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`Applied Materials Inc (NASDAQ: ALLAT) Q2 1020 Earnings Call Transcnpt AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 2 of 38
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`Applied Materials Inc (NASDAQ: AMAT)
`T 02 2020 Earnings Call Transcript
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`5
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`Applied Materials Inc (
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`) Q2 2020 earnings call dated May 14, 2020
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 3 of 38
`Michael Sullivan — Vice President, Investor Relations
`
`Gary E. Dickerson — President and Chief Executive Officer
`
`Dan Durn — Senior Vice President, Chief Financial Officer
`
`Analysts:
`
`C.J. Muse — Evercore ISI — Analyst
`
`Atif Malik — Citi — Analyst
`
`Toshiya Hari — Goldman Sachs & Co. — Analyst
`
`John Pitzer — Credit Suisse — Analyst
`
`Krish Sankar — Cowen — Analyst
`
`Harlan Sur — JP Morgan — Analyst
`
`Pierre Ferragu — New Street Research — Analyst
`
`Joseph Moore — Morgan Stanley — Analyst
`
`Presentation:
`
`Operator
`
`Welcome to the Applied Materials Earnings Conference 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 conference over to Michael Sullivan, Corporate Vice President.
`Please go ahead, sir.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 4 of 38
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`Michael Sullivan — Vice President, Investor Relations
`
`Good afternoon and thank you for joining Applied’s second quarter of fiscal 2020 earnings call,
`which is being recorded. Joining me are Gary Dickerson, our President and CEO and Dan Durn,
`our Chief Financial Officer. Before we begin, I’d like to remind you that today’s call contains
`forward-looking statements, which are subject to risks and uncertainties that could cause our
`actual results to differ. Information concerning the risks and uncertainties is contained in
`Applied’s Form 10-Q and 8-K filings with the SEC. Today’s call also includes non-GAAP financial
`measures. Reconciliations to GAAP measures are found in today’s earnings press release and in
`our quarterly earnings presentation, which are available on the IR page of our website at
`appliedmaterials.com.
`
`And now, I’d like to turn the call over to Gary Dickerson.
`
`Gary E. Dickerson — President and Chief Executive Officer
`
`Thanks, Mike. I’d like to start today’s call by addressing the topic at the forefront of everyone’s
`mind, the COVID-19 pandemic, which has created unprecedented challenges around the world.
`My thoughts and best wishes go out to all of you and especially those whose families have been
`directly affected by the illness.
`
`As the situation has evolved over the past several months, our actions at Applied Materials have
`been guided by two key principles; first, maintaining the trust of our employees, customers,
`suppliers and partners; and second, focusing on driving initiatives that will allow us to emerge
`stronger over the longer term. As always, our number one priority is the health and wellbeing of
`our employees and their families. Our workforce remains highly productive. Many are working
`effectively from home and for those working on site, we’ve implemented strict safety protocols
`in close collaboration with our medical advisers, customers and suppliers. In our factories, labs
`and logistics centers, we’ve changed physical layouts to allow for social distancing, introduced
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 5 of 38
`enhanced cleaning and sanitation procedures, implemented health screenings and mandated
`the use of personal protective equipment. All our employees and contingent workers have
`continued to receive full pay and we’ve introduced additional incentives and benefits for
`employees supporting our critical operations. While we’ve been working through certain supply
`chain constraints, we have remained laser-focused on the needs of our customers and doing
`what it takes to keep their factories running smoothly and their R&D programs on track.
`
`Across the Company, I see amazing examples of our manufacturing, logistics and field
`operations teams going above and beyond to keep our customers and the industry moving
`forward in a difficult set of circumstances. We’re also defining new ways of working with
`customers that not only provide solutions today, but will also create significant benefits over the
`long term.
`
`Finally, in line with Applied’s long-held values to make a positive contribution to the communities
`where we live and work, we’ve created a global, charitable COVID fund. The purpose of this fund
`is to address immediate humanitarian needs and combat long-term effects on local
`communities and the non-profit sector.
`
`We’ve also donated masks and equipment to medical facilities and, in addition, there have been
`numerous employee-driven initiatives across the Company. It’s inspiring to see these employees
`stepping forward to help volunteering their time, skills and resources to demonstrate our
`shared passion to make a difference.
`
`Now let me turn to the agenda for today’s call. I’ll begin with a summary of our second quarter
`performance and near-term outlook, then I’ll provide a longer-term perspective on our markets
`and I’ll finish with a summary of our strategy, highlighting some of our recent accomplishments.
`Later, Dan will give more color on our financial results, operational performance and business
`environment.
`
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 6 of 38
`Starting with our near-term business outlook, demand from our semiconductor customers
`remains strong. In fiscal Q2 our financial performance was negatively affected by our ability to
`ship systems to customers as shelter-in-place and lockdown orders impacted some of our
`suppliers’ operations, particularly in the Bay Area and Malaysia. However, we’re in a much better
`position today. Thanks to the flexibility in our global operations footprint, we’ve been able to
`make adjustments and we continue to work closely with our suppliers to ensure they can meet
`our needs. Our supply chain remains a critical area of focus as we enter our third quarter with
`record orders and a record backlog for our semiconductor and service businesses combined.
`
`In terms of the semiconductor industry environment, I will focus my comments on what we
`currently see in the market and what we’re hearing from customers. In foundry/logic demand at
`the leading edge remains very healthy, with a strong commitment from these customers to
`build out their factories and push forward with their development road maps. However, we’re
`seeing some pockets of weakness in specialty markets mainly as a result of a pullback in the
`automotive and industrial sectors.
`
`In memory there are no major changes to the outlook we provided last quarter. We continue to
`see a positive progression in the market with inventory levels approaching normal and
`improvements in pricing trends. As a result, we’re seeing incremental strength in investment by
`memory customers as we move through the year.
`
`Based on the visibility that we have today, underlying demand for semiconductor equipment is
`robust and even when COVID-related effects are taking into account, we still believe that our
`semiconductor business can deliver strong double-digit growth for our fiscal year.
`
`In display we expect our FY ’20 revenues to be close to FY ’19 as the industry navigates the
`bottom of this spending cycle. Our display business remains solidly profitable even as we invest
`in next generation products ready for when the market picks up.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 7 of 38
`Looking further out, we’re well aware of global economic concerns. While I’m not going to
`speculate on possible macro scenarios, I will share some of the key assumptions that we’re
`using to guide our strategy, which are based on carefully monitoring market indicators and
`staying very close to our customers. Clearly, consumer spending is a potential headwind for
`many sectors, including the electronics industry. At the same time, the global pandemic is acting
`as an accelerator for key technology inflections that were already underway.
`
`Working from home, learning from home and e-commerce are driving investments in cloud
`data centers and communications infrastructure. We expect companies to build stronger
`business continuity plans which will include geographic redundancy and increased use of
`automation and IoT technologies and the adoption of AI and big data remains non-discretionary
`for many companies. As I’ve said before, these game-changing technologies will transform
`entire industries and there will be big winners and losers through the transition.
`
`My personal view is that we will see significant and permanent changes in the way companies
`operate and prioritize their investments. In fact this is already happening in our business and
`the ways we are working with customers. Over the past several years, we made significant
`investments in state-of-the-art digital infrastructure, sensors and metrology, data science,
`machine learning and simulation. The combination of these technologies enables us to reduce
`product development cycles, speed up transfer of new technologies from lab to fab and
`optimize cost output and yield for our customers and volume production.
`
`In the past few months, our field and R&D teams have been working with customers to further
`expand secured data sharing, to enhance remote support and accelerate the deployment of
`these powerful new tools. In our own labs, we also have many examples of R&D teams
`increasing utilization and productivity of lab assets by applying creative new strategies for mode
`[Phonetic] operations. While near-term actions are being driven by necessity, the long-term
`benefits of working this way are compelling as they provide significant time to market and cost
`advantages for Applied and our customers.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 8 of 38
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`Our long-term perspective about AI and big data shaping the next decade is unchanged and we
`see strong potential for certain elements of these inflections to scale faster than previously
`expected. As I’ve said before, to enable these new computing systems and unlock the potential
`of AI technologies, major advances in the power, performance and area cost, or PPAC, of
`semiconductor devices are needed.
`
`Based on recent input from customers, we’ve updated our PPAC framework to PPACT where T
`stands for time to market, acknowledging the enormous value of speed. Applied has by far the
`largest broad portfolio of technologies and products to accelerate the PPACT playbook which
`spans creating, shaping, modifying, analyzing and connecting structures and devices. We’re the
`only company with process and metrology under one roof and we have highly differentiated
`silicon and packaging lab capabilities. As a result, we have a significant advantage in our ability
`to accelerate new PPACT innovations for the semiconductor ecosystem. The capabilities we
`have built and the multi-year investments we have made are yielding results.
`
`According to VLSI Research’s recently published report, we outperformed the market in both
`semiconductor equipment and services last year. Our performance in deposition technology
`was especially strong with our PVD business gaining 7 points of share. We also have great
`momentum in metrology and inspection. Our process, diagnostics and control group delivered
`record revenue in the first half of the year. One of the key contributors to this record
`performance is our new optical inspection system that we will be officially launching later this
`year.
`
`Before I hand the call over to Dan, I will quickly summarize. First, as we navigate the challenges
`created by COVID-19, we’ve rallied the Company around two guiding principles. Maintain the
`trust of employees, customers, suppliers and partners and focus on driving actions that ensure
`Applied Materials emerges stronger over the long term. Second, while we’re mindful of potential
`macroeconomic headwinds based on what we see and hear today, semiconductor equipment
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 9 of 38
`demand remains robust and our supply chain is getting healthier. Third, we remain fully
`committed to our strategy to accelerate the PPACT playbook and our pipeline of new innovative
`products and integrated processes has never been better.
`
`Now I will turn the call over to Dan.
`
`Dan Durn — Senior Vice President, Chief Financial Officer
`
`Thanks, Gary. Today, I’ll summarize our second quarter results and activities, give you an update
`on the environment and share our current expectations for the second half of our fiscal year. As
`a reminder, on March 23rd, we suspended our Q2 guidance because of the global response to
`COVD-19 was creating significant challenges across our supply chain, manufacturing operations
`and logistics. Due to the extreme uncertainty, we also decided to borrow against our revolving
`credit facility. We promised to provide our investors with an update on this earnings webcast
`and I’ll do that in a moment.
`
`This afternoon we announced our Q2 results, which were below our original guidance but solid
`considering the extreme challenges our teams faced due to COVID. I’m proud of our employees
`for putting health and safety first and still doing everything possible to support our customers,
`both in keeping our factories running and by keeping our R&D programs moving.
`
`Despite the incremental challenges we experienced in the last six weeks of our quarter, we
`delivered AGS and display revenue that was higher than our original expectations in February.
`Our semi systems revenue was below our original outlook and that was entirely due to COVID
`related supply constraints and demand remains strong. And while the environment remains
`fluid, we exited the quarter with the second highest company backlog in our history and record
`backlog for semi systems plus AGS combined.
`
`For the Company as a whole in Q2 on a year-over-year basis, we grew revenue by 12%,
`increased non-GAAP operating profit by 23% and grew non-GAAP EPS by 27% to $0.89. During
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 10 of 38
`the quarter we returned $392 million to shareholders in buybacks and dividends and
`announced a dividend increase of nearly 5%. We ended Q2 with nearly $7.4 billion on the
`balance sheet, including $1.5 billion in credit facility proceeds.
`
`Now I’ll share my assessment of the COVID environment which includes several encouraging
`developments. Our industry has been designated critical infrastructure in many parts of the
`world. All of our suppliers have now been able to resume operations and they are recovering to
`normal output. We’ve been in very close communications with our customers and their demand
`indications remain strong. We’re mindful of the microeconomic impacts of COVID, including job
`losses in the consumer and industrial sectors of the global economy. But governments have
`provided strong financial support to workers, businesses and the banking system. As a result of
`our assessment of the environment, we fully repaid our revolving credit facility borrowings
`subsequent to the end of the quarter. We currently have approximately $5.9 billion of cash and
`investments on the balance sheet, which is an increase of about $200 million compared to our
`Q1 balance. We are continuing to prepare for the planned acquisition of Kokusai Electric. During
`Q2 we received Taiwan’s clearance for the transaction and we have one final approval pending
`from China.
`
`Turning to the business outlook. While I see positive signs there is still potential for COVID-
`related disruptions around the world and we’re not providing revenue and earnings guidance
`for Q3. I know there is concern about the risk of further economic impacts and changes in
`customer investment patterns. But rather than speculate, I’ll attempt to help our investors by
`providing visibility into what we are seeing across our operating segments.
`
`In semiconductor systems, our Q2 revenue would have been nearly $650 million higher absent
`COVID-related constraints. We hope to recover this revenue in Q3 and Q4 as the supply chain
`improves. In the second quarter our semi systems orders were up significantly and demand is
`broadening to more customers. Based on what we’re hearing from our customers, we believe
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 11 of 38
`Q3 semi revenue could be up in the high single digits sequentially and higher again in Q4,
`resulting in strong double-digit growth for the fiscal year.
`
`Our services business has proven highly resilient during the crisis and we continue to generate
`a growing proportion of revenue from subscription like long-term service agreements. AGS
`posted its first $1 billion quarter ever in Q2 with nearly 60% of revenue coming from service
`agreements. In Q3 we believe AGS revenue could be flat to slightly higher sequentially and
`higher again in Q4. Within AGS our semi parts and services business has grown to $3.2 billion or
`24% of our Company’s semi-related revenue.
`
`VLSI Research has begun to size and compare the parts and service revenue of companies in
`the industry. Ours is the strongest among our peers, both on a dollar basis and as a percent of
`our semi-related revenue.
`
`Our total semiconductor installed base business, which includes parts, services, 200 millimeter
`systems and 300 millimeter upgrades and refurbs has grown to become 38% of our semi-
`related revenue. This ratio is about 5 points higher than our peers.
`
`As Gary indicated, we still expect our display revenue to be nearly the same this year as last. We
`believe revenue is likely to be flat to slightly higher sequentially in Q3 and higher again in Q4. In
`short, if the demand indications from our customers hold and our supply chains continue to
`improve, then we should have second-half weighted revenue in each segment. Based on
`everything we see today, this would translate to sequential revenue growth and earnings
`growth in Q3 and then again in Q4.
`
`So in summary, while the situation remains fluid and macroeconomic impacts are still unknown,
`our customers remain committed to their technology road maps and are signaling growth for
`Applied. We will remain vigilant, stay close to our customers and be ready to respond quickly if
`the environment changes.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 12 of 38
`Once again, I’m incredibly proud of our employees for their strong commitment to health and
`safety and their strong support of our customers, both in meeting today’s demand at our
`factories and theirs and innovating in our R&D labs to enable the technology of the future.
`
`Now Mike, let’s begin the Q&A.
`
`Michael Sullivan — Vice President, Investor Relations
`
`Thanks, Dan. There are a lot of people on the call today. So to help us reach as many of you as
`we can, I’m going to ask you to please ask just one question and not more than one brief follow-
`up. Operator, let’s please begin.
`
`Questions and Answers:
`
`Operator
`
`Thank you. [Operator Instructions] Our first question comes from the line of C.J. Muse with
`Evercore. Your line is now open.
`
`C.J. Muse — Evercore ISI — Analyst
`
`Yeah, good afternoon. Thank you for taking the question. I guess first question, you talked about
`expectations for incremental strength for memory through the calendar year. I was hoping,
`perhaps you could elaborate on that in terms of mix between both NAND and DRAM as well as
`new wafer starts versus strengths and what gives you the confidence that that is sustainable in
`this world of COVID.
`
`Gary E. Dickerson — President and Chief Executive Officer
`
`Thanks, C.J. As we look in the year, we see the year profiling pretty similar from a proportion of
`spend standpoint that we talked about a quarter ago. We see strength in foundry/logic
`continuing throughout the year as our order book and customer base broadens and we feel
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 13 of 38
`good about that.
`
`As we profile to memory, we talked about seeing some incremental strength this year both on
`DRAM and NAND. I think it’s too early to call the magnitude of that, but we do see balance
`across the device types from a spend standpoint. And I do think there is going to be similarities
`in terms of 2019 being an investment year primarily focused on technology road maps. And we
`actually saw wafer starts per month last year, 2019, actually go down year-over-year in both
`DRAM and NAND. And as we look into this year we don’t really see strong capacity adds. We
`continue to see our customers driving their technology road maps because that is in effect their
`cost structure. It allows them to drive margins and cash flow when industries recover.
`
`So we see continued investments from a technology road map standpoint, but we see probably
`less wafer starts per month coming out of the system than we did the year before. So it’s sort of
`on the margin. We continue to stay close. We will watch it. And we’ll continue to be open and
`transparent. In an environment that’s defined by uncertainty, what we want to try to do is be as
`helpful as possible, share with investors the things we’re seeing and hearing from our
`customers and we’ll let you know what we see each quarter as the situation evolves.
`
`C.J. Muse — Evercore ISI — Analyst
`
`That’s helpful. If I could sneak a quick follow-up, Mike. On gross margins, can you speak to how
`you see the trajectory into the second half considering what looks to be a positive mix from
`both silicon and AGS? And also as it relates to supply chain, I think you took out $8 million of
`COVID-related expenses. Is that something that should sustain into the back half? How should
`we be thinking about that? Thanks.
`
`Gary E. Dickerson — President and Chief Executive Officer
`
`Thanks, C.J. I’ll take both. As we think about the actions the Company took in the current
`environment, we made conscious decisions about how we were going to position ourselves
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 14 of 38
`from an operating and manufacturing standpoint and decisions were made very early in the
`process. We implemented our business continuity team in the middle of January. And as part of
`contingency planning and mapping out potential points of risk, we made decisions to put in
`place surge capacity from a personnel standpoint. And that decision was made probably the
`first week of February.
`
`So clearly there is an impact to maintain cycle times and throughputs that are on par with
`where we were before COVID. That’s a result of really strong teamwork and execution and
`planning. But it certainly has a headwind from a margin standpoint. And we’re optimizing
`around serving our customers and taking care of the things that we can take care of so we can
`better withstand the things we can’t control which is what we saw from a supply chain
`disruption standpoint and the rate and pace of that recovery. So we feel good about that. But
`certainly it does create a bit of a headwind. And you see that profiling through some of the
`segments and I’m happy to share more of that thinking, but it’s definitely there.
`
`From a gross margin standpoint, as we look into next quarter what we signaled was a favorable
`segment mix and in a normal environment that would create improvement from a gross margin
`standpoint. What I’d also say is what we experienced in our most recent quarter was six weeks
`of impact of a material supply chain disruption driven by a concurrent shelter-in-place order in
`the Bay Area and Malaysia. It affected a material part of our supply chain, but it was a six-week
`impact.
`
`Going into Q3, we’ve got a full 13-week impact as the supply chain becomes healthier and that
`will sort of offset a bit of the favorable segment mix. So I think the best way to think about our
`gross margin as we look into Q3 from a planning assumption standpoint is to think about it flat.
`If we can do better, we certainly will. But we’ll take it one quarter at a time and give investors our
`best view of what we see and the pluses and minuses as we manage the business to the best of
`our ability in this environment.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 15 of 38
`Michael Sullivan — Vice President, Investor Relations
`
`Thanks, C.J.
`
`Operator
`
`Thank you. Our next question comes from the line of Atif Malik with Citi. Your line is now open.
`
`Atif Malik — Citi — Analyst
`
`Thank you for taking my questions. I have two. First for Gary. Company gained 0.5 point of
`equipment share last year and served variable markets led by deposition. Which end markets or
`technologies are you more confident to show outsized growth this year and next year? And as a
`follow-up, Dan, I’m curious what your take is on recent Department of Commerce’s China
`equipment licensees for the future shipments.
`
`Gary E. Dickerson — President and Chief Executive Officer
`
`Thanks for the question. I think I’ll take both of those. So let me start with market share. And
`starting from an overall Company perspective, one of the things that we’ve discussed before is
`that we have very good balance across all device segments, including leading and trailing logic,
`DRAM and NAND. This enables us to perform well really regardless of the device mix. It gives us
`ability to perform well in pretty much any environment.
`
`So if we look at overall, 2019 was a good year for us. Your question I think is related to 2020. We
`look at 2020 as also a very good setup for us. As I said in the prepared remarks, we anticipate
`strong double-digit growth for Applied in 2020. And what I would say is that in this new
`environment, I used to travel a significant amount. And I’m still on the phone very frequently
`with CEOs, R&D leaders. In fact, I had a call with one of the CEOs this morning. And one of the
`things that’s a real advantage for Applied is the traction we have with customers to accelerate
`their PPACT road maps. And that really is both for memory and also for foundry and logic.
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`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 16 of 38
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`So performance in 2019, we gained about 2 points in the markets that we serve and a 0.5 point
`overall WFE share. So if we look at the setup for 2020, we continue to see strong foundry/logic
`investments where we have leadership products, PVD, epi, strong traction in new etch
`applications. We see currently double-digit growth in our memory business, strong double-digit
`growth in memory, gaining traction with new capabilities that are key for scaling and strong
`growth in memory patterning applications. So overall, again we have balance across all of these
`different segments. I would say that our pipeline of our new products in our integrated
`materials solutions has never been better relative to accelerating PPACT road maps for
`customers.
`
`Then the second question is around, I think the export controls. So let me start with a
`perspective of the overall geopolitical situation. And I’ve said before on this one, Applied
`believes in fair trade and intellectual property protection. The semi ecosystem and innovation
`road map rely on these principles. So regarding the new regulations that were recently
`announced by the Department of Commerce, we’re working very closely with the US
`government, trade associations and our advisers to better define the requirements for the
`industry and to be able to comply with the new regulations. We have some very good people
`working on this and based on our work to-date, our current expectation is Applied is going to
`be able to meet the government’s required standards when the rules come into effect at the
`end of June without significant disruptions to our business. If needed, we have significant
`flexibility in our global operations footprint and we’re developing contingency plans that we
`could implement. But again overall, we believe we’re going to be able to meet the government’s
`required standards when the rules become effective.
`
`Michael Sullivan — Vice President, Investor Relations
`
`Thanks, Atif.
`
`https://news.alphastreet.com/applied-materials-inc-nasdaq-amat-q2-2020-earnings-call-transcript/[9/23/2020 4:53:33 PM]
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`

`

`Applied Materials Inc (NASDAQ: AMAT) Q2 2020 Earnings Call Transcript | AlphaStreet
`Case 5:20-cv-05676-EJD Document 23-16 Filed 09/25/20 Page 17 of 38
`Operator
`
`Our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is now
`open.
`
`Toshiya Hari — Goldman Sachs & Co. — Analyst
`
`Good afternoon and thank you very much for taking the question. Gary, I was hoping you could
`give us an update on your business in China, both on the memory side as well as the logic and
`foundry side. One of your foundry customers just raised capex, I think it was yesterday, by $1
`billion plus. I’m guessing the activity on the memory side continues to be pretty robust as well.
`But if you can give us an update on what you’re seeing near term and what your expectations
`are for the second half that would be great. And then I’ve got a quick follow-up.
`
`Dan Durn — Senior Vice President, Chief Financial Officer
`
`Hi, Toshiya. I’ll jump in on that question. So as we think about China, let’s talk about where we
`ended 2019 and use that as a jumping-off point to talk about what we see incrementally into
`2020 as it relates to domestic China spend.
`
`So if we look back into 2019, the market sizing was about $6.5 billion. And a quarter ago, we set
`our expectation for 2020 was an incremental $2 billion to $3 billion of domestic China spend.
`Our expectation in 2020 is still $2 billion to $3 billion. But now, given the customer news
`overnight, we’re probably at the high end of that range.
`
`A