Applied Materials: Sanding Atoms - [Business Breakdowns, EP.118]

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. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.  ----- This episode is brought to you by Tegus, the modern research platform for leading investors. Tired of running your own expert calls to get up to speed on a company? Tegus lets you ramp faster and find answers to critical questions more efficiently than any alternative method. The gold standard for research, the Tegus platform delivers unmatched access to timely, qualitative insights through the largest and most differentiated expert call transcript database. With over 60,000 transcripts spanning 22,000 public and private companies, investors can accelerate their fundamental research process by discovering highly-differentiated and reliable insights that can’t be found anywhere else in the market. As a listener, drive your next investment thesis forward with Tegus for free at tegus.co/patrick. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke Show Notes (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