Business Context and Reporting Period
Company: Applied Materials, Inc. (AMAT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended April 26, 2026 (Fiscal 2026 Q2)
Business Overview: Applied Materials provides equipment, services, and software to the semiconductor and related industries. The company operates through two reportable segments: Semiconductor Systems and Applied Global Services (AGS). Effective Q1 FY2026, the 200mm equipment business was moved from AGS to Semiconductor Systems, and corporate support costs are now fully allocated to segments.
Key Financial Metrics
| Metric (in millions, except per share) | Q2 2026 | Q2 2025 | 6 Months 2026 | 6 Months 2025 |
|---|---|---|---|---|
| Revenue | $7,910 | $7,100 | $14,922 | $14,266 |
| Gross Profit | $3,947 | $3,485 | $7,382 | $6,981 |
| Gross Margin | 49.9% | 49.1% | 49.5% | 48.9% |
| Operating Income | $2,523 | $2,169 | $4,354 | $4,344 |
| Operating Margin | 31.9% | 30.5% | 29.2% | 30.5% |
| Net Income | $2,806 | $2,137 | $4,832 | $3,322 |
| Diluted EPS | $3.51 | $2.63 | $6.05 | $4.08 |
| Cash from Operations (6mo) | $2,531 (2026) vs $2,496 (2025) | |||
| Cash & Investments | $13,383 (as of April 26, 2026) | |||
| Total Debt | $6,455 (Short-term: $1,199; Long-term: $5,256) |
Material Changes vs. Prior Period
- Revenue Growth: Q2 2026 revenue increased 11% year-over-year (YoY) to $7.91 billion, driven by higher demand in foundry/logic and DRAM markets. Six-month revenue grew 5% to $14.92 billion.
- Profitability: Net income surged 31% in Q2 to $2.81 billion and 45% for the six-month period to $4.83 billion. This was significantly aided by a $1.14 billion net gain on equity investments included in "Interest and other income."
- Segment Performance: Semiconductor Systems revenue rose 10% in Q2, while AGS revenue increased 17%. Semiconductor Systems operating margin expanded to 35.1% in Q2.
- One-Time Charges: The six-month period included a $253 million legal settlement charge related to export controls compliance and $12 million in restructuring charges. Excluding these, operating income would have been higher.
- Tax Rate: The effective tax rate for the six months ended April 26, 2026, was 13.0%, down from 25.2% in the prior year, primarily due to new tax incentive agreements in Singapore.
Guidance, Outlook, and Risks
- Management Commentary: Management attributes revenue growth to increased customer spending on leading-edge manufacturing technologies and DRAM transitions. AGS growth is driven by higher long-term service agreement revenue and spare parts sales.
- Capital Allocation: The company repurchased $737 million of stock in the first six months of FY2026. Approximately $13.2 billion remains available under the current repurchase program. Quarterly dividends of $0.53 per share were declared.
- Legal Settlement: A $253 million settlement with the U.S. Commerce Department (BIS) regarding export controls was paid in full in Q2. The agreement includes a suspended denial order contingent on compliance audits.
- Risk Factors:
- Geopolitics & Trade: Ongoing export restrictions on China and potential tariffs pose significant risks to revenue and supply chain stability.
- Customer Concentration: Two customers accounted for 36% of revenue in the first six months of FY2026.
- Tax Legislation: New global minimum tax regimes and U.S. tax law changes (OBBBA) may impact future effective tax rates and the utilization of tax credits.
Investor Verification Checklist
- Investment Gains: Verify the sustainability of the $1.14 billion net gain on equity investments, which significantly boosted net income but is non-operational.
- China Exposure: Assess the impact of the $253 million BIS settlement and ongoing export restrictions on future revenue from China (28% of 6-month revenue).
- Segment Reclassification: Confirm comparability of segment data due to the Q1 FY2026 move of 200mm equipment from AGS to Semiconductor Systems.
- Debt Structure: Review the $1.2 billion current portion of long-term debt (3.300% Senior Notes Due 2027) maturing in 2027.
- Tax Incentives: Monitor the realization of the $1.1 billion in investment tax credits recorded under the CHIPS Act and potential changes from new U.S. tax legislation.