRAM roadmap: Some memory makers will shift to 3D DRAM vs. 4F²—what are Applied’s product positioning and opportunities in both?

Gary Dickerson: Refer to our investor breakfast slides—In the new version of 6F², we are gaining share; as the industry moves to 4F² and 3D DRAM, both the serviceable addressable market (SAM) and our share will rise several points. "DRAM is a very strong segment for us; we’re much bigger than our nearest process equipment peer." The SAM per million wafer starts rises dramatically from 6F² to 4F² to 3D DRAM. We have deep co-innovation relationships with all companies.

Atif Malik (follow-up): AGS growth—installed base up 20% YoY; service revenue per tool up 20%—what’s the outlook for next year?

Brice Hill: Long-term, the guide is mid-teen percentages (about 15%): installed base up 5%–10% per year, and per-tool revenue up 5%–10%. This year’s near-100% utilization was a unique factor; in future years, we don’t expect the same extra benefit.

Krish Sankar (TD Cowen): Inventories only increased modestly and days declined by 10—why not be more aggressive in building inventory? And what about the outlook for April quarter Semiconductor Systems?

Brice Hill: Inventory was up about $300 million to $6.9 billion this quarter. "I wish I had more inventory." We’ve delivered double-digit output growth three quarters in a row and will keep pushing. No detail yet for April quarter; expect output to grow each quarter this year.

Krish Sankar (follow-up): DRAM WFE growth this year was mainly from conversion. Will conversions slow in 2027 and will greenfield investments accelerate, or will conversions continue?

Gary Dickerson: Both will occur: customers are doing all they can on upgrades and increasing greenfield investment considerably. I’ve never seen so much industry focus on yield and output innovation. Over 37,000 chambers are connected to AI-powered AIX services, driving strong AGS demand.

Harlan Sur (JP Morgan): Process control is set to grow over 50% this year, faster than overall system business. You’re launching an advanced packaging inspection platform next year and customers are more focused on yields and costs. Will process control outrun overall Semiconductor Systems again next year?

Gary Dickerson: Both e-beam and optical business grew over 50% this year; e-beam business is now twice that of our nearest competitor. "E-beam—you can’t fix what you can’t see." Synergy between e-beam imaging and process equipment innovation has never been stronger. On the optical side, major innovations are happening in advanced packaging. "Process control (PTC) will again see very strong growth in 2027," and so will Applied overall.

Harlan Sur (follow-up): AGS has had operating margins over 30% for two quarters and incremental margins above 35%–40%. For the company’s 40% operating margin target by 2030, what’s the assumption for AGS?

Brice Hill: AGS gross and operating margins will continue to improve. New products provide great value in yield and output management; AGS is a contributor to overall margin goals.

Jim Schneider (Goldman Sachs): What’s the expected pace of gross margin expansion over the next 4–6 quarters? Beyond product mix, to what extent can operating improvements or pricing drive gains?

Brice Hill: Production increases offset expansion costs, and new tools are priced higher. "Faster semi market growth is good for gross margin; pricing also helps." Q4 and Q1 outlooks include expansion costs and employee training. Look at the Q4 and Q1 cadence as a reference.

Gary Dickerson: Market positioning is very favorable; we lead in advanced foundry logic, DRAM, and advanced packaging. High-value products drive Semiconductor Systems gross margin benefits. Expect significant profit margin progress in 2027, with value sharing as new technologies ramp into production.

Jim Schneider (follow-up): What’s the China business outlook in FY2027, and how does it affect margins?

Brice Hill: China will grow, but not as fast as AI-driven markets. "Looking to 2027, exposure related to China, or shipments to China, may be below 25% of our business."

Chris Caso (Wolfe Research): Regarding cleanroom space constraints—what’s the visibility for 2028? Will cleanroom supply constrain WFE growth in 2028 and beyond?

Brice Hill: Think of it as an envelope expanding each year. Of the 10-plus projects added this quarter, most of the plants won’t open until 2029 and 2030. After the WFE growth rate of the past decade, we now expect it to be greater in the future; AI demand is incremental.

Chris Caso (follow-up): Progress and timing for hybrid bonding adoption, especially in the context of AI inference?

Brice Hill: Hybrid bonding is now being used in some advanced logic 3D packaging; all memory customers are evaluating it for HBM. "It’s a very important technology and crucial for 3D and advanced packaging markets."

Gary Dickerson: Hybrid bonding is critical for I/O density and reducing interconnect length—it’s the number one topic in customer discussions. It’s already adopted in logic mass production. "We serve about 80% of hybrid bonding steps," and have a strong share in HBM stack-up. The partnership with BESI, combined with our strong position in adjacent steps, will power significant package business growth.

Joe Quatrochi (Wells Fargo): If non-China ICAP grows next year and China grows too, why shouldn’t we expect Applied’s outperformance vs. WFE to accelerate in 2027?

Brice Hill: Digestion cycles at global customers appear to be concluding—overseas customers are expanding capacity investments. In China, for customers we can serve, "we believe we’re gaining share in 2026," mainly thanks to 28nm investments.

Joe Quatrochi (follow-up): With advanced packaging growth revised higher, what’s the mix from HBM/memory vs. foundry logic? What about 2027?

Brice Hill: In 2026, a large portion is HBM-related packaging, which will see huge growth.

Gary Dickerson: HBM will remain strong in 2027. Customers are focusing on new package architectures and maximizing substrate size. The leadership portfolio we’ve built over years, coupled with the NEX acquisition, sets us up well for 2027 and beyond.

Melissa Weathers (Deutsche Bank): How will 2027 progress—what’s the first half vs. second half split? Any need to model for major cleanroom dynamics?

Brice Hill: "We expect to increase output every quarter this year." As for cleanrooms, currently there are no unknown major dynamics.

Melissa Weathers (follow-up): What’s the trajectory and margin pressure for "other" businesses (like display)?

Brice Hill: Display business was strong in Q4’26, over $500 million. Model about $400 million per quarter going forward, 40% gross margin and 20% operating margin; other businesses are roughly breakeven. Display profits are invested in adjacent areas.

Closing Remarks

Brice Hill: "Our investments are driving strong financial results, including record quarterly revenue growth and continued gross margin expansion, and I’m pleased with that. Looking forward to seeing you this quarter in Santa Clara and at upcoming events like RBC (New York), UBS (Scottsdale), Wells Fargo (Dana Point), and Barclays (San Francisco)."