This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down the biggest manufacturer of chip making equipment in the world, Applied Materials. Last week, we looked at the other leading equipment maker in the semi-industry, ASML, and while that business currently has a higher market cap, Applied Materials generated more revenue and profit last year.
It earned $26 billion, spent $3 billion on R&D and currently has 17,300 patents. To explore the business behind those numbers, I’m joined by Dylan Patel, Chief Analyst at SemiAnalysis. Dylan takes us through the industry’s evolution, how Applied’s business differs to ASML, and how geopolitics is a double-edged sword. Please enjoy this breakdown of Applied Materials.
Show Notes
(00:00:00) – Introduction
(00:02:33) – (First question) – An overview of the vital and diverse semiconductor industry
(00:05:11) – The shift to specialization in semiconductors
(00:09:04) – Geopolitical factors that impact the sector
(00:12:16) – The dynamic evolution of Applied Materials
(00:15:22) – What differentiates Applied Materials from their competitors
(00:18:52) – Strong margins, growth, and efficient capital allocation drive their financials
(00:22:00) – The cyclical nature of the semiconductor industry
(00:24:36) – Optimizing equipment for next-gen chips through collaboration with manufacturers
(00:29:09) – How Applied Materials’ specialization limits equipment changes for manufacturers
(00:32:54) – Contributing factors to Applied Materials’ continued growth
(00:36:05) – Market share varies by equipment and processes
(00:39:13) – Biggest risks for Applied
(00:41:23) – AI’s growing demand for semiconductors
(00:43:20) – Lessons learned from studying Applied Materials