AMAT: Dominant Player in Semiconductor Equipment with Strong Growth and Risks

$Applied Materials(AMAT)$ is the worid'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, which dominates lithography, AMAT has a broad portfolio spanning multiple fabrication processes,incuding chemical mechanical planarization (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:

1.Innovation: As each semiconductor node shrinks (e.g., 5nm to 3nm), AMAT benefitsfrom the increased equipment complexity and higher process step counts.

2.Geopolitics: The US,Europe and China are investing billions in semiconductormanufacturing to reduce supply chain risks, benefiting equipment providers like AMAT.

3.High-performance computing:Demand for advanced semiconductors is fuelingspending on cutting-edge fabrication technologies.

4.Recurring revenue: As fabs optimise their yields and look to extend the lifespan of theirequipment, AMAT's service contracts provide a stable revenue stream.

Risks:

1.Cyclicality: AMAT is exposed to semiconductor cyclicality, although service contractsand buybacks have helped mitigate some of this volatility.

2.China: Chinese firms are aggressively developing semiconductor equipment.

3.Customer concentration: AMAT generates significant revenue from just a handful ofcustomers (i.e.TSMC, Samsung, and Intel).

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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