Gary E. Dickerson
President and Chief Executive Officer at Applied Materials
Thank you, Mike. Before we begin, I'd like to speak briefly about Israel. As many of you know, Applied Materials has had a significant presence in Israel for nearly 30 years. We were shocked by the terrorist attacks of October 7 and the outbreak of war with it's a measurable suffering and loss.
Our team in Israel is proving their resilience at this dangerous time and Applied Materials is committed to do our part to help our families stay safe until more peaceful conditions return.
Now, turning to our results. We delivered a strong finish to fiscal 2023 with record earnings in our fourth quarter and record revenue, earnings and cash flow for the year as a whole. I would like to recognize the hard work and commitment of our global team to deliver these outstanding results.
As this is our year-end call, I'll begin my prepared remarks by reviewing our performance and key accomplishments over the past 12 months. I'll then talk about our longer-term growth thesis for the industry and Applied before concluding with our outlook and priorities for 2024.
While semiconductor and wafer fabrication equipment spending were both down in 2023, Applied was able to demonstrate the strength of our broad portfolio as well as the central role we play, enabling major industry inflections. Our Semiconductor Systems business delivered mid-single-digit growth for the fiscal year and remains on track for growth in calendar 2023, which will be the fifth consecutive year that we've outperformed the wafer fab equipment market.
We believe we can sustain this outperformance over the coming years, thanks to the leadership positions we've established at the major technology inflections that will enable our customers' road maps.
In the past 12 months, many of our business units delivered new records and major milestones, including Etch, where we passed 10,000 shipments of our Sym3 chamber. We also released new products and secured incremental production tool of record positions and gate-all-around, backside power delivery, patterning, advanced DRAM and high-bandwidth memory and heterogeneous integration.
At the same time, we strengthened our ICAPS business that serves IoT, communications, auto, power and sensor customers with new products and application wins in Etch, Epitaxy, Implant as well as metrology and inspection. In services, we delivered low single-digit revenue growth in fiscal 2023, overcoming headwinds and including lower fab utilization rates and trade restrictions.
In this period, our total installed base increased 5%. In fact, our installed base of process chambers is now more than twice as big as our nearest competitor. In addition, there are more than 14,000 tools that are not chamber-based including CMP, implant, and metrology and inspection.
We grew the number of tools under long-term subscription agreements, which now generate 63% of our total parts and service revenues. We also maintained the renewal rate of these subscriptions at 90%.
In 2023, we continue to focus on our operations and supply chain, and we've made significant and sustainable improvements. Compared to this time last year, we are providing customers with better on-time delivery and shipment quality while normalizing our inventory levels.
More importantly, our operations are ready to scale as the industry grows over the years to come.
Across the company, we're in a great position to enable our customer success and profitably grow Applied Materials as this next era of industry expansion take shape. Looking to the future, there are four key components of our growth thesis. First, we believe that semiconductors will outgrow GDP and as the digital transformation of the global economy progresses.
Second, we expect the market for wafer fab equipment to grow as fast or faster than the market for semiconductors. This is because the industry road map is becoming more complex and chip makers need to deploy more technology to move from one node to the next.
Third, we believe that Applied will outperform wafer fab equipment because the key technology inflections are enabled by materials science and materials engineering where Applied has the broadest, most connected and most enabling portfolio of solutions.
And fourth, we believe we can grow our service business as fast or faster than our equipment business by providing customers with advanced service solutions that accelerate technology transfer from R&D to high-volume manufacturing and optimize device performance, yield and cost in their fabs.
By identifying major industry inflections early and making strategic multiyear investments in our product portfolio and capabilities, Applied Materials is best positioned to benefit from this exciting period of industry innovation and growth. We have, by far, the broadest portfolio of unit process technology to address our customers' high-value problems in transistor, interconnect, 3D memory, specialty devices and heterogeneous integration.
We're able to combine these technologies in unique ways to create co-optimized and integrated solutions, and we are seeing strong pull from our customers to work on higher-value module and device integration problems. At no time in our history have we been closer to our customers. We have built a unique platform collaborative innovation and commercialization of next-generation technologies.
We will significantly expand this collaboration platform with EPIC enabling Applied and our partners to innovate the way we innovate. And our advanced technology-enabled service offerings are seen by customers as increasingly valuable, especially during technology transfer and fab ramp. These advanced services also provide growing subscription revenue streams for Applied.
Moving to our near-term outlook and priorities for the year ahead. While we are mindful of the complex macroeconomic and geopolitical environment, we see demand for Applied's products remaining robust with some changes within the mix.
In 2024, we expect demand from our leading-edge foundry logic customers to be stronger year-on-year underpinned by higher PC, cloud, and AI data center spending as well as the initial build-out of gate-all-around nodes.
We see demand for our ICAPS business being lower, mainly due to softness in the industrial automation and automotive end markets. In DRAM, both pricing and utilization are improving for our customers and we see demand for Applied's products remaining strong. And we believe NAND spending will be up year-on-year, but still far below 2022, and less than 10% of wafer fab equipment spending overall. We expect NAND to remain a lower percentage of the wafer fab equipment mix moving forward.
In terms of the global trade environment, the October 2023, and export control rule changes in the U.S. were primarily focused on alignment with other countries. The rules are complex, and while we are working with the government to clarify certain details, we see no incremental material impact to Applied at this time.
As I look ahead, I strongly believe that Applied Materials has the right capabilities, strategy and partnerships. In fiscal 2024, our major focus areas include driving R&D programs to further differentiate our portfolio and extend our leadership as the key inflections that enable future industry growth, continuing to make operational and supply chain improvements to better serve customers, capture economies of scale, and drive productivity across the enterprise and ensuring that as we scale the company, we continue to reduce our environmental impact in line with Applied's collaborative net-zero playbook as announced earlier this year.
Before I hand over to Brice, let me summarize. In fiscal 2023, Applied grew our semiconductor equipment and service businesses, even though our markets were down year-on-year. For calendar 2023, we're on track to outperform the wafer fab equipment market for the fifth year in a row.
We believe this outperformance is sustainable, thanks to our strong positions at all the key industry inflections, the strength of our customer collaborations and growing demand for our advanced services.
And we remain positive about our long-term growth opportunities where we expect semiconductors to grow faster than GDP, wafer fab equipment to grow as fast or faster than semiconductors, Applied to outperform the wafer fab equipment market and our service business to grow as fast or faster than equipment sales.
Now I'll hand over to Brice.
