Welcome to the Applied Materials third quarter of fiscal 2026 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. I would now like to turn the call over to Mike Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer. Before we begin, I'd like to remind you that today's call includes forward-looking statements which are subject to risks and uncertainties that could cause our actual results to differ. Information concerning these risks and uncertainties is discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter. Next, I'd like to remind you about our two special events during Semicon West. On Monday afternoon, October 12th, we'll host an unveiling of the new Epic Center in Silicon Valley, California. And on Tuesday morning, October 13th, we hope you'll join Gary, Brice, and our business unit leaders for our Investor Breakfast presentation at the Yerba Buena Center in San Francisco. You can join us in person or on a live webcast. And with that introduction, I'd now like to turn the call over to Gary Dickerson.

Thank you, Mike. In our third fiscal quarter of 2026, Applied Materials delivered another set of record-breaking results, including the highest quarter-on-quarter revenue growth in the company's history. The rapid global build out of AI infrastructure combined with applied leadership positions in the most enabling and highest value technologies for AI computing provide the company with an exceptionally strong foundation for multi-year revenue and profit growth. As 2026 has progressed, customers have found new ways to address clean room space constraints and significantly increase their demand for tool deliveries. In the past three months, We have, again, made upward revisions to our revenue growth forecast for the year, and we are confident we will grow faster than the overall market. As AI computing drives unprecedented demand for semiconductors, there is a large gap between demand and supply for advanced chips. To ensure our supply chain and field teams can support their ramps, our largest customers are giving us longer-term commitments and Rowling Eight Quarter Forecasts. This increased demand visibility gives us high confidence that 2027 will be another strong growth year for applied materials. As customers move quickly to bring new fab capacity online while simultaneously optimizing yield and output of their existing production facilities, We also see strong incremental demand for our advanced service solutions. In my prepared remarks, I will share my views on how AI is resizing and reshaping the semiconductor industry and its ability to realize the value of advanced technology. I will describe the increasing value applied to delivering to our customers by accelerating their technology roadmaps optimizing existing production capacity and helping ramp new fabs faster. And I'll provide a brief update on our EPIC strategy as we prepare to start operations in our new EPIC Center in Silicon Valley. As I have said before, I strongly believe that AI is the biggest and most consequential technology inflection of our lifetimes. While we are still in the early innings of deployment, AI is reshaping the global economy and becoming fundamental to the relative competitiveness of companies. What I am seeing at Applied Materials is a great case study in AI's real-world impact. Our investments in AI are on track to deliver compelling returns by accelerating our revenue growth and operating profit margins. In R&D and Services, we're using AI to create highly differentiated products, significantly speed up product development timelines, and create valuable new service solutions for customers. In operations, supply chain, and our corporate functions, AI is helping us ramp faster, drive meaningful improvements in productivity, and scale our revenue significantly faster than our headcount. Beyond applied, we see similar trends playing out across a wide variety of industries. As the performance and cost of AI computing improves, many new applications will become technically viable and economically attractive. These expansive opportunities for value creation are fueling an intense global competition for AI leadership, which can be described as two concurrent races. The first race is for technology leadership. AI data center returns are determined by the number of tokens generated per second and the total cost of ownership, which is dominated by energy consumption. Improvements in token per second per watt are primarily driven by innovations in semiconductor devices and systems. This can be seen in the value the semiconductor and semiconductor equipment industries are generating from their most advanced technologies. The second race is for capacity as demand for advanced semiconductors to support AI infrastructure scaling far exceeds supply. As a result, chip makers are intensely focused on increasing output and yields of their existing factories while rapidly building new ones. For Apply, the technology race and the capacity race are fueling new opportunities to create and capture value. In the race for technology leadership, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost. Together, we expect these areas to represent around 80% of wafer fab equipment growth in 2026 and 2027. These three areas are also where Applied has strong leadership positions, where we identified key AI inflections early, and where we've shifted our investments to build an innovative pipeline of next-generation solutions. In the past quarter alone, we have announced six new products, including our Centura Prime epitaxy system designed specifically for high-performance DRAM, Producer Avila that enables higher performance and higher layer count high bandwidth memory, Nakoda VMAX, our next generation plating system, and Optiquad CMP for advanced packaging, and two new eBeam systems also for advanced packaging that expand on our eBeam leadership in the front end. Advanced packaging is one of the most important areas for AI compute innovation and we see very strong multi-year growth for Applied. Applied is the overall leader in this market with strong positions in high bandwidth memory and 3D chiplet stacking and we now expect our overall packaging revenues to grow more than 70% in calendar 2026. We're also well positioned for future packaging inflections as the industry moves to new architectures and larger size panel formats. We have built a broad portfolio of next-generation technologies for panel, including digital lithography, deposition, etch, and e-beam review. In the global race to add semiconductor manufacturing capacity, our customers' ability to increase yield and output in their existing production fabs is incredibly valuable. This creates expanded opportunities for Applied to deliver new innovations in three key areas, services, process diagnostics and control, and new products that increase wafer output per area of fab space. Our advanced service solutions enable customers to better optimize performance of their high volume manufacturing operations. We already have more than 37,000 chambers in the field connected to our proprietary AIX software capabilities and use AI-powered monitoring, diagnostics and predictive analytics. Our advanced services are delivering yield improvements for customers and helping us drive higher growth rates in applied global services. We now expect AGS to grow more than 20% in calendar 2026 and to deliver a sustainable long-term annual growth rate in the mid-teens. Our metrology and inspection product portfolio is also enabling customers to accelerate fab yields and output improvements. The most advanced logic and DRAM devices require more E-beam steps that can provide sub-nanometer resolution for high aspect ratio structures. Applied has unique E-beam technology and is the leader in this growing market. In parallel, we are introducing new optical inspection products which enable us to increase application share in these markets as well. As a result, we expect to grow our process diagnostics and control business more than 50% in calendar 2026, and we have a strong pipeline of new products that will fuel growth in 2027 and beyond. Finally, we're developing a new portfolio of output innovation products that increase the wafers that can be processed per square foot of clean room space. One example is our new Epitaxy system for DRAM that not only increases device performance, but also uses 20% less clean room space than our earlier products. We have multiple output innovation products in qualification at customer sites that will provide significant increases in output per unit area. With incredibly strong customer pull for next generation technology and unprecedented demand for semiconductor manufacturing capacity, the value of time to market has never been greater. Our epic strategy is designed to increase innovation and commercialization velocity by creating earlier and deeper engagements with our customers and partners and co-locating key innovators. For chip makers, Epic provides much earlier access to Applied's new product innovations that are at the foundation of future AI compute architectures. The output from Epic will be more mature technology that can deliver high yields faster in volume manufacturing. For Applied, Epic co-innovation programs will enable us to be designed in to new chip and packaging architecture inflections increased R&D productivity and value sharing, and provide better multi-node visibility to guide our investments and resource allocation. Since our last earnings call, we announced that Broadcom will join Epic as an innovation partner to accelerate development of advanced chip packaging technologies for next-generation AI systems. We also signed Epic partnership agreements with Screen and UC Berkeley. This brings our total number of announced EPIC engagements to 11, spanning system companies, leading chip makers, top research universities, and innovation partners. The centerpiece of our EPIC platform is our brand new EPIC Center in Silicon Valley. We will move the first R&D tool into the clean room next week, and we are on track to start operations in the coming months. Before I hand over to Brice, let me briefly summarize. Demand for advanced semiconductors and semiconductor equipment continues to strengthen, and as customers find new ways to address clean room space constraints, we see higher demand for 2026 tool deliveries. With support from our supply chain, we have again increased our expectations for 2026 revenue, and we are confident We will grow faster than the overall market this calendar year. In the race for AI technology leadership, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on AI computing performance, power efficiency, and cost. These are areas where Applied has strong leadership positions and an innovative pipeline of next-generation solutions, supporting strong revenue and margin growth in 2027 and beyond. And we're working closely with our customers to optimize yield outputs and fab ramp times with valuable new innovations in services, process diagnostics and control, and output innovation products. Brice, over to you.

Thanks, Gary. I'm pleased to share that Applied delivered another quarter of double-digit sequential and year-over-year growth in revenue, operating profit, and non-GAAP earnings per share. Fiscal Q3 also marks our 13th consecutive quarter of year-over-year gross margin expansion, which demonstrates how we are benefiting from the tremendous value our products and services bring to our customers and the entire AI ecosystem. Our Fiscal Q4 guidance demonstrates continued strong year-over-year momentum, and in the second half of the calendar year, we expect particularly strong growth in DRAM, as well as leading-edge foundry logic and the advanced packaging for both. On today's call, I'll update you on the demand environment, discuss how we're scaling our operations for continued growth, demonstrate how value creation is expanding our gross margins, summarize our Q3 results, and provide our Q4 guidance. Over the past quarter, the demand outlook has strengthened across all the leading indicators we track. Cloud service providers continue to increase their investments in AI infrastructure. Importantly, many of these companies are already generating positive returns on their investments. and so are their enterprise customers, including Applied. As Gary described, we are accelerating the pace of new product development, increasing revenue, and generating new efficiencies in our support functions. In fact, G&A as a percentage of operating expenses has declined to the lowest level in our history. Turning to our direct customers, most leading-edge Logic and DRAM fabs are running at full capacity. Utilization levels are rising across the board, including in ICAPs where we see strong demand in AI-related markets like power and optical chips. As a result, our customers have announced more than 10 new fab projects just this quarter. Customers continue to give us longer visibility than we've ever had, with some conversations now extending to 2030. These communications are valuable to our company and our own supply chain partners who are scaling with us to support our customers' growth forecasts. During the quarter, we officially opened our newest manufacturing center in Singapore and, combined with other expansions worldwide, have nearly doubled our manufacturing space over the past several years. Based on the longer-term demand signals from our customers, we are now taking this further, hiring and training new manufacturing and customer support teams so that we have the capacity to double our quarterly system output from current levels by 2028. In fact, We added more than 1,500 people this quarter in worldwide manufacturing and AGS customer support. We are also planning our next manufacturing capacity expansion, ensuring we have the option to support further increases in demand by 2030. Next, I'll discuss value creation and sharing. Applied is delivering value to our customers and the AI ecosystem in more ways than ever before. We've increased R&D in every year since Gary joined the company in 2012. and the investments have broadened from equipment innovations to materials engineering solutions that result in better chips. More recently, we've significantly increased R&D and advanced packaging innovations that enable better systems, supplementing our R&D with two small acquisitions. And today, we're increasing investments in technologies that enable better fab economics as we accelerate ramps and boost output and yields. All of these technologies will be put to work at the EPIC Center where we will co-innovate with our customers and partners to accelerate the AI roadmap. In short, we've broadened our focus from making better equipment to enabling better chips and systems for AI and better fab returns for our customers. These investments have made us a more valuable partner to our customers and enabled us to share in the value we create. Three years ago, we implemented a systematic approach to value-based pricing and today, You can see the benefits reflected in our strong revenue growth and gross margins, which have increased to over 50% for the company and over 55% in semiconductor systems. We have higher pricing and margins in both new and existing products. At the same time, we remain focused on cost improvements and use them aggressively to help offset higher input costs. As we look at the many opportunities we have to further increase the value of chips, systems, and fabs, We are confident we will continue to expand gross margins. Next, I'll summarize our Q3 results. We generated record revenue of $9.1 billion, up 15% sequentially and 25% year over year. Non-GAAP gross margin increased to 50.4%, up 40 basis points sequentially and 150 basis points year over year. Non-GAAP operating margin expanded to a record 34%, up 190 basis points sequentially and 330 basis points year-over-year. And we delivered record non-GAAP earnings per share of $3.50, which is up 22% sequentially and 41% year-over-year. Last quarter, I discussed our focus on increasing operating leverage. We grew revenue much faster than spending in Q3 on both a sequential and a year-over-year basis and drove OPEX as a percentage of revenue to the lowest level in nearly four years. Turning to the segments, semiconductor systems delivered record revenue of $7 billion, which is up 18% sequentially and 27% year-over-year. The revenue mix was similar to last quarter as capacity additions and gate all-around and FinFET drove record foundry logic revenue. DRAM revenue, which includes HBM packaging, grew by 52% year-over-year to record levels. As we look ahead to the second half of the calendar year, We expect a very significant increase in DRAM revenues as our customers begin to expand cleanroom capacity. Looking to our individual materials engineering business units, we had record revenues in deposition in Q3, including in PVD, CVD, and epitaxy, which is one of our fastest growing businesses this year. In materials modification, we had record sales in thermals and treatments. In materials removal, we had record revenue in both etch and CMP. We also had records in Process Diagnostics and Control, which is growing faster than our overall systems business this year. Segment non-GAAP gross margin increased 190 basis points year-over-year to 55.4%. Non-GAAP operating profit increased 45% year-over-year to a record $2.7 billion. Applied Global Services delivered record revenue of $1.8 billion, which was up 22% year-over-year reflecting both subscription services growth and high transactional parts demand. Ramp readiness is a major priority, and the team added more than 1,000 customer support engineers. AGS is using AI and warehouse automation to grow as efficiently as possible, which is reflected in strong gross margin of 35.6%, up 180 basis points year over year, and operating margin of 30.1%, up 280 basis points year over year. From a regional perspective, China represented 26% of our semiconductor systems plus AGS revenue. We now expect our China revenue to increase this calendar year, led by investments in 28 nanometer foundry logic where applied has strong technology differentiation and share. Other revenue of $294 million is in line with our expectations. We generated record operating cash flow of over $3 billion. Capital expenditures were $707 million, resulting in free cash flow of $2.3 billion. We distributed $860 million to shareholders, including $420 million in dividends and $440 million in stock repurchases. We have $12.8 billion remaining in our share buyback authorization and continue to expect to distribute 80% to 100% of free cash flow to shareholders. I'll share our guidance for Q4. We expect company revenue of $10.25 billion, plus or minus $500 million, which is up 51% year over year. We expect non-GAAP EPS of $4.02, plus or minus $0.20, which is up 85% year over year. Within this outlook, we expect semiconductor systems revenue of around $7.9 billion, up 62% year over year. AGS revenue of about $1.84 billion, up 22% year-over-year, and other revenue of around $510 million, composed primarily of display revenue. I've said previously that our display business includes new products that could help us drive higher quarterly revenue in future periods. For modeling purposes, we now expect other revenue to be approximately $400 million per quarter on average through 2027. We expect non-GAAP gross margin to be approximately 50.4% in Q4, up 230 basis points year-over-year. And we expect non-GAAP operating expenses of around $1.58 billion. As a reminder, Q1 of fiscal 2027 will be a 14-week quarter, which will result in a higher than average step-up in our Q1 operating expenses. Finally, we are modeling a non-GAAP tax rate of around 11% and a tax rate of around 13% in 2027 as we absorb the effect of the global minimum tax. In summary, the rapid adoption of AI that we've been investing for is driving strong growth and record revenue and profitability for Applied Materials. We are enabling better chips, systems and fab returns and systematically sharing in the value we create. We see continued record performance in the second half of the calendar year with a sizable increase in DRAM and leading-edge foundry logic revenue. Based on the unprecedented visibility we're receiving from our customers, we expect another strong record year in 2027 and are making substantial investments to be able to ramp to higher levels beyond next year.

Now, Mike, let's begin the Q&A session. Thanks, Brice. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up question. Operator, let's please begin.

Certainly, and our first question for today comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please.

Yeah, good afternoon. Thank you for taking the question. You know, a quarter ago you quantified semi-systems growth of 30-plus percent. Curious if there's kind of framework for thinking about what the growth outlook looks like now, given your positive commentary, and is there any sort of framework that we should be thinking about into calendar 27?

Hi, CJ. It's Brice. Thanks for the question. So, you know, our key comments there and the way that we're seeing the business is that demand strengthened again during the quarter. We see new projects being added by our customers on the factory side. We see CapEx forecasts going up by our customers and we see, you know, strong CapEx from the cloud service providers all announced. The greater than 30% that we highlighted last quarter, we're saying now that it's greater than that at this point. We didn't want to guide our out Q1 at this point, so that's as much information that we're providing. But when we look into 2027, we expect this whole demand function led by AI to continue. So we're saying 2027 at this point, we expect another strong year.

Yeah, CJ, this is Gary. I would add just that the fastest growing parts of the market are the leading edge foundry logic, DRAM, and advanced packaging. We said that's around 80% of the growth in wafer fab equipment spending this year. And then we'll see a similar profile in 27. Those are the fastest growing parts of the market. Those are areas where we have clear leadership and really well positioned going forward. So as you said, we increased Greater than 20% is what we said year over year in February, then greater than 30% in May. And now we think stronger than that going forward. And so demand in all the conversations with the customers is very strong. And what we're hearing from customers with these eight quarter rolling forecasts is very strong multi-year demand. I really want to thank our supply chain teams and operations teams. They're doing a great job in responding. But again, customers are being very creative. in how they're able to expand space and take tools earlier. Our teams are reacting very quickly, and we're in a strong position to outperform this year.

So strong environment, CJ, and we also highlighted that we expect to gain share during the year.

Very helpful. And I guess as a follow-up on gross margins, you talked about value-based pricing, and I think we've heard from most companies around anything expedited. of Service, New Tools. But you talked about like for like pricing pushing higher. So could you speak maybe directly to that and how we should be thinking about the implications to your overall gross margins as we proceed into fiscal 27 and beyond? Thanks so much.

Sure. So, you know, over the last three years, approximately 300 basis points increased in our company level gross margins. One driver for that was our value-based pricing. that we do for every single tool. So the issue, CJ, was when we came through COVID, supply chain crisis, cost of inputs went up. We found ourselves needing to reprice every tool. So we put that value-based process in place. And that's what we do is examine the value of every single tool and put a new price on every single tool. We think that's required in an environment where the input costs change constantly. and then looking forward, we expect to be able to continue to improve our gross margins. We're already over 55% for our, you know, at the semi-systems level and, you know, value-based pricing will continue to be a part of that.

Yeah, TJ, I would add that I think our ability to create value for customers has never been stronger. This race to bring new AI architectures to market is what every one of our single customers is focused on. Applied has the most enabling technologies, as I said, in the fastest growing parts of the market. So we have a tremendous opportunity for creating value there. And I also talked about yield and output innovation. So all of our customers, they're racing to be first to market with these new architectures and then also ramping as fast as possible optimizing yield and output. So that puts us in a position where our products are extremely valuable. Our services are also more valuable. That's driving the greater than 20% service growth that we're seeing. We talked also about greater than 50% growth in our PDC business that also is related to yield optimization. And then our pipeline of new products is also very strong, and all of those have higher margins. and that will give us a tailwind going forward.

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

Thanks for taking my question. So Gary, many of your memory customers are saying that they have three to five year, you know, long term agreements with good visibility into units and pricing. I know you mentioned you have eight quarters of visibility, but as you look at your customers who are signing up for a greater level of alignment with their end customers, how is that kind of translating into your longer-term visibility beyond these eight quarters?

Yeah, I can start on that, Vivek. Hi, it's Brice. What we have from customers, of course, the large customers, we actually have visibility to the roadmap. We have a perspective on probably five years of visibility for our largest customers. We ask them for the detail at a detail level for the eight quarters that we've been speaking about so we can aggregate that and get it to our supply chain. Other things that have changed, we get longer lead time POs. from our customers so that the details are agreed from a longer lead time perspective. And then we also have some charges that have moved into this environment like cancellation charges and expedite charges that help navigate the environment. So there's been a number of changes and I think visibility is significantly increased from prior periods.

Yeah, Vivek, this is Gary. Certainly, everybody can see that there's a gap between supply and demand. DRAM, especially with AI, as we're expanding from training to inference to agentic AI to physical AI, memory demand continues to go higher. And I'd say especially DRAM, you know, DRAM, this is going to be a very strong growth year for applied. More second-half weighted in terms of our DRAM growth, but very strong growth in DRAM. and I think as you know, we've expanded our DRAM shares significantly over the last several years and we continue to see strong growth in our DRAM business going into 27 and as you said, as we're in all of these conversations with customers, they're talking about multi-year growth and significant demand that we're increasing our capacity to meet and then for us, relative to our position in DRAM, We are the number one process equipment provider in DRAM. We're the leader in the CMOS periphery logic to upgrade transistors for higher performance and power, including I talked earlier on the call about very strong epi growth, HBM packaging. We're the leader in materials deposition for wiring and patterning, conductor etch, E-beam technologies. And we're in deep partnerships with customers also for future DRAM architectures. Innovations in 6F squared, 4F squared, and we're very well positioned for 3D DRAM in the future. So I have high confidence that we're going to continue to drive significant growth and gain share in this segment.

Perfect. For my follow-up, one more on gross margins. You know, if I go back from calendar 21 to 25, your gross margins and those of your, you know, U.S. sphere, were about the same. In fact, you know, applied was slightly ahead. But in the near term, you know, they are about 150 basis points higher. So I understand, you know, mix for every company is different. But I'm curious, how come the gross margins were so aligned in those prior five years, you know, yet, you know, they are kind of lagging a little bit. So just what's the prospect price for expanding gross margins to more of this industry level going forward? Thank you.

Yeah, Vivek. I don't know if I have a great reason to think about comparisons, but from our perspective, we've made tremendous progress from a gross margin advancement. We talked about our value pricing, and really it's the portfolio. The portfolio continues to strengthen as we target the R&D and the collaborations with our customers at the most valuable inflection solutions that need to be developed. And so the pricing really is just demonstrating the value of that portfolio. And yes, we expect to be able to continue that. Of course, we have some other elements in our portfolio, like the display business that we've talked about. When that grows faster, you know, that has a different effect on the corporate gross margin. So the portfolios are different between the two companies. But we expect to be able to continue to improve our gross margin and grow the value over time.

Again, I would also add, we have been driving margin growth, pretty significant margin growth. We talked about 13 consecutive quarters of year-over-year growth, 190 basis points in our semi-business in the last year. And I have high confidence we're going to continue to drive margins higher, continuing the growth that we've seen over the last few years. Thank you.

Thank you. And our next question comes from the line from Bernstein Research.

Hi, guys. Thanks for taking my questions. I have one more on gross margins as well. And look, I feel a little bad harping on it because they're actually really good. You know, they're well over 50% and they are coming in higher than you'd expect. But I'm just wondering, you are guiding them flat at these current levels, at least in the near term, on a pretty sizable revenue increase. And Just given all the commentary around portfolio and pricing and everything, I was just a little surprised. Why is that? Is that just a function of the display business growing sequentially to just mix between the businesses, or is there something else going on in the near term?

Hi, Stacey, Brice. Yeah, thanks for pointing out the growth in display. It's certainly a factor in the recipe, but really it's just ramp headwinds as with the growth, we're ramping a lot of customer service engineers, We have a lot of resources that we're adding in the semi business. And so, yes, we get the benefit of strong segment mix with semi growing so strongly. And we get the benefit of more volume. But we do have some ramp costs that are in the forecast. So we feel good about in our guided quarter, we feel good about having a flattish margin at the company level. And then, like we said, as you look longer term, we'll expect to be able to continue to grow the margin.

I guess to follow up on that then, so if there's ramp costs now, I guess how long do those last? Are you still ramping up more engineers and other costs like into subsequent quarters or are you all in this quarter? And then as we think about the pace of that expansion, what does it look like? I think you talked about last quarter thinking about something like 10 bps or something sequentially kind of going forward. Is that still the trajectory or given some of the other drivers, do you think it can come in better than that?

No, I think, you know, I think the continued pace of improvement, you know, we called that slow in the past. I think slow improvement is the right way to think about it. We do expect to improve it, you know, over the longer horizon. So I think we will continue to add employees over the next few quarters, but I think that headwind will recede as the revenues continue to grow.

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

Timothy Okere Thanks. Brice, I want to go back to this systems guidance for the year. So you said up more than 30 last call. Things have gotten better since then. But even if you go 40%, that implies a pretty big decel into December. So you'd go from 18% in July to 12% in October to then 6% in January. And that gets you to like 40%. Lam is talking about WFE being up like 38. So if you're going to outgrow, you have to be at least 40 if you believe their numbers. So would you commit to growing systems 40% or more?

Hi, Tim. Thanks for the question. We are committing that we expect to outgrow. We think that's already happened so far this year, and we expect to have that happen wherever we land from a growth perspective as we get through the year. And I think you've got the dynamics right. We first guided greater than 20%. We raised that after customers added clean room projects. We raised it to greater than 30%. And we're saying it's even higher now. And so, yeah, we'll expect, you know, we're not giving that number because we're not guiding that out quarter, but those are the right dynamics. I guess the last thing I'll add there is we do expect sequential growth in our Q1, the calendar Q4, but not guiding that at this point.

Okay, Brice, and then maybe ask a different way. So the comment about manufacturing capacity doubling, so should I just take that kind of at face value? So you're shipping roughly, you're, you know, revenue in roughly, you know, 7 billion in the July quarter. So at face value, does that mean that sometime during counter 28, you'd be revenue at 14 billion or is it more nuanced than that?

Thanks. It is more nuanced. I think you should take it explicitly. It's capacity. So it's not a revenue forecast for 2028. What we have to do with long lead investments like clean room is make sure we have the clean room in place with a profitable business or any demand forecast or any demand reality in that environment. and so we're just communicating because partially we're communicating to our suppliers also we're putting the capacity in place to be able to support a wide range of output requirements in 2028 and as far as that goes the years after also so no it's not a revenue forecast but yes it's giving you an indication of what we will be prepared for.

Okay thanks.

Thank you. And our next question comes from the line of Chris Shanker from TD Calend. Your question, please.

Yeah, thanks for taking my question. I just want to do a follow-up on Tim's question. Gary or Bryce, it seems like your customer conversation seems to have shifted from annual price discussion to basically Delivery and Meeting Requirements, Basic Time to Market with a Two-Year Visibility. I'm just wondering, does this give you some freedom on pricing, or does it add more burden on expenses on prepping up your capacity and the supply chain for the upcoming ramp? And if you have a visibility of two years, why not give a giant quarter quality outlook and then add a follow-up?

Hi, Krish. Yeah, the customers definitely, especially the large customers, we've got very strong visibility. And you're right, they are becoming more and more interested in scheduled delivery and hitting the schedules, which is why they're collaborating, cooperating on specificity of the orders and the eight-quarter visibility that we're also sharing with our suppliers. So I think that dynamic has improved the situation for us in the planning environment dramatically from the prior year. So I think all those things are true. I guess that's our perspective at this point. Gotcha, gotcha.

And then maybe, Brice, I think in your prepared comments, you kind of spoke about and certain customers giving you visibility into 2030. I'm just curious, are those conversations about technology or is that still about capacity to scale up and meet that demand?

Well, yeah, it's definitely about technology. So, especially with the large customers or mature customers, you know, we know the fab projects that are on the roadmap. We know the technology that's planned. and even if it's a new technology, we have a perspective of our positions in those technology. So we do have the ability to plan in a detailed manner for five years. And then what happens at the eight quarter out is we get very specific about the node and the tool types that need to be built so that we can pass that information along to the suppliers. And we do have, yeah.

Chris, I'm in many of those conversations with the CEOs of our largest customers. For sure, they're giving us detailed visibility for the eight quarters. But even beyond that, I think they have communicated they see strong multi-year demand in their business. They're wanting us to be ready to support that demand. As you know, it takes time for us to get the supply chain ready. to support those levels. So yeah, we are getting the visibility relative to capacity needs beyond the eight quarters. On the technology, I would say that those discussions go out maybe 10 years in the future because applied is the most enabling for those key architecture inflections. We have the most broad, the most connected, the most unique portfolio to enable the new transistors, the wiring, the DRAM architectures, new packaging architectures. And it takes time to bring those innovations to market. So Applied is unique in the portfolio we have. We have the most enabling technologies. If you looked at the top five or 10 technologies you need to enable these new architectures, Applied has by far the majority of those technologies. And so very deep Co-innovation relationships with customers where we're co-creating those architectures. So that technology visibility goes beyond five years in these deep co-innovation relationships with the customers. Thanks a lot, Gary. Thanks a lot, Bryce. Appreciate it.

Thank you. And our next question comes from the line of Harlan Sir from JP Morgan. Your question, please.

Good afternoon. Thanks for taking my question. The team previously guided your global ICAPS business to be flat to slightly up this year. Outside of China, I mean, we are seeing a strong cyclical recovery. and automotive, industrial for your analog power microcontroller customers, right? They're also articulating an environment of tight supply as well. Utilizations are rising meaningfully, Brice, as you articulated, but are these global customers also starting to pick up their spending? And do you see your total ICAPS business growing this year?

Arlan, thanks for the question. So I'll start here. Yeah, in pointing this out, We do see a change in the ICAPS dynamic. So you called out the increasing utilization across those customers. That's a positive. Our view of China is that it will grow this year and it will grow next year. That's a big part of our ICAPS portfolio. And we do think that ICAPS overall will grow this year and will grow next year. So the digestion, we're hopeful that the digestion that we've talked about on the equipment side in the past I appreciate the color there.

and another quarter of strong revenue growth and growth in operating margin profitability in AGS, right? 30% operating margins. I think that's the highest level, I think in two years. Those are incremental growth margins. I think for the last couple of quarters have been well above 40%. So strong and you also have been delivering strong incremental operating margins as well. I know the team has historically thought that they could drive AGS operating margins longer term into the low 30% range, but On your strong incremental margin profile, could we see gross margins approaching the 40% range and operating margins in the mid-30s as AGS revenues continue to scale higher, advanced services becomes a bigger part of the mix kind of over the long term?

Yeah, thanks Harlan. So I think not different from the semi-business, we do expect that we have the opportunity to improve gross margins over time. in the services business. And what's happening there is that, you know, solutions like the information solutions that come from AI are allowing us to develop new products and be more efficient in the services that we're providing. That combined with the growing installed base gives us good growth there. And then this year, we had the benefit of significant increase in utilization, which grows the spares business more quickly than in prior years, so that helps us from a gross margin perspective. From that point, you can only grow to 100% utilization once, so that sort of slows down, but we do expect we'll be able to improve gross margins over time in the services business.

Yeah, Harlan, I would add that for customers right now, optimizing output and yield is incredibly important in a supply-constrained environment. And that's going to go on for some period of time. So the value of services that optimize yield is incredibly valuable. And the good news is we have a lot of new innovations there. We talked about over 37,000 chambers connected to our AX servers. We have AI-enabled applications for preventative maintenance or chamber matching. Those are incredibly valuable services that will drive our top line growth, our service contract growth faster, and also enable us to capture value more quickly. So actually, I am more positive on growth in the AGS business, both top line and bottom line, than I've ever been.

Thanks, Gary. Thanks, Brice.

Thank you. And our next question comes from the line of Blaine Curtis.

I want to ask on NAND. It doubled in the quarter, obviously off small base. Just curious what you're seeing in that market. And then you didn't mention it in October. I'm assuming maybe that's just small dollars. That's why you didn't call it out. But is it continuing to grow?

Hi, Blaine. Yeah, good growth in NAND this year from a percentage perspective. Small base, like you say, but we think this year is a strong year of growth for NAND as we look forward. into our next year. We think the dynamic is really that AI dynamic that we've called out before and Gary mentioned earlier. Leading Edge Logic and DRAM and Advanced Packaging will be the fast growers. ICAPS should return to growth for us. NAND should grow, but will be a slower grower in the out year.

Thanks. And then, Brice, maybe on CapEx, you talked about the Expansion of Spending for 2030. I don't know if that's going to hit now. I'm just kind of curious if you can comment on what you expect OpEx to be in October and then just any perspective next year. I think Epic rolls off, so I think the prior was that it would go down, but now with the strength of the business, I'm just curious how you're thinking about that spend.

Yeah, that's a great question because you're right. On the strength of the business, of course, we have more additions that we want to do. This is a CapEx comment. We want to, we will be and putting equipment inside Epic as well as other investments. So what I would say about CapEx, it'll still be a CapEx year that's higher than normal, but it will decline as a percentage of revenue as we go into 27. So that's our perspective at this point.

Thank you. Thank you. And our next question comes from the line of Jim Schneider from Goldman Sachs. Your question, please.

Good evening. Thanks for taking my question. I was wondering if you could maybe comment, given the strength you're seeing across your focus areas, as you look into fiscal 27 or calendar 27, would you care to rank or where you see the incremental strength between Foundry logic, DRAM spending, and advanced packaging?

Yeah. Jim, this is Brice. I'll start. We actually don't distinguish between them. We think the system level pull that AI provides is similar across those different end markets. So I wouldn't call the difference enough to distinguish between them. So it'll be strong for leading logic. It'll be strong for DRAM. It'll be strong for advanced packaging. And what's new for us now is that we also think that ICAPS will grow next year. So that's and another difference from our previous 90 days.

Yeah, Jim, thanks for the question. Yeah, I think we talked earlier about 80% of WFE growth in those three segments in 26, and we see a similar profile, maybe even a better profile, but right now we'd say similar profile in 27. Those three segments, as Bryce talked about, we see those as the fastest growing segments in 26 and 27, and frankly, over the next several years.

That's helpful, thank you. And then just given the first half versus second half dynamic we're seeing in calendar 26, is there any reason why in calendar 27 you wouldn't see an accelerating growth rate for overall revenue? Is there anything you would see on the horizon that would give you pause? Thank you.

I think, you know, a lot of people ask Jim about what is governing growth. I think, you know, as you move into the longer term, what governs growth is clean room from our perspective. Customers continue to add clean room projects. That's why we raised our forecast this year. Some of those will add incremental clean room space next year. And of course, it gets larger as the out years come into focus because those projects usually take a number of years. But anyway, I think it will be the availability of clean room at a high level that will determine what we can all ship next year.

Thank you. And our next question comes from the line of Mehedi Husseini from Seshquahanna International. Your question, please.

Yes, thanks for taking my question. One of the good ones I've been asked, I just have a couple of follow-up for Gary. Forget about the near-term trend, but I want to better understand How you are thinking about your targeted revenue, gross and operating margin for a scenario where WFP will be $150 to $175 billion? Any color will be great.

Oh, hi, Mehdi. Thanks for the question. I think, you know, when we have the October investor event, we'll give more color relative to growth rates. What I would say is that if I look at the setup relative to Compute Demand going forward. We see this as a strong multi-year growth driver. And the fastest growing segments of the market, what we talked about earlier, the most valuable parts of the market, Leading Edge, Foundry, Logic, DRAM, Advanced Packaging, we're number one and we're positioned to gain share going forward in those segments. So I think top line growth, we have a number of really great drivers that will enable us to outperform in 26. And we look at very strong growth going forward. And I also believe that really across the board, the value that we're delivering is also increasing. We do have the most unique connected portfolio that's creating tremendous value for our customers for new chip and packaging architectures. That puts us in a good position to continue to drive our margins higher going forward. and I mentioned earlier about the innovations and yield and output. And as you can imagine, Mehdi, every single customer, they're focused on getting as many chips out per square meter as they possibly can. So that increases the value of our service business and we're bringing innovations that really directly address those areas of focus for our customers. So I think relative to Top line growth, bottom line growth, I'm very optimistic. But we'll give more color, Mehdi, when we have our October investor meeting.

I'll just do one add, Mehdi. You're really describing this year and scenarios that people are talking about for this year. So I think we're giving you the ingredients for that with a greater than 20% services business for the calendar year. Something higher than greater than 30% for the semi business. We talked about our gross margin outlook. We gave you the display item and then whatever that WFE number is, we've said we expect to gain share. So I think you have the ingredients needed to have a perspective on that.

Got it. Thank you. Just a quick follow-up. I think your NAND has been relatively the smallest part of your SEMI, and I think it's a reflection of more of an upgrade going on within a NAND than with a capacity add. When do you think the industry would actually start adding some with a capacity to offset some of these losses due to increase of migration to a 300-layer count?

Hi, I'm Eddie. Yeah, so for the, you know, the dynamic here I think we've described in the past is wafer starts continued to decline in NAND. So the projects you see are for upgrades, as you described, to get more layers. We expect the environment to continue the same dynamic for the next few years. The one place that'll be different is new projects in China, I believe. For the larger customers, it's mostly increased space to afford those upgrades in layers that you described.

Got it. Thank you. Yeah, thanks, Mehdi. And, operator, we have time for one more question, please.

Certainly. Then our final question for today comes from the line of Sriniv Pajari from Royal Bank of Canada. Your question, please.

Thank you. Thanks for squeezing me in. Gary, a couple of questions on the technology front. You talked about panel-level packaging. I'm just curious as to when do you see panel-level packaging becoming mainstream? And compared to your current position in advanced packaging, what sort of opportunities do you see in that market? And then also, if you can touch on hybrid bonding, it seems like that's finally happening. And what sort of opportunities you're seeing in the market?

Yeah, thanks for the question. So as I talked about earlier on the call, packaging is one of the most important areas in the industry relative to improving AI compute performance and power. Multi-chip connectivity, how you move the data, huge focus for all of our existing customers and new customers that are innovating with new architecture. So over 70% growth this year. We have, by far and away, the strongest portfolio of technologies. We've also talked about some acquisitions that we've done here recently that add to our strength in packaging. So I have very high confidence that we will continue to drive significant growth over many years in packaging. Relative to new substrates, all of our customers are really focused on connecting as many logic and memory chips together at the highest performance and power as they can. And so we're in deep co-innovation relationships with companies and there is a race for all of these companies to drive these new architectures to market because there's so much value in performance and power. So I look at that as a great opportunity when we model our share of those new architectures. We have a great opportunity to grow our share. We have new capabilities that will expand our available market as those new architectures are adopted. And I don't want to give a specific forecast relative to timing, but what I would say is that we will see a pretty significant growth next year in our panel revenue. and certainly it's going to ramp a fair amount after that going forward. But our positions there are stronger. And then relative to hybrid bonding, hybrid bonding is a way that every customer, whether it's leading edge foundry logic or DRAM or high bandwidth memory, they're all wanting to shorten the wiring length to improve the performance and power So it's a very important inflection for all of our customers. Again, Applied has strong technology in hybrid bonding. We have also very big business in the adjacent steps around the hybrid bonding. We have the only integrated R&D facility working with our customers to enable those new architectures for packaging. So this will be a meaningful growth driver over time in addition to all the other technologies that we have in advanced packaging. So I'm very optimistic, over 70% growth this year and very strong growth in 27 and going forward.

Thanks, Gary. Then one quick follow-up for Brice. Brice, I understand you don't want to ask. There was FQ1 guidance, but you did call out that it's a 14-week quarter. I'm just wondering what sort of impact, if any, that'll have on your revenue sequentially. Thank you.

Sure. What we've seen in prior years when we had a 14th week in the quarter was you get close to a ratable performance on the services side of the business. and not so much on the equipment side. Most of the planning is done at a quarterly basis on the equipment side.

So yeah.

And then from a spending perspective, as you might imagine, everybody wants to be paid. And so most of the spending will occur in the quarter. Thanks, Srini.

Thanks, Bryce.

Great. So thank you, Srini, for your question. And Bryce, would you like to get a little summary before we close the call?

Thanks, Mike. We're excited that Applied's unique portfolio and strategy are enabling us to grow faster than the market and increase margins. We look forward to an even stronger second half and to seeing many of you at our upcoming events. I'll be attending the Citi Conference in New York, and Gary will be at the Goldman Conference in San Francisco. The whole team looks forward to seeing you at the Epic Center in October and giving you our longer-term outlook at our investor breakfast at Semicon West. Mike, please go ahead and close the call.

All right, well, thank you, Brice, and we'd like to thank everybody for joining us today. A replay of today's call is going to be available on the IR page of our website by 5 o'clock Pacific time, and we'd really like to thank you for your continued interest in Applied Materials.

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