FOURWEEKMBA EXPLAINER · FROM THE NEWSROOM · UPDATED 13 NOVEMBER 2026
The short answer: Applied Materials sells the machines chipmakers use to build chips, then earns a second stream servicing them. In fiscal 2026 (the year to 25 October 2026) it made $34.45 billion: 76% from equipment (Semiconductor Systems, $26.1 billion), 20% from services, spares and factory software (Applied Global Services, $6.9 billion) and 4% from display equipment and other businesses ($1.4 billion). The money comes out of chipmakers’ capital budgets, so a few large customers in Taiwan, China and Korea decide most of it, and demand rises and falls with their fab plans. Right now AI is pulling those plans up.
Free to share with a link to this page. Segment figures from Applied Materials’ 8-K earnings release of 12 November 2026, on the basis the company adopted in fiscal 2026; shares of revenue are our arithmetic.
Applied Materials, incorporated in 1967, does not make chips. It makes the equipment inside a chip factory (a “fab”) that deposits, etches, polishes, measures and packages the layers of material that become transistors and wiring. Its customers are the companies that run fabs: contract foundries, logic chipmakers and memory makers. It sells “almost entirely through a direct sales force”, its 10-K says.
That makes Applied a capital-goods business. A customer buys a tool when it builds a new fab, adds a production line or moves to a new manufacturing generation. The 10-K lists what drives that spending: general economic conditions, expected demand and prices for chips, new technologies, how full customers’ factories are, their capital resources and financing, trade policy and export rules, and government incentives. Every tool sold then joins an installed base that needs parts and service for years, which is the second business. For the wider frame, see the AI capex race and our AI capex tracker.
The three businesses at a glance
Segment
What it sells
FY2026 revenue
Share
Operating margin
Semiconductor Systems
Chipmaking equipment: deposition, etch, polishing (CMP), inspection and metrology, advanced packaging. Since fiscal 2026 also the 200mm tools for older chip lines
$26,142M
76%
35.5%
Applied Global Services
Services, spare parts and factory automation software for the installed base of tools
$6,901M
20%
29.5%
Display and other
Equipment for display makers and other businesses, reported as “Other”
$1,403M
4%
loss of $229M
Total
$34,446M
100%
32.2%
Source: Applied Materials 8-K, 12 November 2026 (GAAP segment results; prior periods recast for the 200mm move and full allocation of corporate costs). Shares are our arithmetic. Segment definitions: FY2025 10-K, Item 1.
Semiconductor Systems: selling the tools
This is the engine: $26.14 billion in fiscal 2026, up 22% by our arithmetic, at a 54.9% gross margin and a 35.5% operating margin. Applied reports it by the type of customer buying the tools. In fiscal 2026, foundry, logic and other took 63% of segment revenue (68% a year earlier), DRAM 30% (26%) and flash memory 7% (6%). The 10-K defines leading-edge as chips made at 7 nanometres and smaller.
The mix moves with what customers are building. In the fourth quarter DRAM rose to 33% of the segment, from 28% a year earlier, and foundry and logic fell to 58% from 66%. On $7,996 million of segment revenue, that is about $2.6 billion of DRAM tools against about $1.4 billion a year earlier, by our newsroom’s arithmetic from the rounded shares (our report). The company’s presentation says leading-edge foundry-logic and DRAM fabs are “running at full utilization, NAND not far behind”, and it expects about 90% growth in advanced packaging in calendar 2026.
Applied Global Services: the installed-base stream
Once a tool is in a fab, it needs spare parts, service engineers and software to keep it productive. That is Applied Global Services (AGS): $6.90 billion in fiscal 2026, up 20%, at a 35.0% gross margin and a 29.5% operating margin. Its revenue depends less on new fab budgets than equipment does, because it follows the tools already installed. The 10-K says its competition includes third-party service firms and customers that service tools themselves.
AGS hit a record $1,896 million in the fourth quarter, up 26%, yet fell to 18.2% of revenue from 22.1% a year earlier because equipment grew faster (our report). Services also show up in the order book: at 26 October 2025, AGS was $7,141 million, or 48%, of a $15,002 million backlog, which includes contractual service revenue and maintenance fees. Among its 2025-2030 targets, Applied lists raising service revenue per installed-base tool by 20% or more.
Display and other
Applied also makes manufacturing equipment for display panels and serves some other industries. The 10-K reports these outside the two segments, under Corporate and Other. In fiscal 2026 that line brought in $1,403 million and lost $229 million at the operating level. It is a small part of the company today.
Concentration: a few customers, three regions
Applied’s revenue rests on a handful of buyers. The FY2025 10-K says two customers accounted for about 19% and 15% of net revenue, after 12% and 11% in fiscal 2024 and 19% and 15% in fiscal 2023; it does not name them. It warns that “the actions of even a single customer” can make results more volatile.
Geography is concentrated too. About 89% of fiscal 2025 revenue came from customers outside the United States. In fiscal 2026, China was the largest region at $9,330 million, or 27% (30% in fiscal 2025, 37% in fiscal 2024), followed by Taiwan at $8,818 million (26%), Korea at $6,362 million (18%), the United States at $4,284 million (12%), Japan at $2,606 million (8%), Europe at $1,571 million (5%) and Southeast Asia at $1,475 million (4%). China, Taiwan and Korea together were 71%, by our arithmetic. In the fourth quarter Taiwan (28%) passed China (25%) (our report).
China carries policy risk. The 10-K names export controls on sales to Chinese customers and rising competition from Chinese domestic equipment makers, helped by local incentives. In the first quarter of fiscal 2026 Applied booked a $253 million charge to settle an export-controls compliance matter with the US Commerce Department’s Bureau of Industry and Security.
Because customers buy tools in waves, Applied’s revenue swings. It fell 13% in fiscal 2019, to $14.6 billion, then rose in every year since, reaching $34.4 billion in fiscal 2026, 2.4 times the 2019 level.
Sources: Applied Materials 10-K filings for fiscal 2020, 2023 and 2025 (revenue as filed with the SEC); fiscal 2026 from the 8-K of 12 November 2026, since the fiscal 2026 10-K was not yet filed when we checked EDGAR on 13 November 2026. The 13% fall and 2.4x are our arithmetic.
Applied’s own explanation of the current wave is AI. In its 12 November call script, the company says about 60% of the capital cost of an AI data centre is silicon, and more than 85% of that silicon is leading-edge foundry-logic, DRAM and advanced packaging, areas it expects to drive about 75% of wafer fab equipment (WFE) growth through 2030. It says it is on track to grow Semiconductor Systems more than 40% in calendar 2026 (its second fiscal quarter of 2026 through the first of 2027), expects WFE to grow more than 30% in 2027, and says its largest customers are “giving us rolling eight-quarter forecasts and earlier orders”. It also expects cloud capex to rise more than 50% in 2027 to well over $1 trillion; that is the company’s expectation, not a reported figure.
The limit it names is physical: “cleanroom capacity remains a gating factor for how much equipment the industry can consume”. Applied says it is tracking more than 20 fab ramps and line expansions in 2027 and is “investing to be able to double our systems output from Q4’26 levels by 2028” (our report).
Where the money goes
Of each fiscal 2026 dollar of revenue, Applied kept 50.0 cents as gross profit and 32.2 cents as operating income ($11.09 billion). Net income was $10,088 million, or $12.62 a share. It spent $4,184 million, about 12% of revenue, on research, development and engineering; the 10-K says that spending must deliver new tools “before the emergence of strong demand” so customers design them into their plans. Cash from operations was $8.87 billion and non-GAAP free cash flow $6,196 million; Applied returned $4.75 billion through $3.18 billion of buybacks and $1.57 billion of dividends. Customer prepayments and deferred revenue (contract liabilities) rose to $3,585 million from $2,566 million.
What to watch
The 14-week quarter. Applied guides the first quarter of fiscal 2027 to $11.1 billion, plus or minus $500 million, over 14 weeks: about $793 million a week against about $801 million in the 13-week fourth quarter, by our newsroom’s arithmetic (our report).
China’s share. 37% of revenue in fiscal 2024, 27% in fiscal 2026, 25% in the fourth quarter. The release gives no China outlook.
Memory vs logic. DRAM was 33% of equipment revenue in the fourth quarter, up from 28% a year earlier, and foundry and logic 58%. Whether that mix holds shows how far memory makers keep building.
Services per tool. AGS is guided to about $2.0 billion in the first quarter; the 2030 target is +20% service revenue per installed tool.
Output capacity. Whether Applied, its suppliers and customers’ cleanrooms can keep up with the plan to double systems output by 2028.
The fiscal 2026 10-K. It will update the customer-concentration figures (19% and 15% in fiscal 2025) and the backlog.
FAQ
How does Applied Materials make money?
Mostly by selling chipmaking equipment to semiconductor manufacturers: $26.1 billion, 76% of its $34.45 billion fiscal 2026 revenue. Services, spare parts and software for tools already installed added $6.9 billion (20%), and display equipment and other businesses $1.4 billion (4%).
Who are Applied Materials’ customers?
Foundries, logic chipmakers and memory makers. Applied does not name them in its 10-K, but says two customers made up about 19% and 15% of fiscal 2025 revenue. By region, China (27%), Taiwan (26%) and Korea (18%) were 71% of fiscal 2026 revenue.
What is Applied Global Services?
The segment that sells services, spares and factory automation software for Applied’s installed base of tools. It made $6.90 billion in fiscal 2026 at a 29.5% operating margin, and a record $1,896 million in the fourth quarter.
Why is Applied Materials’ revenue cyclical?
Its customers buy equipment when they build or upgrade fabs, which depends on chip demand, prices, factory utilization and financing. Revenue fell 13% in fiscal 2019, then grew to $34.4 billion in fiscal 2026.
How much does Applied Materials make from China?
$9,330 million in fiscal 2026, 27% of revenue, down from 30% in fiscal 2025 and 37% in fiscal 2024. In the fourth quarter China was 25%, behind Taiwan’s 28%.
How does AI affect Applied Materials?
Applied says about 60% of an AI data centre’s capital cost is silicon, mostly leading-edge logic, DRAM and advanced packaging, where its tools sit. It expects Semiconductor Systems to grow more than 40% in calendar 2026 and wafer fab equipment more than 30% in 2027, and is investing to double systems output by 2028.
Sources: Applied Materials 8-K earnings release, 12 November 2026 (fiscal 2026 and fourth-quarter results, segments, geography, outlook); fourth-quarter fiscal 2026 earnings presentation and call script (ir.appliedmaterials.com); 10-K for fiscal 2025 (segment definitions, customers, backlog, risks) and 10-Ks for fiscal 2020 and 2023 (earlier revenue); earnings releases of 13 November 2025 and 12 February 2026; FourWeekMBA newsroom reports linked above. Shares, growth rates, per-week figures and multiples not printed by the company are our arithmetic. This page explains the business; it is not investment advice.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
