Applied Materials (AMAT.US) Q4 Earnings Call: CEO Addresses Capacity Mismatch Concerns, Says No Customers Delaying Pickup; System Capacity Planned to Double by 2028

Applied Materials (AMAT.US) released its fiscal Q4 2026 results (quarter ended October 25, 2026) after the U.S. market close on November 12: revenue of $10.41 billion, up 53% year-over-year, a record high and above the FactSet analyst consensus of $10.3 billion; non-GAAP EPS of $4.16, up 92% year-over-year, also a record and above the $4.06 expected; GAAP net income of $2.718 billion, GAAP EPS of $3.40 (+43% YoY). After the report, the stock rose more than 2% at one point before paring gains to about 1%. In response to analyst concerns about ""a mismatch between gigawatt-scale data center capacity and chip capacity, with customers delaying pickup,"" CEO Gary Dickerson responded clearly on the call: ""The answer is no. No customer has said they don't want the equipment as quickly as possible... We continue to receive requests from customers to accelerate our ramp and deliver earlier."" Management also provided an aggressive expansion plan: to double system output by 2028 from the fiscal Q4 2026 level, and expects the wafer fab equipment (WFE) market to grow more than 30% in 2027, with the company poised to outperform the market again. Focus and Response The core focus of this call was not the financial numbers themselvesrevenue, EPS, and guidance all beat expectations across the boardbut the sustainability of demand: whether Applied Materials can sustain high growth when the market begins to worry that AI data center buildout (gigawatt-scale power capacity) is mismatched with chip capacity, thereby delaying equipment orders. Dickerson responded that no customers are delaying pickup and all are asking for earlier delivery; CFO Brice Hill added that the company is supply-constrained, especially in DRAM and advanced logic, and that PCs, smartphones, and other markets have still not fully recovered, providing a demand buffer. Hill also acknowledged supply chain ""pinch points,"" saying ""if everything had been perfectly in place on supply, the Q1 number could have been a little higher, but it's not a major impact."" The stock's muted reaction to the results may be related to the high level after consecutive sharp gains. Record Quarter and Fiscal Year Q4 revenue of $10.41 billion rose 14% sequentially and 53% year-over-year, the largest single-quarter dollar increase in the company's history. Non-GAAP gross margin was 50.6% (+250bp YoY), and non-GAAP operating margin was a record 35.3% (+670bp YoY), marking the 14th consecutive quarter of year-over-year gross margin expansion. Operating cash flow of $3.3 billion and free cash flow of $2.6 billion were both single-quarter records. The company repurchased $2 billion in the quarter, its largest single-quarter buyback in more than eight years. Fiscal Year 2026 Full-year revenue was $34.45 billion (+21%), the seventh consecutive year of growth; non-GAAP EPS was $12.89 (+37%), with management saying earnings growth was about twice revenue growth, reflecting operating leverage. Full-year operating cash flow was $8.87 billion (+11%), and free cash flow was $6.2 billion (+9%) after $2.7 billion of capital expenditures; the company returned $4.75 billion to shareholders for the year ($3.18 billion in buybacks plus $1.57 billion in dividends). Segment Performance Semiconductor Systems revenue was a record $8 billion (+64% YoY), with sales in Korea and Taiwan hitting record highs and DRAM and advanced packaging revenue both setting records; revenue from PVD, CVD, ALD, epitaxy, etch, CMP, and process control all set records. Segment non-GAAP gross margin was 55.2% (+240bp) and operating margin was 39.0% (+940bp). Applied Global Services (AGS) revenue was a record $1.9 billion (+26%); other business (including display) revenue of $517 million was in line with expectations. Industry View: AI Driving a Multi-Year Expansion Dickerson said AI is adding a ""fast-growing and incremental"" layer of demand for semiconductors, with advanced logic and DRAM fabs already running at full capacity and NAND utilization also recovering rapidly. Management cited: 2027 cloud capex is expected to grow more than 50% to more than $1 trillion in total; about 60% of the capital cost of AI data centers is silicon, of which more than 85% is advanced foundry logic, DRAM, and advanced packagingthe three fastest-growing parts of WFE in 2027, which will drive about 75% of WFE growth by 2030, exactly the areas where Applied Materials has invested for years and built leadership. Capacity Expansion and Supply Chain The company raised its demand forecasts to suppliers every quarter in 2026 and is reviewing capacity progress quarter by quarter with more than 2,000 suppliers. The CFO said demand planning has been extended to 2030, with the goal of doubling system output by 2028 from the Q4'26 level and more than doubling manufacturing and lab capacity by 2030. The medium-term constraint is cleanroom capacity: more than 20 fab ramp projects are being tracked in 2027, and for the third consecutive quarter more than 10 major new-build and expansion projects were added, many of which will not start production until 2029-2030, indicating that demand on both 5-year and 10-year horizons is higher than previously planned. Advanced Packaging and Process Control For calendar 2026, the company's advanced packaging revenue is expected to grow about 90%, and inspection/metrology (process control) revenue is expected to grow more than 50%; the company serves about 55% of the WFE market and remains No. 1 in CVD, PVD, epitaxy, CMP, ion implantation, thermal processing, e-beam, and conductor etch. In hybrid bonding, management said it covers about 80% of the steps in the process, has already been used in volume production in some 3D packaging for advanced logic, and all memory customers are evaluating adoption for HBM. The EPIC R&D platform added Intel Corporation, Kioxia, BESI, and UCLA as partners, bringing the total to 15. China Business and Capital Allocation The CFO expects China to account for ""less than 25%"" of shipments in 2027 (Q4 actual was 25%, fiscal 2026 was 27%), with growth in China but less than in AI-driven markets, though the company is gaining share in China's 28nm-class investments. On capital allocation, the company has $10.8 billion remaining under its repurchase authorization and will continue to return 80%-100% of free cash flow to shareholders. Next Quarter Guidance Fiscal Q1 2027 (14-week quarter) guidance: revenue of $11.1 billion $500 million, up 58% YoY at the midpoint, above consensus (about $10.85 billion, per Yahoo Finance/Cailian Press aggregation); non-GAAP EPS of $4.35 $0.20 (+83%), above the $4.23-$4.24 expected. This includes Semiconductor Systems of about $8.7 billion (+69%), AGS above $2 billion for the first time (+28%), and other businesses of about $400 million; gross margin of about 50.8%. The company noted that the 14-week quarter benefits AGS and expects Q2 AGS revenue to be close to the Q1 level and Q2 OpEx at about 15% of revenue. Full Conference Call Transcript Attendees: Michael Sullivan (Corporate Vice President, Investor Relations), Gary Dickerson (President and CEO), Brice Hill (Senior Vice President, CFO) Management Remarks **Michael Sullivan (Investor Relations)** gave compliance reminders and introduced CEO Gary Dickerson and CFO Brice Hill as the company's speakers. He noted specifically that ""calendar year 2026"" mentioned today refers to the period from fiscal Q2 2026 to fiscal Q1 2027. Gary Dickerson (President and CEO): This quarter's results were at the high end of guidance, with revenue and profitability both at record highs. Applied Materials delivered a record fiscal 2026, achieving its seventh consecutive year of growth. I want to thank employees and supply chain partners worldwide for maintaining customer trust during an unprecedented industry ramp. As this is the year-end call, I will briefly review 2026 results, then discuss the market environment, and finally how Applied Materials is building the most enabling portfolio to advance the AI computing roadmap. In fiscal 2026, we grew revenue more than 21% and earnings nearly twofold, demonstrating the operating leverage in our business model. Based on the midpoint of Q1 guidance, we expect Semiconductor Systems revenue to grow more than 40% in calendar 2026. As AI computing drives strong long-term growth in semiconductors and wafer fab equipment (WFE), Applied Materials is growing faster than the WFE market because we have established leadership in the most enabling, highest-value technologies for AI computing. Outperformance comes from growth in our served markets and significant share gains in advanced foundry logic and DRAM. Advanced packaging revenue is expected to grow about 90% in calendar 2026, and inspection and metrology revenue is expected to grow more than 50%. Demand for advanced semiconductors far exceeds supply, and the industry needs multi-year new fab investment to close the supply-demand gap. Our view is that 2027 will be another record year for both the market and Applied Materials; we currently expect WFE demand to grow more than 30% year-over-year, and the company has a strong foundation to outperform the market again. Industry growth depends on how fast the entire end-to-end semiconductor ecosystem scales, from cleanroom construction to equipment components and raw material supply. Applied Materials is taking multiple actions to ensure capacity and resources are in place: planning demand more closely with customers, with our largest customers giving us 8-quarter rolling forecasts and earlier orders; and deepening collaboration with suppliersI recently met with more than 250 key supplier executives to align on ramp expectations and service readiness across multiple growth scenarios. In AI data centers, about 60% of capital cost is silicon, and more than 85% of that silicon content is advanced foundry logic, DRAM, and advanced packaging. These three areas have the greatest impact on the AI computing roadmap and are expected to be the fastest-growing parts of WFE in 2027, together driving about 75% of WFE growth by 2030. This is exactly where Applied Materials has invested strategically over the past several years to build the industry's most enabling portfolio, and as we gain share at major technology inflections, we are well positioned to continue outperforming the market in 2027 and beyond. In mid-October we unveiled the EPIC Center in Silicon Valley and hosted an investor breakfast in San Francisco. There we shared three themes: the unprecedented opportunity presented by the AI era, the unique advantages of Applied Materials' capabilities and portfolio, and how to create more value for customers and capture more value for Applied Materials. As global AI deployment accelerates and applications spread rapidly, the contest for AI computing leadership comes down to two interrelated races, and Applied Materials is at the center of both. The first is the race for technology leadership, achieved by accelerating chip and packaging roadmaps and improving data center ""tokens per second per watt";" the second is the capacity racerapidly ramping new fabs while optimizing output and yield at existing factories. Applied Materials has built three leading portfolios: materials innovation, integration innovation, and yield innovation. The cornerstone of materials innovation is a comprehensive and interconnected technology portfolio: we serve about 55% of the WFE market and remain No. 1 in CVD, PVD, epitaxy, CMP, ion implantation, thermal processing, e-beam, and conductor etch for advanced logic and DRAM. At advanced nodes, smaller feature sizes, 3D structures, and the introduction of new materials create enormous process complexity. The interaction between process steps is critical, especially interface engineering when material layers are only 1-2 nanometers thick. This is why co-developing deposition, etch, treatment, inspection, and metrology technologies from the very start of development to solve integration challenges is a uniquely powerful advantage for Applied Materials. We have also built world-class integration, modeling, and simulation teams and a complete laboratory infrastructure to accelerate innovation in transistors, wiring, memory, and advanced packaging. As yield and output become increasingly critical for customers, we are bringing new yield innovations to market: we have the highest-resolution, fastest e-beam imaging, plus the industry-leading AI-enabled service AIX. E-beam and AIX enable faster R&D learning cycles, faster transfer and qualification of new technologies on pilot lines, and more good die output in volume production. We have the industry's largest connected installed basemore than 37,000 chambers connected to AIX, growing more than 20% per year. Materials innovation, integration innovation, and yield innovation are all accelerated by the EPIC platform. EPIC lets customers and partners develop technology side by side with Applied Materials, gain earlier access to next-generation technology, accelerate learning cycles, and reach high-yield, high-output volume production faster. For Applied Materials, EPIC means we are designed in earlier on new chip and packaging architectures, gain deeper insight into customers' multi-generation roadmaps, and improve R&D productivity. Since the last call, we have added four EPIC partners: Intel Corporation, Kioxia, BESI, and UCLA, bringing the total number of announced EPIC collaborations to 15. At the investor event, we also laid out value-creation targets for 2025-2030: WFE share gains of more than 2 percentage points, service revenue per installed tool up more than 20%, and gross margin and operating margin up 5 and 10 percentage points, respectively. I believe 2027 will bring meaningful progress toward these targets. Summary: Fiscal 2026 was a record, and Semiconductor Systems is poised to grow more than 40% in calendar 2026. We have established leadership in advanced foundry logic, DRAM, and advanced packagingthe most critical enabling areas for AI computing and the fastest-growing parts of WFE in 2027. 2027 will be another record year for the industry and another year of outperformance for Applied Materials. AI is driving a multi-year expansion in semiconductor demand, and Applied Materials has never been better positioned to lead and outperform the market. Brice Hill (Senior Vice President, CFO): This quarter we achieved our third consecutive quarter of double-digit sequential and year-over-year growth in revenue, operating income, and non-GAAP EPS. Q4 was also the 14th consecutive quarter of year-over-year gross margin expansion, reflecting the customer value of our product and service portfolio. We expect to outperform the market this calendar year, with strong growth in DRAM, advanced foundry logic, and advanced packagingexactly where we continue to invest. All the leading indicators we track continue to move higher: 2027 cloud capex is expected to grow more than 50% to well over $1 trillion; AI token usage is growing exponentially; the growing variety of AI models is spawning more applications and generating positive economic returns for service providers and early adopters (including Applied Materials itself). AI is already part of daily work at Applied Materials: more than 80% of employees use tools such as Microsoft Copilot and Anthropic's Claude, as well as specialized tools for materials discovery and engineering; all software developers use AI, with average productivity gains of more than 40%. Our monthly token consumption has grown more than 50-fold this year and is expected to increase substantially again in 2027. AI continues to drive strong incremental growth in wafer demand, with advanced logic and DRAM fabs running at full capacity, NAND not far behind, and ICAP (mature technology investment) currently in a healthy range. In the near term, the focus is on expanding supply chain capacity and producing more systems. This year we raised our demand forecasts to suppliers every quarter, and suppliers are working with us to meet continually rising 2027 demand expectations. We have mapped the supply chain, and teams and partners are managing pinch points to deliver another strong growth year. In the medium term, cleanroom capacity remains the key constraint on how much equipment the industry can absorb. Fortunately, in 2027 alone we are tracking more than 20 fab ramp and line expansion projects, and we have formed a new team and are using AIX technology to help customers accelerate ramps and maximize wafer output and yield. In the long term, customer demand signals are very positive: for the third consecutive quarter, more than 10 major new fab and expansion projects were added to our tracking list. Many of these new projects are not expected to start production until 2029 and 2030, indicating that demand in both logic and memory on 5-year and 10-year horizons is far higher than previously planned. We are already forecasting demand with customers out to 2030. To support customer growth, we are investing to double system output by 2028 from the Q4'26 level and more than double manufacturing and lab capacity by 2030. Fiscal 2026 review: revenue grew more than 21% to $34.4 billion; non-GAAP gross margin rose 130bp to 50.1%; non-GAAP EPS rose 37% to $12.89. Both Semiconductor Systems and AGS delivered double-digit revenue growth, with gross margins in both segments up about 150bp. Operating cash flow was $8.9 billion (+11%), and free cash flow was $6.2 billion (+9%) after $2.7 billion of capex. The company distributed more than $4.7 billion to shareholders for the year, including nearly $3.2 billion in buybacks and $1.6 billion in dividends. Q4 results: the largest single-quarter dollar increase in the company's history, with record revenue of $10.4 billion, up 14% sequentially and 53% year-over-year. Non-GAAP gross margin rose to 50.6%, up 20bp sequentially and 250bp year-over-year, benefiting from favorable product mix and higher pricing. Non-GAAP operating margin expanded to a record 35.3%, up 130bp sequentially and 670bp year-over-year. Non-GAAP OpEx as a percentage of revenue fell 430bp year-over-year to 15.2%, reflecting strong operating leverage. Non-GAAP EPS was a record $4.16, up 19% sequentially and 92% year-over-year. We plan to continue driving gross margin expansion by launching more enabling products and sharing the value they create for customers; at the same time, we will rely on AI and automation strategies to scale support functions with minimal headcount growth, further improving operating leverage and margins. Segment performance: Semiconductor Systems revenue was a record $8 billion, up 14% sequentially and 64% year-over-year, with records in Korea and Taiwan. DRAM grew strongly as expected, and both DRAM and advanced packaging revenue set records. By product, deposition revenue from PVD, CVD, ALD, and epitaxy, as well as etch, CMP, and process control revenue, all set records. Segment non-GAAP gross margin rose 240bp year-over-year to 55.2%, and non-GAAP operating margin rose more than 940bp year-over-year to 39%. AGS revenue was a record $1.9 billion, up 26% year-over-year, with both service and spares revenue setting records; segment gross margin rose 100bp year-over-year to 35.1%, and non-GAAP operating margin rose nearly 170bp to 30.5%. Other business revenue was $517 million, in line with expectations. Cash flow and shareholder returns: Q4 operating cash flow was a record $3.3 billion, capex fell sequentially to $684 million, and free cash flow was a record $2.6 billion. The company distributed more than $2.4 billion to shareholders in the quarter, including $2 billion in buybacks and $421 million in dividends. With $10.8 billion remaining under the repurchase authorization, we continue to expect to distribute 80%-100% of free cash flow to shareholders over the long term. Q1 outlook: as a reminder, Q1 is a 14-week quarter, which will benefit AGS revenue growth in the quarter. We expect company revenue of $11.1 billion $500 million, up 58% year-over-year at the midpoint; non-GAAP EPS of $4.35 $0.20, up 83% year-over-year. This includes: Semiconductor Systems revenue of about $8.7 billion (+69% YoY); AGS's first $2 billion quarter (+28% YoY); and other businesses of about $400 million. Non-GAAP gross margin is expected to rise to about 50.8% (+170bp YoY), non-GAAP OpEx of about $1.7 billion, and a non-GAAP tax rate of about 13%. To help with modeling after the 14-week quarter, we expect Q2 AGS revenue to be close to the Q1 level and Q2 OpEx at about 15% of revenue. Summary: AI continues to add fast-growing incremental demand to the industry. Our investment in this wave has produced a rich and expanding portfolio of highly enabling products and services. Our technology leadership in the most critical markets is reflected in strong revenue growth CKH HOLDINGS gross margin expansion. Our focus on operating leverage is delivering record operating margins, strong cash flow, and shareholder returns, including the largest single-quarter buyback in more than eight years. Visibility into customer demand remains long, we expect 2027 to be another record year, and we are already investing for higher levels beyond next year. We have high confidence in our strategy and will demonstrate continued progress in share gains, gross margin expansion, and operating leverage. Q&A Session CJ Muse (Cantor Fitzgerald): How has the demand environment changed over the past three months? What is visibility like through 2028/2029? How do you break it down by foundry/logic, DRAM, and NAND? What shipment growth is implied by doubling output and doubling capacity by 2030? Brice Hill (CFO): Customer demand has continued to increase over the past 90 days. For the third consecutive quarter, the factory tracking list added more than 10 projects (new fabs and conversions/upgrades of existing fabs). The advanced logic and DRAM markets are constrained, and customers are doing everything they can to add capacity and pull projects forward. Output will double by 2028""we just completed an $8 billion quarter, so you can calculate from that";" capacity doubling by 2030 is meant to cover a range of growth scenarios, and we share all information with suppliers. Gary Dickerson (CEO): To add, beyond advanced logic and DRAM, demand for advanced packaging is enormousthe business grew about 90% this year and growth is very strong in 2027 and beyond. CJ Muse (follow-up): How do you work with suppliers and their upstream partners? Do you provide support such as prepayments? Brice Hill: We have more than 2,000 suppliers. First, we ensure detailed 8-quarter rolling forecasts are passed to suppliers so they can plan output; second, we review actual progress quarter by quarter. Suppliers are motivated to invest on their own""we don't believe there are any roadblocks to higher demand scenarios."" There will be quite a few pinch points, and nearly all suppliers need to add capacity and headcount. Tim Arcuri (UBS): What end-market mix is assumed for Q1? Given strong DRAM growth in Q4. Brice Hill: Q1 trends are similar to Q4, with both DRAM and advanced logic strong and both markets constrained. The mix for full-year 2027 is expected to be broadly similar, with advanced DRAM and advanced packaging the strongest growth areas; what's new in 2027 is that ICAP (mature logic technology) will resume growth. Gary Dickerson: To add, ICAP growth outside China will be much faster in 2027. Tim Arcuri (follow-up): Are there cases of customers delaying pickupthat is, the risk of a mismatch between gigawatt-scale power capacity and chip capacity? Gary Dickerson: ""No, very clearly, the answer is no. No customer has said they don't want the equipment as quickly as possible. I've been traveling a lot recently... we continue to receive requests from customers to accelerate our ramp and deliver earlier."" Vivek Arya (Bank of America Corp Securities): If data center buildout slows in 2027 or 2028, what is the impact on the WFE forecast? Are customers planning long term and not canceling due to a short-term slowdown? Gary Dickerson: I meet with the CEOs of major customers every month, and all I hear are requests for us to expand capacity faster. Computing demand will keep rising, and I see no sign of concern about expanding too fast""the reality is exactly the opposite; people want us to pull in orders and ramp faster."" Brice Hill: Demand exceeds supply, especially in DRAM and advanced logic. In addition, the PC, smartphone, and smart TV markets remain constrainedeven if data center demand slows, there is still a considerable buffer. Vivek Arya (follow-up): At the start of last year, the company expected Semiconductor Systems to grow in the 20%+ range, but actual growth was close to 40%; why did it improve? Is the more than 30% WFE growth in 2027 a floor? Can 2027 repeat 2026? Brice Hill: Growth is constrained by cleanroom supply. Last year customers increased output by adding cleanrooms, pulling projects forward, and upgrading lines. ""Ultimately, the macro equation is determined by the cleanroom available for use."" Stacy Rasgon (Bernstein Research): Applied Materials grew more than 40% in 2026; how much did WFE actually grow in 2026? If WFE grows more than 30% in 2027, will outperformance be similar to 2026? Brice Hill: We outperformed WFE in 2026 and will do so again in 2027, based on our leadership in advanced logic, DRAM, and advanced packaging and our favorable product mix. Our business grew more than 40%, and WFE grew slightly less than that. Stacy Rasgon (follow-up): Competitors mentioned that near-term supply constraints affected their outlook. Is Applied Materials also affected? Brice Hill: We have some pinch points too. ""If everything had been perfectly in place on supply, our Q1 number could have been slightly higher. It's not a major impact."" We are working closely with all suppliers and have achieved double-digit output growth for three consecutive quarters, and we expect to continue increasing output every quarter this year. Gary Dickerson: All customers are asking for shipments as fast as possible, and computing demand is very strong. The team has done an excellent job expanding capacity, and there is more work to do in 2027, but we are in a very strong position to outperform. Atif Malik (Citi): DRAM roadmap: some memory makers will shift to 3D DRAM rather than 4F; how are Applied Materials' product positioning and opportunity on both? Gary Dickerson: Please refer to the slides from the investor breakfast: in the new version of 6F we are gaining share; as the industry moves to 4F and 3D DRAM, the served available market (SAM) and our share will both increase by multiple percentage points. ""DRAM is a very strong area for us, and we are much larger than our closest process equipment competitor."" SAM per million wafer starts per month rises significantly from 6F to 4F to 3D DRAM. We have deep co-innovation relationships with all companies. Atif Malik (follow-up): AGS growthinstalled base up 20% a year, service revenue per tool up 20%how do you see next year? Brice Hill: The long-term guidance is mid-teens (about 15%): installed base up 5%-10% a year and revenue per tool up 5%-10% a year. This year had a unique factor with ecosystem utilization near 100%, and future years will not have the same incremental benefit. Krish Sankar (TD Cowen): Inventory increased only modestly and inventory days fell by 10 days; why not build inventory more aggressively? And how do you view the Semiconductor Systems business for the April quarter? Brice Hill: Inventory increased by about $300 million this quarter to $6.9 billion. ""I wish we had more inventory."" We achieved double-digit output growth for three consecutive quarters and will keep working at it. There is no specific guidance for the April quarter yet; we expect output to increase every quarter this year. Krish Sankar (follow-up): DRAM WFE growth this year has largely come from technology conversions. Will conversions slow in 2027 and greenfield investment accelerate, or will conversions continue? Gary Dickerson: Both will happen: customers are doing everything they can on upgrades while also significantly increasing greenfield investment. I have never seen the industry place such emphasis on yield and output innovation. More than 37,000 chambers are connected to the AI-enabled AIX service, driving strong demand for the AGS business. Harlan Sur (JPMorgan): Process control is expected to grow more than 50% this year, faster than the overall systems business; next year you are launching an advanced packaging inspection platform, and customers are increasingly focused on yield and cost. Will process control continue to outperform overall Semiconductor Systems next year? Gary Dickerson: This year both the e-beam and optical businesses grew more than 50%; e-beam is twice the size of the nearest competitor. ""E-beamyou can't fix what you can't see."" The synergy between e-beam imaging and process equipment innovation is stronger than ever. The optical business has several major innovations in advanced packaging. ""Process control (PTC) will see very strong growth again in 2027,"" and Applied Materials overall will also grow strongly. Harlan Sur (follow-up): AGS has posted operating margins above 30% for two consecutive quarters, with incremental margins above 35%-40%. What is the AGS assumption in the company's overall 40% operating margin target for 2030? Brice Hill: AGS gross margin and operating margin will continue to improve. New products provide significant value to customers in yield and output management, and AGS is a contributor to the company's overall target. Jim Schneider (Goldman Sachs Group, Inc.): What is the pace of gross margin expansion over the next 4-6 quarters? Beyond product mix, what room is there from operational improvements or pricing? Brice Hill: Higher output is overcoming expansion costs, and new tools carry higher pricing. ""Faster semiconductor market growth is good for gross margin, and pricing is also good for gross margin."" The Q4 and Q1 outlooks include expansion costs for adding and training employees. For the pace, refer to Q4 and Q1. Gary Dickerson: Our market positioning is very favorable; we lead in advanced foundry logic, DRAM, and advanced packaging, and high-value products provide a tailwind to Semiconductor Systems gross margin. We expect significant margin progress in 2027, and we can share value with customers when new technologies enter volume production. Jim Schneider (follow-up): What is the expectation for the China business in fiscal 2027? Impact on gross margin? Brice Hill: China will grow, but less than AI-driven markets. ""Looking to 2027, China-related share or shipments to China may be less than 25% of the business."" Chris Caso (Wolfe Research): On the cleanroom space constraint: what is visibility into 2028? Will cleanroom supply limit WFE growth in 2028 or even beyond? Brice Hill: Think of it as an envelope that expands year by year. Of the more than 10 projects added this quarter, a large portion of the fabs will not open until 2029 and 2030. WFE growth over the past 10 years is expected to be larger in the future, and AI demand is incremental. Chris Caso (follow-up): Progress and timeline for hybrid bonding, especially adoption driven by AI inference? Brice Hill: It is already used in some 3D packaging solutions for advanced logic; all memory customers are evaluating it for HBM. ""We believe this is a very important technology, critical to the 3D and advanced packaging markets."" Gary Dickerson: Hybrid bonding is very important for I/O density and shortening interconnect length, and it is a top topic in customer conversations. It is already adopted in logic volume production. ""We serve about 80% of the steps in hybrid bonding,"" and we have very high share in HBM stacking. The partnership with BESI, plus our strong position in adjacent steps, will drive significant growth in the packaging business. Joe Quatrochi (Wells Fargo & Company): If non-China ICAP strengthens next year and China also grows, why shouldn't we expect the magnitude of WFE outperformance to accelerate in 2027? Brice Hill: The digestion cycle for customers globally appears to be completing, and overseas customers are increasing capacity investment. In China, for customers in our served market, ""we believe we are gaining share in 2026,"" mainly driven by 28nm-class investments. Joe Quatrochi (follow-up): Advanced packaging growth was raised again; what is the mix between HBM/memory and foundry logic? How do you see 2027? Brice Hill: A large part of 2026 was HBM-related packaging, and 2026 growth was enormous. Gary Dickerson: HBM will remain very strong in 2027; customers are focused on new packaging architectures and maximizing substrate size. The leading portfolio Applied Materials has built over many years, plus the acquisition of NEX, provides a tailwind for 2027 and beyond. Melissa Weathers (Deutsche Bank Aktiengesellschaft): The cadence for 2027: how is it split between the first and second halves? Do we need to model any major cleanroom dynamics? Brice Hill: ""We expect output to increase every quarter this year."" On cleanrooms, there are currently no unknown major dynamics. Melissa Weathers (follow-up): The trajectory and gross margin pressure for the ""other"" business (displays, etc.)? Brice Hill: The display business performed strongly in Q4'26, above $500 million. Please model about $400 million per quarter, with gross margin of about 40% and operating margin of about 20%; other businesses are roughly break-even. Display profits are used to invest in other adjacent businesses. Closing Remarks Brice Hill: ""The investments we have made are driving strong financial results, including record quarterly revenue growth CKH HOLDINGS sustained gross margin expansion, and I am pleased with that. I look forward to seeing everyone in Santa Clara this quarter, and to meeting with you at conferences including RBC (New York), UBS (Scottsdale), Wells Fargo & Company (Dana Incorporated Point), and Barclays (San Francisco).""