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Applied Materials' Display Segment Should Grow 10% In FY 2018


  • Applied Materials' CEO said in the company's recent earnings call that its display segment would grow 30% in FY 2018.
  • To meet that growth, Applied Materials' revenues must average $677 in each of the next three quarters, a feat it only accomplished once in the last nine quarters.
  • Applied Materials is counting on revenue growth from 10.5G LCD plants and from its operations in LTPS backplanes and OLED encapsulation, primarily for the smartphone sector.
  • Based on anticipated timelines of 10.5G plant equipment installs, there will be a shortfall of $365 million in equipment sales to meet its 30% growth.
  • The oversupply of OLED displays for smartphones will also present headwinds for the company to meet its needed revenue stream of $450 million per quarter to meet its 30% growth.


Applied Materials’ (NASDAQ:AMAT) Gary E. Dickerson reported in the company’s Q1 2018 earnings call that:

“In Display, there are two equally large market inflections driving capital investments: the introduction of Gen 10.5 substrates for TV manufacturing and organic LED displays. In mobile, the transition to OLED displays is compelling. Display is a unique growth driver for Applied, and we expect to increase our revenue by more than 30% in 2018 on top of nearly 60% growth last year.”

I want to analyze this segment of the company because if Dickerson is correct about 30% growth, because based on my analysis of the display market, that growth doesn't seem plausible. In addition, except for large revenue gains anticipated in equipping 10.5G display plants. the company is facing headwinds in oversupply of displays for smartphones and an erosion in market share by companies in both low-temperature polysilicon (LTPS) backplanes and flexible OLED encapsulation.

In fact, AMAT has been losing market share to competitors in its semiconductor segment as well. For example, I previously reported in a February 5, 2018 Seeking Alpha article entitled “Sizeable Changes In Semiconductor Equipment Market Share In 2017” that AMAT’s semiconductor segment grew 30.5% in CY 2018, but unfortunately for the company, its main competitors Lam Research (LRCX), KLA-Tencor (KLAC), and Tokyo Electron (TEL) had greater growth. AMAT lost market share to these companies in specific sectors such as deposition, etch, and inspection/metrology.

In addition, I reported in a February 28, 2018 Seeking Alpha article entitled “Applied Materials Continues To Get Walloped In Its Core Ion Implant Business By Axcelis” that the company lost share in CY 2018 against significantly smaller Axcelis (ACLS) in the ion implant sector.

The Display Sector

AMAT's display segment had revenues of $1,900 million in FY 2017, up 56.7% from FY 2016 revenues of $1,206 million. Revenue

This article was written by

Robert Castellano profile picture

Robert Castellano has 38 years of experience analyzing the semiconductor markets.

He runs the investing group Semiconductor Deep Dive. It provides investors with recommendations for stocks with the greatest near- and medium-term growth potential. Members receive detailed analysis and research tools to make investments in semiconductor and tech stocks. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

sts66 profile picture
Thnx for the article - had been looking at AMAT, now know much more about it, and now much less interested in it - appears I missed the boom cycle. Oh well.
Great article, I am going to sell my AMAT
Can someone make a 'good' argument to me as to why AMAT is a better bet than LAM Research?
Mbrot profile picture
That was a good article, and I am bullish on AMAT. OLED capex will begin increasing in late 2018 and 2019 after a lull. I will study your thesis more when I get back home.
Robert Castellano profile picture
Samhc, maybe you're right because what the stock market does is based on several factors, one of which is the methods to increase stock prices such as buybacks. Last year the entire equip industry went up. When the cyclical nature of the industry kicks in and revenues drop, you are better positioned to separate the good companies, such as LRCX, and the bad. Gartner is already pointing to a downturn this year while I say it is up 10%. According to them "Semiconductor wafer fab equipment spending growth will exceed 32% in 2017, driven by record capital spending in memory sectors. The WFE market will decline slightly in 2018, before experiencing a steep correction in 2019. "http://gtnr.it/2FVvCl1
love how you portray buybacks as a negative and act as if amat is the only company doing it. I'm not 100% sure what your agenda is, but it seems strange to continuously bash a single stock
Robert Castellano profile picture
I'm not saying buybacks are negative, I'm saying there are ways to manipulate a stock even though sales are in the crapper. Stocks move based on guidance, and if earnings beat consensus, stocks go up, and visa versa. This is what was the basis for the term wall street versus main street. We just had 8 years of a crap economy in the U.S. yet those same 8 years resulted in a bull market.
What I'm talking about in my articles is revenue, not earnings, not guidance, not consensus. And if you read them carefully I've tried to explain why market share is important. Read every earnings call in any stock and the topic of market share comes up. If a company is losing market share it is because someone else has built a better mousetrap or management is faulty.
display makes a very tiny part of thier income

First Quarter Reportable Segment Information
Semiconductor Systems Q1 FY2018 Q1 FY2017
(In millions, except percentages)
Net sales $ 2,847 $ 2,150
Foundry 25% 50%
DRAM 25% 16%
Flash 37% 25%
Logic and other 13% 9%
Operating income 995 690
Operating margin 34.9% 32.1%
Non-GAAPAdjusted Results
Non-GAAP adjusted operating income $ 1,041 $ 736
Non-GAAP adjusted operating margin 36.6% 34.2%
Applied Global Services Q1 FY2018 Q1 FY2017
(In millions, except percentages)
Net sales $ 880 $ 676
Operating income 254 178
Operating margin 28.9% 26.3%
Non-GAAPAdjusted Results
Non-GAAP adjusted operating income $ 255 $ 179
Non-GAAP adjusted operating margin

Display and Adjacent Markets Q1 FY2018 Q1 FY2017
(In millions, except percentages)
Net sales $ 455 $ 422
Operating income 101 115
Operating margin 22.2% 27.3%
Non-GAAPAdjusted Results
Non-GAAP adjusted operating income $ 104 $ 115
Non-GAAP adjusted operating margin 22.9% 27.3%
Use of Non-GAAPAdjusted Fina
Samhc profile picture
05 Mar. 2018
The author has been overall negative on AMAT for the past several years. I look forward to seeing who is right and who is wrong one year from now. My bet is on AMAT.
Saw the author of the article and wondered how long it would take to go negative. Author didn't disappoint. Stay negative on a historically cyclical industry long enough and eventually economic cycles probably prove you right. That's after missing the move from 15 to 58 and beyond.
Robert Castellano profile picture
Jeffrey888. I have no control over what the stock does. All I'm saying in my series of articles are analyses of the equip market based on 36 years of doing this. I try to give insight to readers so (1) they understand the industry (2) they understand the company and (3) they make decisions on what the implications for a company who has been losing market share ever since his management took over will be in the coming years.
Doesn’t sound terribly optimistic
Robert Castellano profile picture
The reality is that 2017 was an extraordinary year for display and semi. A rising tide raises all boats and AMAT floated along with it (like other things). Now that 2018 is expected to be significantly slower in semi, and there are the headwinds in display, it will separate the wheat from the chaff. This is where innovation is telling, as customers purchase best of breed. If a company is losing share consistently, it means competitors have better tools. Clearly the case in display is coming from several fronts - oversupply issues, laser anneal for LTPS, ALD for encapsulation.
2018 is suppose to "significantly slower in semi" ??? that doesnt sound right. Confirmed by just about every semi who has reported, as well as companies such as HP. The demand and need is only growing, and are more and more chips for the multi year (decade) technological revolution which is just starting.
Robert Castellano profile picture
Cgain, sorry let me clarify - since this article is about AMAT and it sells equipment, I was referring to semi equipment not semiconductors. The latter will still grow this year but with memory not to the extent of last year.
Mr. Catellano- what does that mean for AMAT holders, not currently accumulating. I have 200 shares at an average of 52
Robert Castellano profile picture
The revenue growth will be there because of the 10.5G activity. It just won't be there in FY 2018 as Dickerson said, based on my arguments. Now how the powers to be (sell side analysts) react is not my call. I don't know if they've been as analytical as I in this article and may look at the whole year rather than QoQ.
AMAT management stopped giving quarterly outlook in display and semi and I called them on it last year.
Also, they are experts at spin. Notice how they used YoY in their release for Q1 because had they used QoQ, then revenues would have been down 33% (see Chart 1). Q2 2017 was weak so they may show a YoY gain.
Then again management uses other ammunition to pump up stock, such as buy backs.
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