To The Moon

After the closing of the U.S. stock market yesterday, Applied Materials, the world's largest semiconductor equipment manufacturer, released its FY23 Q3 financial report (covering the three-month performance up to July 30th), leading to a 2.4% increase in its stock price:

Without further ado, Applied Materials' performance exceeded market expectations.

Specifically, for the third quarter of FY23, Applied Materials recorded a revenue of $6.425 billion, marking a 1.5% year-on-year decline but surpassing analysts' consensus estimate of $6.157 billion:

Breaking down by segments, semiconductor systems revenue was $4.676 billion, a 1.2% year-on-year decrease; global services revenue reached $1.464 billion, a 3.1% year-on-year growth; display and related markets revenue amounted to $235 million, a 29.4% year-on-year decline:

The Semiconductor Systems segment primarily engages in the development, manufacturing, and sale of various equipment used in the fabrication of semiconductor chips, including processes such as Chemical Vapor Deposition (CVD), Physical Vapor Deposition (PVD), ion implantation, etching, rapid thermal processing, chemical mechanical planarization, metrology, and inspection. The Global Services module offers a range of solutions and software services aimed at enhancing wafer fab efficiency. The Display-related business focuses on producing equipment for manufacturing LED, OLED, and other display devices.

Prior to this financial report release, a cloud hung over the semiconductor equipment market as the semiconductor industry experienced a downturn cycle. Major wafer fabs had reduced their capital expenditures due to the downward trend in the semiconductor market, and semiconductor equipment happened to be a crucial expenditure for the establishment of new wafer fabs.

However, to everyone's surprise, the FY23 Q3 financial report of Applied Materials revealed a mere 1.5% decline in revenue growth.

Upon reviewing history, during each semiconductor downturn cycle such as in 2009 and 2019, Applied Materials' revenue would experience significant declines:

According to management guidance, it is anticipated that for the fourth quarter of FY23, Applied Materials' revenue will be approximately $6.51 billion, reflecting a year-on-year decline of 3.5%, but a sequential growth of 1.3%. The expected revenue for the fiscal year 2023 is $26.3 billion, showing a year-on-year growth of 2%!

OMG! Who could have imagined that amidst the semiconductor winter, the world's largest semiconductor equipment manufacturer could actually manage to sustain growth?

In addition to the company's efforts, the secret to this growth lies in the stabilizing role of service revenue, which has maintained growth for 16 consecutive quarters. Furthermore, as the AI era emerges, the semiconductor market is poised for a new phase of growth. Additionally, governments around the world are increasingly prioritizing chip security and have allocated substantial subsidies to attract new wafer fab capacity. Applied Materials predicts that over the next five years, government subsidies will amount to billions of dollars, further boosting the industry!

Applied Materials can be described as a convergence of favorable timing, favorable circumstances, and human effort!

In terms of regional revenue, during the third quarter of FY23, China contributed $1.734 billion, marking a 3.5% year-on-year decline; South Korea experienced a decrease of 19.3%; Taiwan saw a decline of 12.5%. The regions that maintained growth happened to be those with weaker semiconductor manufacturing capacity, such as the United States with an increase of 43.3%, and Europe with a growth of 25%.

Even amid a situation of 'lying and winning,' Applied Materials managed to maintain stable profitability during the downturn cycle. In the third quarter of FY23, the gross margin was 46.3%, slightly higher than the 46.2% of the same period last year. The adjusted net margin only decreased by 1.29 percentage points compared to the same period last year.

This breaks the conventional perception of inherent cyclical volatility in the semiconductor equipment sector. Typically, stocks with strong cyclicality in such industries experience significant fluctuations in profitability during industry downturns. Applied Materials has historically exhibited such characteristics, but now, this current semiconductor winter seems to be the most resilient challenge the company has faced! $Applied Materials(AMAT)$ $ARK Genomic Revolution Multi-Sector ETF(ARKG)$