Applied Materials (NASDAQ:AMAT) reported its fiscal second-quarter 2017 results last month and helped push the company's stock price up about 10% in May. Investors were pleased the company reported another record quarter for both revenue and earnings per share, which came in at $3.55 billion and $0.76, respectively.
But that wasn't the only reason investor sentiment in this stock is growing. Applied Materials' management laid on several key growth areas for the company in the coming quarters. Let's take a look at five of them:
Record-breaking quarters are becoming a habit
On the fiscal second-quarter earnings call, Applied Materials CEO Gary Dickerson said:
We've now set earnings records for four quarters in a row, and as I look across the company, I see tremendous momentum. Our markets are strong and getting stronger and we're sustainably growing faster than these markets by expanding our served opportunity and gaining share.
In case you missed that, the company's $0.76 EPS in the quarter marked four consecutive quarters of earnings records. And that wasn't the company's only record, either.
"Sales of memory chips are at record levels, fueled by increasing content in smartphones to support better cameras and VR applications as well as the need for more and higher performance storage in data centers," Dickerson said.
Applied's innovations are paying off
Dickerson said on the call that his company is innovating across the logic, memory, and display segments, "and we are in a great position to provide the critical building blocks needed to move the industry forward."
To get there, he said the company has reallocated resources to new product development, including its new semiconductor equipment operating system, and it has already trained 10,000 employees how to use it.
The company's focus on new technologies has helped it stay ahead of the competition. Applied Materials is the No. 1 semiconductor equipment company by revenue and holds at least 22% market share across all four of its key market segments: NAND, DRAM, logic, and foundry.
The display market continues to grow
Management mentioned that demand for new display technologies and the increase in average television screen sizes are boosting the Applied's prospects in display equipment.
"Our expectations for the display market also continue to strengthen as a result of large inflections in both TV and mobile screen technology. Average TV sizes are expected to reach 44.5 inches in 2017, up 5 inches in the past 3 years."
Applied's customers are investing in new equipment to keep up with demand as those screen sizes have grown. Additionally, larger smartphone screens are helping to propel the company's display prospects forward as well. Dickerson explained:
In parallel, we see investment in mobile OLED getting stronger as confidence in the adoption rates of OLED technology increases. Recent forecasts indicate that two-thirds of new smartphones could have OLED displays by 2021 and screen manufacturers are accelerating their investment plans accordingly.
All of this has helped grow the company's display revenues by about 20% each year since 2012, and the company is on track to book more than $2 billion in orders this year.
"Display technology and manufacturing is becoming increasingly complex and Applied is in a unique position to enable the road map," Dickerson said.
Don't forget about China
Applied Material's management spoke about the company's growing potential in China and how they expect the country to become even more important to its business in the near future. Dickerson said on the call:
My final comments about the market environment relate to China, which is an important long-term growth opportunity for Applied. We believe 2017 spending will be slightly higher than last year. And based on the projects we're tracking, we expect to see a significant and steady investment ramp in both semiconductor and display beginning in 2018.
He also mentioned that China is one of the company's strongest regions for both semiconductor and displays, and that growth has been doubling in semiconductors and increasing by 50% for display and services since 2015. Dickerson expects wafer fab equipment sales to increase by up to $1.5 billion from 2017 to 2018 in China
Plenty of optimism for the near future
Applied Material's CEO highlighted the company's key growth opportunities for the next year and into 2018 on the call, saying, "We believe we will see double-digit growth in DRAM spending this year, and we expect NAND investment to be even stronger." Dickerson expects more growth to come from the increased need for data storage from the Internet of Things, big data, artificial intelligence, and streaming video.
He said new data generation, smarter industrial equipment needs, and autonomous vehicles could "potentially dwarf existing applications within a few years."
He also mentioned that companies are investing more in chip foundries, and that Applied expects investments in new, leading-edge equipment to account for about 60% of foundry spending, mainly thanks to a bigger need for sophisticated smartphone processors and AI needs.