$Applied Materials(AMAT)$ is the world's largest manufacturer of semiconductor fabrication equipment. AMAT generates revenue through equipment sales (majority) and service contracts (~25% of revenue).
While once dominated by conglomerates like $IBM(IBM)$ and $Intel(INTC)$ , the semiconductor industry now has distinct players in chip design, fabrication and equipment manufacturing. AMAT is crucial in semiconductor manufacturing, providing essential tools and services to industry leaders such as $Taiwan Semiconductor Manufacturing(TSM)$ , $Samsung Electronics Co., Ltd.(SSNGY)$ and Intel.
Competitive Advantages:
Unlike $ASML Holding NV(ASML)$ , which dominates lithography, AMAT has a broad portfolio spanning multiple fabrication processes, including chemical mechanical planarisation (CMP), etching, deposition and pattern engineering.
AMAT enjoys near-monopolies in key segments such as CMP and ion implantation, making it difficult for customers to switch to alternative suppliers.
Growth:
Innovation: As each semiconductor node shrinks (e.g., 5nm to 3nm), AMAT benefits from the increased equipment complexity and higher process step counts.
Geopolitics: The US, Europe and China are investing billions in semiconductor manufacturing toreduce supply chain risks, benefiting equipment providers like AMAT.
High-performance computing: Demand for advanced semiconductors is fueling spending on cutting-edge fabrication technologies.
Recurring revenue: As fabs optimise their yields and look to extend the lifespan of their equipment, AMAT's service contracts provide a stable revenue stream.
Risks:
Cyclicality: AMAT is exposed to semiconductor cyclicality, although service contracts and buybacks have helped mitigate some of this volatility.
China: Chinese firms are aggressively developing semiconductor equipment.
Customer concentration: AMAT generates significant revenue from just a handful of customers(i.e.TSMC, Samsung, and Intel).
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