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​Musing on Financials
 
Applied Materials Sets Low Bar for Display Equipment Spending
August 25, 2019
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Applied Materials reported memory spending has softened slightly since May, but customers are still making investments although more disciplined, while adjusting factory output to reduce inventory levels. On the demand side, the price elasticity of NAND is starting to take effect in the form of increases in the average bits per box for both smartphones and PCs. Applied remains optimistic about 2020 with an expectation that NAND investments will recover ahead of DRAM. In foundry logic, demand has strengthened as the year has progressed as we see customers accelerating the ramps of their leading-edge nodes. In display, there are no significant changes to the outlook provided last quarter, and they anticipate 2019 revenue being down by about 1/3 relative to 2018.  Applied doesn’t guide display fab equipment, but they see 2020 for Applied being higher than 2019, with LCD TV investment roughly flat next year, as many of the Gen 10.5 Fabs are long lead times. Mobile OLED equipment is expected to increase as a percentage of the overall market next year. Longer term, the markets are still going to be cyclical, but they are optimistic based on trends. The CEO tried to put a positive spin by commenting that the pull from customers is very strong, with opportunities to drive growth in the display business into 2020.

AMAT used new accounting rules to change the Display segment. Chart 5 is a screen shot of AMAT’s Q3 FY2018 news release from 2018 reporting net sales of $741 million for its Display segment.
The next table shows AMAT’s current news release for Q3 FY2019. Note that the company lowered its Q3 FY2018 (red circle) by $135 million.

Table 1: AMAT Display, Revenue, Income, Margins

Source: Company Data
 

The revenue changes in Q3 FY2018 (ending July 2018) is a result of new accounting practices and includes an assumption that was added to Q3 FY2019. The next chart is a compilation of revenue change for Japanese display equipment manufacturers, which make up the vast majority of display equipment and shows that revenues of Japanese display equipment companies rose in Q2 CY2019 (equivalent to AMAT’s Q3 FY2019). Without the $135 million in revenue pull-in, AMAT would have recorded a sequential drop of 38.5%, unlike the Japanese companies, AMAT’s display segment has still not recovered. However, by pulling in revenues from Q3 FY2018 to Q3 FY2019, it appears AMAT’s display segment has stopped dropping.From: Robt. Castellano

Figure 3: AMAT Display Revenue by Quarter

Source: Information Network
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​Figure 4: Japanese Display Equipment Company Revenue Change

Source: Information Network, OLED-A
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