Applied Materials
AMAT · NasdaqPrice and cost, not just volume, widened the margin
Gross margin rose to 50.3% from 48.8%, which the filing credits to higher prices and lower material costs; operating income rose 37.7% against revenue's 24.8%.
Q3 FY2026, the quarter to Jul 26, 2026 · 10-Q filed Aug 20, 2026
- Operating margin
- 33.7%
- Net income
- $2.5B
- Free cash flow, quarter
- $2.3B
Where Applied Materials's money goes
- 01
Price and cost, not just volume, widened the margin
Gross margin rose to 50.3% from 48.8%, which the filing credits to higher prices and lower material costs; operating income rose 37.7% against revenue's 24.8%.
Why it matters
Revenue rose 24.8% to $9.12B from $7.30B a year earlier, while gross profit rose 28.8% to $4.59B from $3.56B. Gross margin reached 50.3% against 48.8%. The filing attributes the gain to "higher revenue, increases in average selling prices, and lower material and manufacturing costs," and for this quarter also to "favorable changes in product mix."1
Below gross profit, costs grew more slowly than sales. Total operating expenses rose 13.7% to $1.51B, 16.6% of revenue against 18.2% a year earlier. Research, development and engineering rose 22.1% to $1.10B, while general and administrative fell 20.6% to $162M from $204M, which the filing puts down to "lower corporate support costs." Operating margin reached 33.7% against 30.6%.1
The quarter also stands out within the last year. Operating income was $1.71B on $6.80B of revenue in Q4 FY2025, an operating margin of 25.2%, against $3.08B on $9.12B now, a margin of 33.7%.1
AnalysisAnalysis: a margin built on price and material cost is more durable if the higher prices reflect new tool generations that customers pay more for, and less durable if they reflect a tight market for tools. The filing does not split the gain between price, cost and mix, so quarters of flatter revenue will show which it was.
- 02
Equipment earns 86.4% of operating profit on 77.2% of sales
Semiconductor Systems earned $2.66B of $3.08B operating income at a 37.7% margin, above the 30.1% that services earned, so new-tool demand drives profit.
Why it matters
Semiconductor Systems brought in $7.04B, 77.2% of the quarter's $9.12B revenue, and earned $2.66B of operating income, 86.4% of the $3.08B total, a margin of 37.7% on its own revenue. Applied Global Services brought in $1.78B, 19.5% of revenue, and earned $536M, 17.4% of the total, a 30.1% margin. The segment shares add to more than the whole because the smaller businesses grouped as Other ran at an operating loss.1
The filing ties equipment growth to two sources: foundry and logic spending that reflected "stronger demand for leading-edge manufacturing technologies," and memory spending driven by "increased customer investments in DRAM technology transitions." DRAM rose to 26% of Semiconductor Systems revenue from 22%, while foundry, logic and other eased to 67% from 69% and NAND to 7% from 9%.1
AnalysisAnalysis: services are often assumed to be the higher-margin line in an equipment company. Here the reverse holds. Services are steadier, tied to how hard customers run tools they already own, but the equipment segment sets the profit level, so company profit follows customers' spending on new tools more than the size of the installed base.
Segment figures are not fully comparable with older reports. From the start of FY2026 one equipment business moved from Applied Global Services to Semiconductor Systems, and corporate support costs are now fully allocated to the segments. The filing says prior periods were recast to match.1
- 03
Net profit outran pre-tax profit on a lower tax rate
Net income rose 42.7% while pre-tax income rose 13.4%, because the effective tax rate fell to 12.7% from 30.6% against a prior-year tax charge.
Why it matters
Pre-tax income rose 13.4% to $2.91B from $2.56B, far less than operating income's 37.7%, because interest and other income swung to a loss of $100M from a gain of $396M. The filing attributes the swing mainly to a "higher unrealized loss on equity investments," marks on shares the company holds rather than anything in its operations.1
The tax provision fell to $369M from $784M, an effective rate of 12.7% of pre-tax income against 30.6%. The filing says the year-earlier rate was raised by a valuation allowance against deferred tax assets tied to corporate alternative minimum tax credits, recognized in FY2025. Net income rose 42.7% to $2.54B, and diluted earnings per share rose to $3.17 from $2.22.1
The low rate may not last. The filing says the global minimum tax is expected to "materially increase our foreign taxes," mainly through its implementation in Singapore, and that the conditional reduced tax rates the company holds there begin to expire later this decade and may not be renewed.1
AnalysisAnalysis: operating income is the cleaner read of the business this quarter. Both lines below it, the equity marks and the tax comparison, moved for reasons the filing ties to investments and tax accounting rather than to selling tools and services.
- 04
Cash rebounded, but capital spending has stepped up
Free cash flow returned to $2.33B after $210M last quarter, while capital spending rose to $2.26B in FY2025 from $1.19B in FY2024.
Why it matters
This quarter operating cash flow was $3.04B, 1.2 times net income of $2.54B, and free cash flow was $2.33B, 25.6% of revenue. In Q2 FY2026 operating cash flow was $845M and free cash flow $210M on $7.91B of revenue. Days sales outstanding rose to 77 from 72 a year earlier, which the filing attributes to "higher down payment invoices for which revenue has not yet been recognized" and "lower accounts receivable factoring."1
Capital spending has climbed. It rose to $2.26B in FY2025 from $1.19B in FY2024, and free cash flow fell to $5.70B from $7.49B even as operating income rose to $8.29B from $7.87B. This quarter capital spending was $707M, 7.8% of revenue, against $584M a year earlier.1
AnalysisAnalysis: the filing lists completing its new Equipment and Process Innovation and Commercialization Center and other major infrastructure projects "on schedule and on budget" among what it must do to compete. The step-up in capital spending fits a building phase, though the filing does not split capital spending by project.
AnalysisAnalysis: tools are billed through down payments and installments and signed off over months, so a single quarter's cash says more about billing and collection timing than about that quarter's profit. Reading cash over a full year smooths out the timing.
Sources
- 1.Applied Materials 10-Q for the period to 2026-07-26 (the filing), Aug 20, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $9.7B in FY2007 to $28.4B in FY2025, the operating margin from 24.4% to 29.2%, over 18 years.
- Revenue$28.4B
- Operating income$8.3B
- Operating margin29.2%
- Period
- Q3 FY2026
- Revenue
- $9.1B
- Operating income
- $3.1B
- Operating margin
- 33.7%
- Net income
- $2.5B
- Free cash flow
- $2.3B
Does the profit turn into cash?
Q3 FY2026: free cash flow of $2.3B against net income of $2.5B in the quarter.
- Operating cash flow$8.0B
- Capital expenditure$2.3B
- Free cash flow$5.7B
- Net income$7.0B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Industry Segment Operations - Schedule of Reportable Segment Information (Details). The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Segments
| Semiconductor Systems | $7.0B | 77.2% |
| Applied Global Services | $1.8B | 19.5% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-08-20
Geographic markets
| Asia Pacific | $7.3B | 79.7% |
| Europe | $483.0M | 5.3% |
| Southeast Asia | $374.0M | 4.1% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-08-20
ConsolidationItems
| Operating Segments | $7.0B | 77.2% |
| Other | $294.0M | 3.2% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-08-20
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q3 FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of products sold | $4.5B | 49.7% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-08-20 |
| Income from operations | $3.1B | 33.7% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-20 |
Operating income by segment
Where the operating profit is earned, as the filing reports it.
Segments
| Semiconductor Systems | $2.7B | 86.4% |
| Applied Global Services | $536.0M | 17.4% |
Shares of operating income. The segments do not sum to the total; the filing states them beside it. Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-20
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
China $ 2,506 28 % $ 2,548 35 % (2) % $ 6,688 28 % $ 6,565 30 % 2 %
View source
Days sales outstanding of our accounts receivable at July 26, 2026 and July 27, 2025 were 77 days and 72 days, respectively.
View source
Dynamic random-access memory (DRAM) 26 % 22 % 29 % 25 %
View source
Foundry, logic and other 67 % 69 % 65 % 68 %
View source
Two customers accounted for approximately 20 % and 14 %, respectively, of our revenue for the nine months ended July 26, 2026.
View source
Flash memory (NAND) 7 % 9 % 6 % 7 %
View source
Two customers accounted for approximately 20 % and 14 %, respectively, of our revenue for the nine months ended July 26, 2026.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement19 lines, as presented in the 10-Q
Cash flow statement6 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
| Line | Q3 FY2026 | A year earlier | Change | Source |
|---|---|---|---|---|
| Cash flows from operating activities: | ||||
| Net income | $2.54B | $1.78B | +43% | Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-08-20 |
| Adjustments required to reconcile net income to cash provided by operating activities: | ||||
| Depreciation and amortization | $151.0M | $113.0M | +34% | Source10-Q, us-gaap:DepreciationAndAmortization, as reported in the 10-Q filed 2026-08-20 |
| Statement of Cash Flows | ||||
| Cash, cash equivalents and restricted cash equivalents — end of period | $7.09B | $5.45B | +30% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-08-20 |
| Reconciliation of cash, cash equivalents and restricted cash equivalents | ||||
| Cash and cash equivalents | $7.04B | $5.38B | +31% | Source10-Q, us-gaap:CashAndCashEquivalentsAtCarryingValue, as reported in the 10-Q filed 2026-08-20 |
| Restricted cash equivalents included in deferred income taxes and other assets | $57.0M | $70.0M | -19% | Source10-Q, us-gaap:RestrictedCashEquivalents, as reported in the 10-Q filed 2026-08-20 |
| Total cash, cash equivalents and restricted cash equivalents | $7.09B | $5.45B | +30% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-08-20 |
Balance sheet27 lines, as presented in the 10-Q
About this data
- Source
- Applied Materials 10-Q, accession 0001628280-26-058235, filed Aug 20, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Applied Materials's model up, and what could bend it
Competitive edge
Engineering spent early wins the tool-selection stage
Research spending of $1.10B, 12.1% of revenue, is meant to put Applied's tools into customers' plans before demand arrives, when the choice of tool is made.
The detail
Research, development and engineering rose 22.1% to $1.10B from $901M, 12.1% of revenue. The filing says this spending is "intended to enable us to deliver new products and technologies before the emergence of strong demand, allowing customers to incorporate these products into their manufacturing plans during early-stage technology selection."1
The filing names securing "development-tool-of-record (DTOR) and production-tool-of-record (PTOR) positions with customers" as a competitive challenge, and says it must keep investing in research and development even during periods of lower demand.1
AnalysisAnalysis: once a tool is qualified for a step in a chipmaker's process, replacing it means requalifying that step, so a position won at selection tends to carry through the volume ramp. The cost is a research bill that cannot easily be cut in a downturn.
Every installed tool feeds a service business
Applied Global Services earned $536M on $1.78B of revenue, a 30.1% margin, from spares and service contracts tied to how hard customers run their tools.
The detail
Applied Global Services brought in $1.78B, 19.5% of revenue, and earned $536M of operating income, a 30.1% margin and 17.4% of the company total. The filing says revenue rose "primarily due to higher long-term service agreement revenue and customer spending on spares."1
The filing says demand for services and spares is driven by "our large and growing installed base," by customers' wafer starts and utilization, and by the "growing service intensity of newer tools." Its strategy is to shift the business "to a subscription agreement model," providing "a more predictable revenue stream."1
AnalysisAnalysis: this income follows how hard customers run existing tools, not how much they spend on new fabs, which makes it steadier than equipment sales. The filing names the limits: customers can reconfigure or reuse equipment, and unauthorized parts using its technology can take revenue.
Tools across many chipmaking steps, outside lithography
Applied sells etch, deposition, implant, polishing, thermal, inspection and packaging tools, so growth can come from memory or logic as customers shift spending.
The detail
The filing describes Semiconductor Systems as equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging and ion implantation. The segment brought in $7.04B this quarter, with DRAM at 26% of its revenue against 22% a year earlier and foundry, logic and other at 67% against 69%.1
AnalysisAnalysis: breadth across process steps and customer groups means a slowdown in one can be partly offset by another, as memory spending rose this quarter. The limit is that the filing names lithography as a market it does not serve, so chipmakers' spending there is spending Applied cannot capture.
What to watch
China's share of revenue fell to 28% from 35%
China fell to 28% of revenue from 35%, and the filing says US export rules have limited what Applied may sell and service there.
The detail
Asia Pacific accounted for $7.27B, 79.7% of the quarter's revenue, with China at 28% against 35% a year earlier. The filing says export regulations "have limited the market for certain of our products and services, adversely impacted our revenues and increased our exposure to foreign and Chinese domestic competition," and that there is no assurance licenses will be issued on time or at all.1
Earlier this fiscal year the company settled an inquiry by the Commerce Department's Bureau of Industry and Security into certain China shipments. The settlement includes a denial order that is suspended and will be waived if required audits are completed; failing its terms could restore a ban on exporting certain products outside the United States.1
AnalysisAnalysis: the period shows the pattern the filing describes. China's share fell while Southeast Asia brought in $374M and Europe $483M, both higher than a year earlier in the filing's tables. Demand elsewhere has to keep replacing what Chinese customers can no longer buy.
A fixed cost base magnifies a downturn too
In FY2019 revenue fell to $14.6B from $16.7B and operating income to $3.35B from $4.49B, taking operating margin to 22.9% from 26.9%.
The detail
The filing says the industries it serves "have historically been cyclical," that customers' AI-related investment "can change significantly" and is "difficult to forecast," and that it may incur costs in anticipation of demand that is not realized. It also says it must keep investing in research and development even when demand is lower.1
AnalysisAnalysis: this quarter's leverage, operating expenses up 13.7% against revenue up 24.8%, works in reverse when revenue falls. Memory customers took a larger share of equipment sales this quarter, and memory spending tends to swing harder than foundry and logic spending, which adds to that sensitivity.
Sources
- 1.Applied Materials 10-Q for the period to 2026-07-26 (the filing), Aug 20, 2026, read Nov 2, 2026
Applied Materials, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Applied Materials's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the new margin level depends on from here
How much of the quarter's margin gain could hold if shipments level off, and which signals in the filing separate a lasting gain from a cyclical one.
- Reading Applied's cash and capital spending through the cycle
Why quarterly cash swings with billing, what the step-up in capital spending is building, and how to judge free cash flow over a full year.
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Have a question about Applied Materials?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Applied Materials' gross margin gain came from higher selling prices rather than lower material and manufacturing costs?
- Why does Applied Materials earn a higher operating margin on equipment than on its Applied Global Services business?
- How could the global minimum tax in Singapore change Applied Materials' effective tax rate from this quarter's 12.7%?
Business Lens describes Applied Materials from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.