Applied Materials Q1 2024 Earnings Call Transcript

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February 13, 2025
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Operator

Welcome to the Applied Materials First Quarter Fiscal 2025 Earnings Conference Call. During the prepared remarks, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. I would now like to turn the call over to Liz Morale, Vice-President of Investor Relations. Liz, you may begin.

Liz Morali
Vice President, Investor Relations at Applied Materials

Thank you. Thank you. Good afternoon, and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO; and Bryce 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 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.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Thanks, Liz. In our first fiscal quarter of 2025, Applied Materials delivered record revenue surpassing the prior high we set last quarter. The major technology trends reshaping the global economy are made possible by advanced semiconductors underpinning long-term secular growth for the industry and especially applied materials. We are providing our customers a unique and connected portfolio of solutions to accelerate the technology roadmap, positioning us for continued growth and outperformance in the years to come. In my prepared remarks, I'll share our latest market insight. I'll describe how our innovations are enabling the major device architecture inflections that are critical to advancing energy-efficient AI, and I'll talk about why high-velocity co-innovation is more important than ever as the industry races to bring next-generation technology to consumers faster and at lower-cost. Starting with the market, AI remains central to our outlook. With almost infinite possible uses, AI is the most transformative technology change of our lifetimes and a major catalyst for innovation and growth across the technology sector. Early deployment of AI supported approximately 20% year-on-year growth of global semiconductor sales in 2024 and the market remains on-track to exceed $1 trillion of annual revenues by 2030. We are only at the beginning of what's possible. And as we look-ahead, we expect disruptive innovations to significantly improve the energy efficiency and cost of AI, opening up new applications and growing the overall market opportunity. To unlock this potential, innovation is required across the technology stack from the models and software as we've seen in recent weeks with to data center architecture, chip design and how those chips are made. Advancements in foundational semiconductor technologies will have a dramatic impact on system-level energy and cost-reduction in the AI data center. I've previously described four critical areas the industry is currently focusing on. Leading-edge logic, high-performance DRAM, DRAM stacking referred to as high-bandwidth memory or HBM and advanced packaging to connect the logic and memory chips together in an integrated package. There's also a fifth theme emerging as we are seeing major innovations in power electronics. These innovations can address data transfer, energy consumption within the data center as well as significantly reduce grid to data center power losses. Applied has strong leadership in all these areas and we're best-positioned at future device architecture inflections, including next-generation gate all-around transistors, backside power delivery, 4F squared and 3D DRAM, advanced packaging, compound semiconductors for power electronics and silicon photonics. These device architecture inflections and logic, compute memory, packaging and power devices grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies and provide opportunities for Applied to gain market-share. Taking leading-edge foundry logic as an example, the transition from the most advanced generation of FinFET to the first nodes with integrated gate-all-around and backside power delivery grows our total available market by more than 15% to around $14 billion for every 100,000 wafer starts per month of capacity. At the same time, we expect related applied revenues to grow in the 30% range for the equivalent wafer fab capacity. While the bulk of spending for these inflections is ahead of us, we are already seeing a positive impact on our business. In 2024, we believe we outperformed the market in aggregate across leading-edge foundry logic, DRAM, advanced packaging and the ICAPS markets outside of China. The ability of US companies to serve the China market is constrained and has been further limited by updated trade rules announced in December and January. We estimate the incremental impact of these new rules will be around $400 million of revenue in fiscal 2025, approximately half of which is service revenue. We also see China being a smaller portion of global wafer fab equipment spending in 2025. At Applied Materials, our strategy is to develop and commercialize the most enabling technologies for the industry across leading-edge logic, memory, advanced packaging and. We have focused our investments on these high-growth inflections that allow us to create and capture more value. One of the ways we are implementing our strategy is to provide our customers unique and connected solutions that take advantage of our broad portfolio of technologies, capabilities and partnerships. Our co-optimized and integrated solutions address higher-value device challenges for customers and are difficult for competitors to replicate. A good example is our integrated hybrid bonding interconnect solution that combines six technologies, including one module from a partner into a single integrated system. In the past quarter, we successfully completed important qualification milestones and received volume orders from multiple leading-edge customers. Our integrated hybrid bonding system is one of our next-generation solutions that is allowing us to extend our leadership in advanced packaging. In 2024, our packaging business captured more than half of the market we serve and we remain on-track to double our revenues over the next several years. Another key pillar of our strategy is high-velocity co-innovation. We believe this is key for Applied and our customers to bring next-generation technology to-market faster and at lower-cost. By speeding up cycles of learning through tighter ecosystem collaborations, we are accelerating new chip architectures, driving higher mutual success rates and optimizing R&D efficiencies. Among our accomplishments in the past quarter, we launched our epic advanced packaging strategy at a technical summit we hosted in Singapore that brought together R&D leaders representing more than 20 global companies. We were part of two teams that received CHIPS Act grants to develop advanced packaging substrates for 3D integration. We are leading the team for silicon substrates and we have a long-term partnership and investment in the company that won the grant for glass core packaging. We made significant progress with the construction of the Epic Center in Silicon Valley, which is on-track to come online in 2026 and will become the centerpiece of our global EPIC collaboration platform and we partnered with TPG to transition applied thin-film battery business into an independent company. We're also evolving our collaborative model and services where we are helping customers manage increasing complexity in their business as they ramp next-generation technology into high-volume manufacturing. We are deploying our advanced service products, including our actionable Insight Accelerator data platform or AIX to help accelerate customers' R&D programs, reduce technology transfer times and optimize device performance, yield, output and cost in their fabs. Through these closer working relationships, a high percentage of our service revenues is generated from subscriptions in the form of multi-year agreements. While our near-term service growth is negatively impacted by trade restrictions, we remain confident that we will still grow AGS at a low double-digit annualized growth rate over the longer-term. Before I hand over to Bryce, I'll quickly summarize. As major technology trends reshape the global economy in the semiconductor industry, Applied continues to deliver strong financial performance in the near-term. We are best-positioned at major device architecture inflections in fast-growing areas of the market that are critical to energy-efficient AI and we are focused on high-velocity co-innovation with our customers and partners to bring breakthrough technology to-market faster than ever before.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Bryce? Thanks, Gary, and thank you to everyone joining us for today's call. We had a strong start to the fiscal year with healthy revenue growth and meaningful margin expansion, which helped drive a 12% year-over-year increase in non-GAAP earnings per share. In addition, we distributed $1.6 billion to shareholders with $1.3 billion of share repurchases and $326 million of dividends. For fiscal Q1, our results were largely in-line with our expectations with total net sales of approximately $7.2 billion, up 7% year-over-year with growth in both semiconductor systems and Applied Global Services. Non-GAAP gross margin was 48.9%, up 100 basis-points year-over-year and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q1 was the result of a very favorable mix and increasing adoption of our leading-edge technologies and advanced integrated systems. In addition, we progressed on our value-based pricing initiatives and cost reductions. Non-GAAP operating expenses were $1.31 billion with increased R&D investments to support our technology growth areas. Non-GAAP EPS was a record $2.38, up 12% year-over-year given the revenue growth, better profitability and share repurchases. Moving to the segments, semiconductor system sales were $5.36 billion for Q1, up 9% year-over-year, driven by 20% growth in Foundry logic, partially offset by an expected decline in DRAM sales as prior year sales to customers in China did not repeat. Non-GAAP operating margin of 37.3% was up 160 basis-points year-over-year. Sales for the ICAPS nodes, which serve customers across the IoT, communications, automotive, power and sensor markets were down slightly year-over-year and flat quarter-over-quarter. Moving to Applied Global Services. AGS delivered revenue of $1.59 billion in Q1, up 8% year-over-year with healthy growth in services, partially offset by a decline in sales of 200 millimeter equipment. Non-GAAP operating margin of 28% was down 30 basis-points year-over-year. Lastly, our display business delivered revenue of $183 million. Moving to the balance sheet and cash flows, we ended the quarter with cash-and-cash equivalents of $6.3 billion and debt of $6.3 billion. Cash from operations in the quarter was $925 million. Capital expenditures were $381 million and free-cash flow was $544 million. We distributed $1.6 billion to shareholders in the quarter, including $1.3 billion in share repurchases and $326 million in dividends. As of the end-of-the quarter, approximately $7.6 billion remains available under our share repurchase authorization. Turning to our outlook, we are seeing strong momentum for leading-edge foundry logic, where we are particularly well-positioned as our customers ramp the most advanced technology nodes with gate-all-around transistors into high-volume manufacturing. Offsetting leading-edge is a more measured level of investment in the ICAPS nodes, following strong spending in '23 and '24. In DRAM, we are seeing healthy demand but faced tough year-over-year compares given the purchases from Chinese customers in 2024 that do not repeat this year. We are also seeing growth in NAND, albeit from historically low levels. As Gary mentioned, as a result of the expanded export controls announced in December and January, we expect to face a headwind to revenue of approximately $400 million in fiscal 2025. Nearly half of that impact will be in Q2. The impacts in the second-half of the fiscal year will be more weighted to AGS as we are no longer able to service certain customers. And following the step-down in revenue in Q2, we would anticipate a return to growth in Q3 for AGS. Based on these trade restrictions and our view of our business, for Q2, we expect that China as a percentage of total revenue will be about 5 percentage points lower than in Q1. This is below the normalized level of approximately 30%. Taking all of these factors into account for fiscal Q2, we expect total revenue of $7.1 billion, plus or minus $400 million, which represents a 7% increase year-over-year and non-GAAP EPS of $2.30 plus or minus $0.18, which represents a 10% increase year-over-year. We expect semiconductor systems revenue approximately $5.3 billion, up 8% year-over-year, AGS revenue of approximately $1.55 billion, up 1% year-over-year and display revenue approximately $250 million. We expect non-GAAP gross margin of approximately 48.4% and non-GAAP operating expenses to be approximately $1.3 billion. We are modeling a tax-rate of approximately 13%. In closing, our business is strong and we remain confident in our growth opportunities across all of our business segments. We are making significant investments in R&D to grow our share at the leading-edge and we are increasing our capital investments to be the leader in high-velocity co-innovation with our customers. This is an important indicator of the confidence we have in the growth trajectory of our business and with our differentiated technology, unique insights and deep industry relationships, we are poised to benefit from the technology transitions and semiconductor growth that is expected over the coming years. Liz, we're now ready to begin the Q&A.

Liz Morali
Vice President, Investor Relations at Applied Materials

Thanks, Bryce. To help us reach as many people as we can on today's call, please limit yourself to one question. If you have an additional question, please requeue and we'll do our best to come back to you later in the session.

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Operator

And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star again. One moment for our first question. And our first question comes from the line of Toshia Hari from Goldman Sachs. Your question please.

Toshiya Hari
Analyst at The Goldman Sachs Group

Thank you. Hi, good afternoon. Thank you so much for taking the question. I know you guys aren't or haven't been giving specific WFE numbers. But at a high-level, Gary and/or Bryce, I was hoping you could provide a little bit of context on how you're thinking about the year? I know you gave a couple of comments, but by application, by geography, you know, how is 2025 likely to shape up in your view? And more importantly, your outperformance vis-a-vis the market and what are some of the key drivers that we should be focused on? And if you can speak to the magnitude of outperformance relative to what you achieved in '24, that would be really helpful. Thank you.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Okay. Thanks, Toshiya. Nice to hear from you. So first, we'd say that our Q2 guide gives a really good indication of how we think the market is evolving. So leading-edge with all the strength that you see in AI and pulling, DRAM, advanced logic and HBM, that factors into what we see in the market today. So leading-edge is growing. We've been thinking it will be accelerating through the course of the year, and we do see that growing strongly in Q2. And we highlighted that we've also been watching the ICAPS market after the significant build-out the last couple of years in China and that is lower in Q2. So those things offset, but you see on total that we still have consistent year-over-year growth in the overall market. So that's the big change from a market perspective. If you look at the memory side, our memory is roughly flat quarter-over-quarter. We do see some additions on the NAND side and that's offset by a slight reduction in DRAM. NAND is growing, but of course, that's from a smaller level. And the last thing I would share is, when you think about advanced packaging, we had a significant amount of capacity adds last year in the HBM side for the initial burst of capacity. And we're still selling into HBM, still adding equipment into that market, but it's at a slower rate. So that's part of the outlook also. So the key thing there is we've all been waiting to see if advanced logic would ramp strongly enough to offset any slower rate of investment in ICAPS and that is what we're seeing in Q2. And that's our best -- what we try to do is share what we're seeing today, and we think that's our best indication and how you can think about the year at this point?

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, Toshia, relative to the outperformance question, over the last four years, including last year, we outperformed in aggregate across leading-edge foundry logic, DRAM, high-bandwidth memory, advanced packaging and ICAPS markets outside of China. And we've been talking about this a lot. We're focused on major device architecture inflections critical to AI energy-efficient computing. When we're meeting with all of our customers, that's where they're all focused. So for us, we're on-track to capture greater than 50% share of our served market and gate all-around and backside power and foundry logic. We gained 10 points of DRAM share and we're positioned to gain share as 4F squared and 3D DRAM architectures are adopted. Packaging was around $1.7 billion in 2024, up 3x in four years. And as we've said many times, we're positioned to double this business in the coming years. In ICAPS, we gained several points of share since we formed the group six years ago. We brought several new products to-market. We have a strong pipeline of new products that will grow our available market and position us well in this segment. And materials engineering intensity where Applied has clear leadership is increasing in next-generation chip architectures. So going-forward, I like how we're positioned to win these major inflections. Again, we've been outperforming in all of these segments over the last four years and we're well-positioned to continue to outperform going-forward.

Operator

Thank you. And our next question comes from the line of Malik from Citi. Your question please.

Atif Malik
Analyst at Smith Barney Citigroup

Hi, thank you for taking my question. Bryce, I appreciate the color on the April quarter. The Silicon Systems down a little bit explained by the China impact. And you're talking about the return to growth in AGS. Can you also comment on the Silicon systems? Do they return to sequential growth in the in the July quarter or we'll have to wait-and-see?

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah. Thanks,. I think we'll have to wait-and-see on the semiconductor systems, but what we're sharing is we've been expecting the leading-edge to accelerate when you think about the gate all-around and backside power nodes in the market and the advantages of those nodes for leading-edge architectures. We expect a significant amount of capacity to be put in-place in those nodes. And that is what you see in Q2 and we expect that is a good indication of where the market will be going. And then on the offset for that, we highlighted the ICAPS and we've been watching that. But I'll just say that market continues to evolve. Our forecast for ICAPS and for ICAPS China seems to change every single quarter. And so we'll see how that evolves through the rest of the year. And then on the services business, yes, this will be similar to 2022 when there were new trade rules. We'll have a step-back, as you can see in our guide in Q2, but we expect to grow from there at the low double-digit rate as we continue to add customers, add new types of services and the new customers and new locations will make it more likely the services business is utilized by the customers.

Atif Malik
Analyst at Smith Barney Citigroup

Thank you.

Operator

Thank you. And our next question comes from the line of Stacy Raskin from Bernstein Research. Your question please.

Stacy Rasgon
Analyst at Bernstein Research

Hi guys. Thanks for taking my question. You said that the China impact in the second-half will be weighted to AGS, but you also said AGS returns to growth in Q3. So like how do I square that circle on what's offsetting the China impact in the second-half? And just like broadly, if I were to add the $200 million-ish or so that AGS is getting hit by the China sanctions, if you added that $200 million back-in, would it still grow double-digits this year?

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Yes, that's a good -- that's a good question. Thank you, Stacy, for the question. So on the AGS side, the way to think about it is approximately half of the impact will be taken in Q2 and then it will be a continued impact in the following quarters. But we don't expect it to be a sequential reconciling line-item. In other words, whatever business we can't support in Q2, that's the same business or less in Q3 and Q4. So there is a -- there is an impact in Q3 and Q4, but we think you shouldn't worry about it from a modeling perspective. We'll just begin to add from there and we'll grow at the rate that we've described, low-double-digits as we continue to add installed-base and tools to support. And then didn't do the calculation. I guess what I would say is from a core AGS perspective, if you take the 200 millimeter out, we're absolutely growing at low-double-digits or higher.

Operator

Thank you. And our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question please.

CJ Muse
Analyst at Cantor Fitzgerald

Yeah, thank you for taking the question. I was hoping you could speak a bit to gross margins. You talked about value-based pricing starting to come in, in the January quarter. I would love to hear more about how you see that flowing through the model throughout all of calendar '25. And I guess as part of that, how should we be thinking about kind of evolving mix in terms of modeling gross margin either first-half, second-half or kind of exit-rate for calendar '25 would be very helpful. Thank you.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Okay. Thank you, CJ. Good to hear from you. So on the gross margin, 48.9% and 48.4% in our guide in Q2, very strong mix in both quarters. Obviously with the China impacts for Q2, it's a little bit lesser a mix strength. We're still going to reiterate our 48% underlying rate. So we think with -- when we don't have those quarters with ultra strong mix, that's still about the ballpark for our normalized rate. So think in the second-half that unless we maintain the exact same mix, which we likely don't expect, we will be closer to that 48% gross margin for the year -- or not for the year, sorry, we're not giving a guide for the year, but that is our underlying baseline rate to think of as you think about where the business is normally. And then if you think about the pricing, I think of two dynamics with pricing. One, the solutions that we're developing that Gary has pointed the company toward the inflections. Those are increasingly valuable solutions for the customers. And so there's increasing value proposition for the equipment itself. And then our pricing mechanism is to make sure that we're including that in our thinking with respect to the pricing and we also have a disciplined infrastructure to have those discussions with customers. So as we allocate our R&D, we're of course allocating to the areas that we think are most valuable in the market. And we think it's a matter of execution to achieve that value in the marketplace, which is what we're trying to do. So I said third inning last quarter on those -- on the process for pricing, and I think that's still accurate.

Operator

Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please.

Vivek Arya
Analyst at Bank of America

Well, thanks for taking my question. I actually had a longer-term conceptual question for Gary related to versus Etch and depth intensity. If let's say, overall WFE intensity stays around mid-teens, it means WFE will grow in-line with semiconductor industry sales over the next several years. And if that happens, do you think Gary, litho takes more share or do you think take more share and hence grew faster or slower than overall semiconductor industry sales? I've heard arguments on both sides, but would appreciate your views.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Oh, hi, Vivek. Thanks for the question. So if I look at the major inflections that we're focused on-going forward, if you look at leading-edge foundry logic, Gator all-around and backside power, know, our customers have talked about being able to achieve in backside power, 30% area scaling benefit beyond power and performance benefits with really no change in feature size. So that's basically what we're seeing in foundry logic and we think that continues going-forward. In DRAM, if you look at what our customers have talked about in 4F squared, they also talk about significant area savings as they implement that new architecture. And of course, again, again, for all of these things, we're incredibly well-positioned. And then when you get to 3D DRAM, 3D DRAM is more similar, not the same materials, but a similar impact where the relative spending for materials engineering goes up significantly versus lithography. And then, of course, another area that we're focused on and the entire industry is focused on is advanced packaging. And we -- when we look at what the AI servers look like three or four years from now, the architectures are going to be very different. And the way the data is connected in those architectures, there's just going to be tremendous innovation again around materials innovation. So when I look across any of these different markets and of course, ICAPS is really all driven through materials innovations. We've talked about this before in our master classes, we see the percentage of materials engineering relative spending to be increasing going-forward around all of these different architecture inflections.

Vivek Arya
Analyst at Bank of America

Thank you.

Operator

Thank you. And our next question comes from the line of Timothy from UBS Securities. Your question please.

Tim Arcuri
Analyst at UBS Securities

Thanks a lot. Bryce, do you think as you look at -- I know that you're not going to give us a WFE number for last year, but do you think you gained WFE share? That's the first question. And then how do you kind of assess, Gary, the headwind from these -- from these equipment companies in China because I know that they have delayed rev-rec so it makes it hard to sort of measure year-to-year, but they're about 5% now of WFE. It's up like 400 basis-points over the past four to five years, and that's all and you've done a great job holding share and gaining share. But how do you sort of think about that headwind from China because so much of the incremental spending is from there? Thanks.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Okay, Tim, nice to hear from you. Thank you. On the share in '24, of course, we don't know yet in terms of the final measures there, but you heard in Gary's script, he talked about we think we've gained share in all the markets except for likely China. So we'll just have to see what the -- what that reading is once all the share numbers are in. So we feel well-positioned from that perspective. And even in China, we feel-good about the way we compete. It's just, yes, the local Chinese vendors have some advantages with the trade rules that have been put in-place. And then on the headwinds for China, I think we do have lower visibility, but we continue to add customers and we think that's a huge market. It's our largest ICAPS market and ICAPS is the largest market for Applied. And And we expect that to grow over-time at the device level, mid to-high single-digits. As you know, the equipment investments in the last couple of years have been ahead of the market. So we've expected it to moderate for some period -- for some period of time. So we'll see how that plays out. But for us, that continues to be one of the most important markets for the company. Yeah, Tim, just I would add, and again, I talked about this a little bit earlier. Leading-edge foundry logic, we're incredibly well-positioned for those inflections. DRAM, we've gained 10 points of share. And again, really well-positioned for 4F squared and 3D DRAM. High-bandwidth memory, that's another one where we have a very strong leading position and advanced packaging is another area where it's up 3x in four years, and we anticipate that we'll double that business and then that will keep going into the future. And again, we're just really well-positioned for all those inflections. In ICAPS, we have room to grow in PDC and Etch and we have momentum in those segments. And I talked earlier about the pipeline of ICAPS innovations. Again, we formed this group six years ago, we brought 20 new products to-market and we have new products in the pipeline that will expand our total available market. We have new products for cost-competitive applications. And we have innovations to enable new ICAPS device architectures that we're co-innovating with leading customers. So as Bryce said, in the areas where we can compete, I feel really good about our positions and our pipeline going-forward

Tim Arcuri
Analyst at UBS Securities

Thanks a lot,.

Operator

Thank you. Our next question comes from the line of Harlan Sur from JPMorgan. Your question please.

Harlan Sur
Analyst at J.P. Morgan

Hi, good afternoon. Thanks for taking my question. We track many of your end-customers in the semiconductor industry, both fabless and IDMs and retracting their design starts, especially at 2 nanometers. Design starts appear to be accelerating since the second-half of last year, especially in areas like AI, accelerated compute mobile. Is the team in talking with your customers? Is the team getting a sense on how big the upcoming 2-nanometer node transition and more importantly, volume production potential could be relative to 3-nanometer.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Hi, Harlan. Gary might also add-on to this. I've seen various estimates for 2-nanometer. Based on the performance benefits of 2-nanometer, I think we're expecting that to be a large note. If you look at some of the third-party estimates, that should be a good landing spot for designs, just like 7-nanometer in the past was a good landing spot for designs. So we're expecting it to be on the large side from a node perspective.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, Harlan, I would just add that everybody is focused on energy-efficient computing for AI. And if you look at what our customers are saying, they're very bullish about the size of that 2 nanometer node.

Harlan Sur
Analyst at J.P. Morgan

Thank you.

Operator

Thank you. Our next question comes from the line of Krish Sanker from TD Cowen. Your question please.

Krish Sankar
Analyst at TD Cowen

Yeah, hi. Thanks for taking my question. Gary, I had a question on Gate all-around. You've spoken about getting over 50% share of the incremental TAM there, but it seems like the Epi stack is one of the more critical ones and your competitor seems to be making some strides. So I'm just kind of curious, can you talk a little bit about your Epi market-share? And if you still feel confident in the 50% per share gain of the overall gate all-around opportunity. Thank you.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, we're in -- as I mentioned earlier, we're in deep partnerships with all of our customers focused around this concept of high-velocity co-innovation. And we're working with every one of our customers out a decade into the future on multiple technology nodes. For gate all-around, we have -- we still are on-track to do what we had talked about earlier with gaining more than 50% of the incremental spending for gate all-around. And Epi is part of that, we're in very strong position. I think 85% of those Epi stats are selective Epi where we have tremendous strength. We have new innovations we're bringing to-market in Epi and so we still feel very confident in our outperformance going-forward.

Krish Sankar
Analyst at TD Cowen

Thanks,.

Operator

Thank you. And our next question comes from the line of Shini from Raymond James. Your question please.

Srini Pajjuri
Analyst at Raymond James

Thank you. My question is on China. I think, Bryce, you said for Q2 outlook, you used the word China will be below normal in terms of percent of exposure. I would think that the export restrictions and those are permanent. So I'm just curious as to when you say below normal. Are you expecting China to recover to like the 30% level that you previously communicated? And then when do you think we might get to that level? And then maybe for Gary, Gary, you know for -- over the last 90 days excluding the export restrictions, can you talk to how the demand conditions are within China? Thank you.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Okay. Thanks, Renee. So first of all, 30%, we still think will be a good long-term rate for us or a good long-term estimate of the share to China. When you think about the market, of course, for us now that's an ICAPS market. We can't serve the leading-edge, but that will be a growing market over-time. The devices will grow mid to-high single-digits, if not more, heading to the -- helping to get to the 1.3 or yeah, $1 trill to $1.3 trillion semiconductor market by 2030. So that market will continue to grow. We may pause a little bit less -- we may have a little bit lower rate of investment as we go through the next short period of time, will that adjust, but that's a very strong market for us. So 26% in Q2 and 30% is a good estimate for the company. And of course, that includes all of our businesses, AGS and display also. And then, Gary, on what we're seeing with respect to demand?

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah. I think I'll just make a comment on that. It's still our largest market. So you see leading-edge accelerating, but ICAPS is still our largest market and China is the largest country inside that market. And so when you're thinking about it and you're thinking about what we're describing as a step-back in the rate of investment, you should still think about it as just a very large opportunity and growth opportunity going-forward. And so we think the rate slows down a little bit after two huge years of investment, but we expect that market to grow over-time. We've continued to add customers. We're tracking a large number of projects that are underway. We expect capacity to be added every single year and that forms the backbone of our expectations.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Yeah. The one thing I would add is that we believe that the ICAPS market over the longer-term will grow kind of mid to-high single-digits. And as I mentioned earlier, we have new products in the pipeline that expand our total available market, new products for cost-competitive segments and opportunities to grow in large segments where we have momentum. So I think longer-term, we're positive on the market and positive on our position in the market.

Operator

Thank you. And our next question comes from the line of Brian Chin from Stifel. Your question please.

Brian Chin
Analyst at Stifel Nicolaus

Hi, there, good afternoon. Thanks for letting us ask a few questions or maybe one question. Maybe for Bryce, I think you previously disclosed a $549 million reduction in backlog for the fiscal year in a filing and you're quantifying a $400 million impact for the year. Did you revise what that actual impact would be? Or? Or is there some -- maybe a the residual amount of $149 that sits outside of the 12-month horizon?

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

You've got it exactly right, Brian. So it's not much of a change. That 549 was our backlog and it covered more than just the year. And so we shared, I think, what was in the 12 months. And if you did that math, I think it was about $380. So we're still very close-in terms of what we're thinking the impact is for the year.

Brian Chin
Analyst at Stifel Nicolaus

Thanks.

Operator

Thank you. And our next question comes from the line of Joe Quatricky from Wells Fargo. Your question please.

Joe Quatrochi
Analyst at Wells Fargo & Company

Thanks for taking the question. I was wondering if you could talk a little bit more about your expectations for DRAM growth. If we were to exclude just the benefit of China DRAM spending in the comparison a year-ago, how should we think about the growth in your business this year?

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Yeah thanks, Joe. I'll start on this one. I think we've seen two record years of DRAM and of course, '24 was buoyed by the extra China demand that we saw. And I can't call the year here, but we see the rate of investment in DRAM continuing in the rest of the world. So there's a lot of pull for the HBM solution and there's a lot of pull for DRAM in the compute performance systems. So I would expect continued momentum in DRAM and that's included in our outlook in Q2.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, Joe, I would just say that as I mentioned earlier, we're more bullish on compute memory than we are in storage memory. And then what our customers have said is it takes three times the number of wafers to produce the same number of bits for HBM. So that's going to certainly help the growth rate over the longer-term.

Joe Quatrochi
Analyst at Wells Fargo & Company

Thank you.

Operator

Thank you. And our next question comes from the line of Charles Shi from Needham; Company. Your question please.

Charles Shi
Analyst at Needham & Company LLC

Hi, good afternoon. I have a question about the revenue -- expected revenue from nodes. You previously said more than $2.5 billion in fiscal -- I mean, in probably calendar '24 and you expect to double? Has the '25 number moved up or down or any changes to that number? And maybe the other part of the question, I think you previously said last year sched all-around revenue plus this year kind of implies 100K global capacity build-on 2 nanometer by the end of this year. Do you see potentially that the spending can accelerate further into '26 because we were trying to think about what the end capacity it could be in '26, but do you want to get your early thoughts on 2026, if possible?

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Thank you. Okay, Charles. Thanks for the question. So first thing, yes, we have not changed our expectations for growth looking into '25 with the gate-all-around related equipment. So 2.5 million in '24 and then the opportunity to double that in '25. And if you put those together, that's just over $7 billion. And when we describe the SAM for us with gate-all-around and backside power, yeah, you can back-in and say that implies that there's approximately 100,000 wafer starts of pilot and HBM or HVM, excuse me, high-volume manufacturing capacity being put in-place in the beginning. And then of course, you'll have to do your own research to see what size you think the node would be. I would just suggest that nodes are generally larger than that. So we would expect that to continue and the ramp to continue beyond '25 for sure.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, I would say the one thing incrementally is that as you go-forward, you're going to add-in backside power. That also is growing our available market and we have a very strong share there. So once you have and backside power together, our opportunity grows significantly.

Operator

And our next question comes from the line of Chris Casso from Wolfe Research. Your question, please.

Chris Caso
Analyst at Wolfe Research

Yeah, thank you. Good evening. I guess the question is regarding your sort of where your level of confidence is in your customer forecast right now. And I know you haven't given us guidance for the full-year, obviously, but I know the customers have generally give you pretty good visibility on the forecast. Maybe you could talk about the different segments and you sound pretty constructive with regard to foundry logic spending for the year. Your comments suggested that ICAP, the forecast have been changing a lot. So I'd imagine that there's some uncertainty there. Perhaps you could speak in those terms for the different segments.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Sure. Thanks for the question, Chris. So I think I would put the level of confidence for larger customers as fairly high. So especially since COVID and you know the inflation events that we saw. We've asked for longer perspectives from all of our customers. So we have more visibility with the larger customers. So if you think about leading logic, more visibility, certainly for DRAM, certainly for NAND. And then I would split-up ICAPS. It would be the same sort of observation for the more mature, longer-standing companies in the ICAP space, good visibility, same practices. And then for the long-tail in ICAPS, including a lot of the customers in China, there's just much less experience there on both sides. And so the visibility gets lower and that's where we've seen a lot of volatility in our forecast. I think or in the past couple of years, we've continually increased our China forecast as we've gone through the year. And so you just have less visibility and the plans change as that goes forward. And then just a last comment, thinking about foundry logic because there's lots of questions about the various foundries. Our perspective there is not only do we have the information from the customers, but we try to also triangulate with our end-market expectations. And so we think we're pretty comfortable with our forecast for leading logic being driven by data center PC, smartphone and understanding what the end-demand is for those markets.

Chris Caso
Analyst at Wolfe Research

Thank you.

Operator

Thank you. And as a reminder, if you have a question at this time, please press star on your telephone. Our next question comes from the line of Vijay Rakesh from Mizuho. Your question please.

Vijay Rakesh
Analyst at Mizuho

Yeah. Just a question on the packaging side. I know packaging is becoming more-and-more important and on the memory side. I'm just wondering if there's a way to look at what the mix of -- you know, just packaging was of total WFE. If we were to look at 2025 and how you see that, that mix of WFE growing as packaging becomes a bigger and bigger chunk of both memory and logic. Thanks.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

I'll try -- I'll try Vijay. We said last year that in '24 that our packaging related revenues in advanced packaging were $1.7 billion. And so you know that we have an advantage share in that space. So you probably have to do some backward math to imply what packaging is and it's growing at a at a strong rate. I think just thinking about the -- what's behind that, we all know that there's -- Gary calls it a race for performance on these leading-edge systems, getting the highest utilization out of GPUs, CPUs, accelerators, et-cetera. And that's really what's driving the increased demand for these packaging technologies. So -- so we expect that to grow significantly over the coming years.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yeah, Vijay, we also talked about doubling again our packaging revenue over the next few years. And there's just tremendous innovation happening in this space. We talked about chips grants on new substrate technologies for silicon and glass. How you connect the AI server and that architecture in three or four years is going to be very different than what it looks like today. So I believe this is a great opportunity for Applied. We're the leader in wiring on the front of the wafer, back of the wafer and in advanced packaging. And this segment is going to see a significant compound annual growth rate because it's so important for energy-efficient computing.

Operator

Thank you. And our next question comes from the line of Mehdi Hossini from. Your question please.

Mehdi Hosseini
Analyst at Susquehanna Bancshares

Yes, thanks for taking my question. One question, two-parts. Based on the last 10-K, the SSG backlog of $8.3 billion, down 23% year-over-year. And then AGS backlog of $6.8 billion, up 32%. And when do you expect backlog for SSG to show the inflection point and show growth? And on the AGS, the $200 million that is going to come out because of the restriction in China, that seems a very small part of the AGS backlog. Is that a reflection of AGS backlog is multi-year or any color you can add here would be great.

Gary E. Dickerson
President and Chief Executive Officer at Applied Materials

Yes, Mehdi, thanks for the question. You've got it right on the AGS. We've got multiyear contracts in AGS that tends to make that backlog look larger and your book-to-bill look much larger when we sign those contracts. So the average contract life, I think is in the 2.9 year region and we're signing some that are longer than that. So that really is what distorts the backlog or makes it larger for AGS. And then on the equipment side, since the -- since the supply-chain and COVID issues related to COVID, we've been normalizing on the equipment side. So we stopped reporting that on a quarterly basis because it's not a very good indication of our -- of our the underlying business changes. We're working to get longer visibility with our customers and we're working to get longer commits on the builds. And so there's a lot of movement in that. So I wouldn't have anything to share other than what you saw -- what you've seen in our 10-K.

Vijay Rakesh
Analyst at Mizuho

Got it. Thank you.

Operator

Thank you. And our next question comes from the line of Tim from Redburn Atlantic. Your question please?

Timm Schulze-Melander
Analyst at Redburn Atlantic

Yeah, hi there. Thanks very much for taking my question. Maybe one for Gary and one for Bryce, please. Gary, you mentioned advanced packaging and you referenced volume orders from multiple leading-edge customers. Maybe could you share a little bit of color in terms of what kind of device applications they are and when you'd expect volume manufacturing to begin? And then Bryce, just a modeling question on that tax asset revaluation. Could you maybe just provide a little more color on that? And is there any read-across implication for the remaining GBP2.4 billion of deferred tax assets on the balance sheet? Thank you.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Yeah, Tim, relative to packaging revenue, it's really coming from all of the different packaging architectures. We have a very strong position, a broad, unique connected portfolio. So I wouldn't say that, again, for us, including in HBM where we were at $700 million in revenue this last year, we have strength across all of those different architecture types. I don't really want to comment -- I'll let customers comment on which architectures they're ramping. I would say, as I mentioned earlier, there's going to be tremendous innovation in this space with very different architectures than what are in the market today. This is going to be very important for energy-efficient computing. Applied has been investing to be positioned to win those architecture inflections. Okay. And then, Tim, thanks for the tax question. So yeah, good to point out that on our GAAP net income, you'll see a significant difference in the growth in our non-GAAP income. And what is happening there? It's one of those situations where good news is bad news. So we've just renewed our incentive rates in Singapore and so the tax asset that we have in Singapore that was created years and years ago when we moved assets to Singapore, that is essentially less value, less valuable because it will protect from lower taxes, if that makes sense. So our tax-rate goes down, which is good news. And then the asset that you have to protect from taxes is a little bit less valuable than what it was with higher tax rates. And so that 674 million, I think that number is a revaluation of that tax asset. And I wouldn't look -- we're amortizing the benefits of that tax move of years to go. That's always in our reconciliation. But this particular event that we're talking about, I don't think there's any look-forward on that.

Timm Schulze-Melander
Analyst at Redburn Atlantic

Great. Thank you.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Yeah.

Operator

Thank you. And as a reminder, if you do have a question, please press star on your phone. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bryce for any further remarks.

Brice Hill
Senior Vice President, Chief Financial Officer and Global Information Services at Applied Materials

Thank you. Thank you. To recap, we believe we're well-positioned in both the near-term and the longer-term as the investments we're making in R&D for leading-edge technology inflections together with our efforts to accelerate industry collaboration, set us up to benefit from the semiconductor growth as expected over the coming years. Thank you for attending today. And Liz, please close the call.

Liz Morali
Vice President, Investor Relations at Applied Materials

Thank you, Brace, and thank you to everyone for joining the call today. 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.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference, this does conclude the program. You may now disconnect. Good day

Corporate Executives
  • Liz Morali
    Vice President, Investor Relations
  • Gary E. Dickerson
    President and Chief Executive Officer
  • Brice Hill
    Senior Vice President, Chief Financial Officer and Global Information Services
Analysts

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