0001628280-26-009694
SEC filingRevenue fell 2% YoY due to Semiconductor Systems weakness, but net income surged 71% on equity gains and tax benefits.
Revenue for the first quarter of fiscal 2026 decreased 2% year-over-year to $7.012 billion, driven by an 8% decline in Semiconductor Systems ($5.141B vs $5.597B), partially offset by 15% growth in Applied Global Services ($1.559B vs $1.353B) and 44% growth in Other ($312M vs $216M). Gross margin improved 20 basis points to 49.0% despite lower revenue, attributed to higher average selling prices and lower material and manufacturing costs, partially offset by unfavorable mix. Operating margin fell 430 bps to 26.1%, primarily due to a $253 million legal settlement charge related to export controls compliance, lower revenue, and increased RD&E spending. Net income surged 71% to $2.026 billion ($2.54 EPS) from $1.185 billion ($1.45 EPS) in the prior year, benefiting from a $558 million increase in interest and other income (largely gains on equity investments) and a $632 million reduction in income tax expense as the effective tax rate dropped from 44.1% to 13.0%.
Semiconductor Systems revenue declined 8% as foundry and logic spending decreased (down from 69% to 62% of segment revenue), especially for trailing-edge logic systems, while memory spending increased (DRAM up to 34% from 27%, NAND flat at 4%). Segment operating margin contracted 5.6 points to 27.8%, weighed by the legal settlement charge, lower revenue, and higher RD&E, partly offset by pricing and cost benefits.
Applied Global Services revenue grew 15% to $1.559B, driven by higher long-term service agreement revenue and customer spending on spares. Segment operating margin expanded 330 bps to 28.1% on operating leverage from higher revenue.
Geographically, revenue from Taiwan jumped 46% and Southeast Asia 17%, reflecting increased semiconductor equipment investments, while China (-7%), Korea (-13%), United States (-28%), and Europe (-33%) saw declines.
Management did not provide specific quantitative guidance for the next quarter. Key forward-looking themes include: continued prioritization of RD&E investment to support technology inflections and new markets; growth of the AGS subscription model for more predictable revenue; challenges from U.S. export regulations limiting sales to China; and benefits from the U.S. CHIPS Act and One Big Beautiful Bill Act, including immediate expensing of domestic R&D and an increased investment tax credit (25% to 35%) for semiconductor manufacturing. The company expects to pay the final $255 million transition tax installment in February 2026. Liquidity remains strong with $13.5B in cash and investments and $4.1B in undrawn credit facilities.
As of January 25, 2026, Applied Materials held cash and cash equivalents of $7,218M and total investments of $6,261M (including equity securities), yielding total liquidity of $13.5B. Total debt stood at $6,553M (including $100M commercial paper and $6,453M long-term senior notes), with a net cash position of approximately $6.9B. Shareholders' equity was $21,717M, up from $20,415M at fiscal year-end 2025, driven by net income and partially offset by dividends and buybacks.
No material purchase commitments were disclosed in the Notes. The company reported $341M in standby letters of credit and $291M in parent guarantees. Additionally, a $253M legal settlement with BIS was recorded as a charge in the quarter, with the corresponding liability included in accounts payable and accrued expenses. Remaining performance obligations on customer contracts with duration over one year totaled approximately $1.4B, with 66% expected within 12 months.
During Q1 fiscal 2026, Applied repurchased 1M shares for $337M (including excise tax), leaving $13.6B remaining under the March 2025 authorization. Dividends totaled $365M, or $0.46 per share, a 15% increase from $0.40 in the prior year quarter. Capital expenditures were $646M, up from $381M in the prior year, reflecting investments in facilities and equipment. Debt levels remained essentially flat, with no new issuance or repayment activity.
Semiconductor Systems revenue declined 8.1% YoY to $5,141M, with operating margin of 27.8% (down from 33.4%). AGS segment revenue grew 15.2% to $1,559M, with operating margin improving to 28.1% (from 24.8%). Geographically, China accounted for 30% of total revenue, Taiwan 25%, and Korea 21%. Revenue from Taiwan surged 46% YoY, while China and Korea declined. By market, foundry/logic represented 62%, DRAM 34%, and NAND 4%.