Applied Materials (NASDAQ: $AMAT) is a leader in the manufacture of materials used in virtually all new chips and displays worldwide. On Thursday, February 13, 2025, after markets closed, it released its first quarter fiscal 2025 results to a disappointing market reception. Let us take a deep dive into the results.
Applied Materials Q1 Results
For the first quarter of fiscal 2025, Applied Material reported revenue of $7.717 billion, a 7% YoY increase, beating estimates of $7.15 billion. It reported an adjusted EPS of $2.38 on an adjusted net income of $1.95 billion, beating estimates of $2.28.
Other Financial Highlights
Applied Materials reported an adjusted gross margin of 48.9% compared to 47.9% the previous year and an adjusted operating margin of 30.6% compared to 29.5% the previous year.
The company generated $925 million in cash from operations and distributed $1.64 billion to its shareholders, which included $326 million in dividends and $1.32 billion in share buybacks. It ended the quarter with $544 million in adjusted free cash flow, a 74% YoY decline compared to the $2.1 billion reported in Q1 fiscal 2024.
Segment And Region Performance
The Semiconductor Systems segment was its biggest source of revenue at $5.36 billion compared to $4.9 billion the previous year. It was followed by the Applied Global Services segment, which generated $1.6 billion, while the Display segment delivered $183 million in revenue.
By geographical location, China is the biggest source of revenue at 31% of total revenue, compared to 45% the previous year. Taiwan’s share of total revenue increased to 17% compared to 8% the previous year. Meanwhile, the US share of total revenue rose to 13% from 11% the previous year. Korea’s share rose to 23% from 18% the previous year, while Japan’s declined to 8% from 9% the previous year. Europe also saw a decline from 6% to 4% in Q1 fiscal 2025.
Applied Materials’ Q2 Outlook
For the second quarter of fiscal 2025, Applied Materials expects revenue of $6.7 billion to $7.5 billion, below analysts’ estimate of $7.21 billion at the $7.1 billion midpoint. It expects an adjusted EPS of $2.12 to $2.48, above analysts estimate of $2.09 at the $2.30 midpoint. The company expects an adjusted gross margin of 48.4% for Q2 fiscal 2025.
Earnings Call Highlights
The company CEO, Gary E. Dickerson, said that it expects China as a percentage of revenue to drop by about 5%, bringing it below the normalized level of around 30%. It expects around a $400 million impact on fiscal 2025 revenue due to updated trade rules announced in December and January 2025.
The CEO also revealed that they were part of two teams that received grants under the CHIPS Act to develop advanced packaging substrates for 3D integration. He added that they had made progress on their EPIC Center in Silicon Valley, which they expect to come online in 2026.
Applied Materials (AMAT) Market Performance
Following the disappointing revenue guidance, AMAT shares sank 5.08% in premarket trading to $174.91 as of 6:12 AM EST. In the past six months, AMAT stock has dipped 8.23%, while in the past 12 months, it is up 2.20%. Overall, AMAT stock has underperformed the S&P 500.
Thursday’s closing price of $184.27 is above its 50-day moving average of $175.64 but below its 200-day moving average of $197.15.
Analysts give AMAT shares an overall moderate buy rating. They forecast an average price of $205.98, an 11.78% upside, with the highest forecast at $250 and the lowest at $164.
Should You Add Applied Materials (AMAT) To Your Portfolio?
Applied Materials successfully beat revenue and earnings estimates in fiscal Q1. However, its disappointing outlook dampened the Q2 performance. Nevertheless, there might potentially still be an opportunity for the company as AI chips take off in 2025 and beyond. However, investors need to pay attention to its China exposure, with the country still making up over 30% of all revenue, down from 45% the previous year.
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