Semiconductor manufacturer Applied Materials (AMAT 57.13, -0.71 -1.23%) traded to split-adjusted all-time highs this morning (though now sits modestly below those levels) in reaction to the company’s solid sales performance in Q4 and strong Q1 guidance.
Specifically, AMAT’s Q4 net sales grew about 20.4% to $3.97 billion. Earnings per share came in at $0.93 and gross margins grew 2.5 points to 46.2% on operating income of $1.14 billion. Growth was aplenty among all major markets with growth in key geographical areas like Korea (30% of net sales), China (15%) and the United States (10%) all seeing marked gains. By segment, the Semi business saw year-over-year net sales growth of 14% to about $2.4 billion with gains in DRAM and Flash; the Services business raised eyebrows, reporting net sales growth of about 20% to $831 million; lastly, the Display business registered nearly 50% year-over-year net sales growth to $677 million.
Breaking it down a bit more, AMAT saw decided strength in the Display business; the company noted that lead times tend to be much longer in Display compared to the semiconductor space, allowing for extended visibility. On the whole, AMAT’s Display business grew to $1.9 billion in 2017; given this performance, AMAT’s view for 2018 is now even more positive than previous growth expectations of 30% vs 2017 levels. Also, the backlog in the business sits at $1.85 billion entering 2018. Thus, the company feels confident that 2018 and 2019 will be very strong for the Display business as manufacturers continue to make TV and mobile displays thinner, lighter and more visually pleasing.
In the Services business, AMAT increased both revenues and non-GAAP operating profits by 20%. The company saw net sales in the business grow by 17% to $3 billion in 2017 with expectations for the buisness to grow at a15% compound rate through 2020. The backlog in this business into 2018 sits at $1.1 billion.
Further, AMAT also raised its wafer fab outlook – the company now sees wafer fab above $90 billion in 2017 and 2018 combined. As of the September Analyst Day, management had held expectations for 2017 and 2018 wafer fab of about $90 billion.
Against the backdrop that AMAT expects to deliver strong double-digit growth across the semiconductor, display and services businesses, the company begins FY2018 by guiding Q1 EPS and revenues ahead of market expectations. Specifically, the company sees Q1 EPS of $0.94-1.02 on revenues between $4.0-4.2 billion and non-GAAP gross margins of about 46.6%.
The Q4 out-performance came on broad strength as AMAT turned in a strong finish to the fiscal year; guidance, too, was impressive but the stock seems to have calmed down a bit from early excitement, now in the red on Friday.