How AMAT (Applied Materials) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a semiconductor equipment leader like AMAT (Applied Materials) makes money is essential for investors and anyone interested in the business of advanced manufacturing technology. In this post, we break down AMAT's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick AMAT Overview

Applied Materials (AMAT) operates as a global leader in materials engineering solutions, primarily supplying equipment, services, and software used to manufacture semiconductor chips for electronics, displays, and related industries. Revenue comes mainly from selling semiconductor fabrication systems, providing aftermarket services, and supplying display manufacturing equipment. The business is organized into three main segments: Semiconductor Systems, Applied Global Services, and Display.

Revenue Breakdown

• Total Revenue (Q3 2025): $7.30B (+7.7% YoY)
  • Semiconductor Systems Revenue: $5.43B (74.3% of total)
  • Applied Global Services Revenue: $1.60B (21.9% of total)
  • Display Revenue: $263M (3.6% of total)
  • Corporate and Other Revenue: $12M (0.2% of total)
• Growth is powered by robust demand for advanced semiconductor manufacturing tools and ongoing service contracts with chipmakers.

Gross Profit and Margins

• Gross Profit: $3.56B (48.8% gross margin)
  • Cost of Revenue: $3.74B (+4.7% YoY)
  • AMAT maintains strong margins due to its scalable technology platform, high-value service contracts, and operational efficiencies in manufacturing.
• Most costs come from manufacturing equipment, materials, and direct labor associated with delivering complex capital equipment and services.

Operating Income and Expenses

• Operating Income: $2.23B (+15.0% YoY, 30.6% margin)
• Operating Expenses: $1.33B (+5.2% YoY)
  • R&D: $901M (+7.8% YoY, 12.3% of revenue) — Focused on next-generation semiconductor process technologies, AI-enabled equipment, and advanced materials research.
  • SG&A: $428M (+0.2% YoY, 5.9% of revenue) — Covers global sales, marketing, administrative, and customer support functions.
  • AMAT continues to prioritize innovation and invest in future growth, while maintaining efficiency in its cost structure.

Net Income

• Pre-Tax Income: $2.56B (+30.8% YoY, 35.1% margin)
• Income Tax: $784M (30.6% effective tax rate)
• Net Income: $1.78B (+4.3% YoY, 24.4% net margin)
• AMAT converts a significant portion of sales into profit due to its high-margin product mix, operational scale, and pricing power in critical semiconductor manufacturing tools.

What Drives AMAT's Money Machine?

• Semiconductor Systems: 74%+ of revenue, driven by sales of wafer fabrication equipment to leading chipmakers worldwide.
• Installed Base Growth: Over $1.6B in quarterly service revenue, reflecting a growing installed base of AMAT equipment and recurring maintenance/service contracts.
• R&D Investment: $901M invested in Q3 2025, targeting breakthroughs in chip manufacturing, AI integration, and new materials.
• Future Growth Areas: Advanced packaging, AI-enabled process control, and next-generation display technologies, though these segments are not yet major profit contributors.

Visualizing AMAT's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially R&D) taking the largest chunk.
• Even after significant investments in innovation and customer support, 24.4% of revenue drops to the bottom line.

Key Takeaways

• AMAT's money comes overwhelmingly from semiconductor equipment sales and recurring service contracts.
• High gross and net margins illustrate the power of AMAT's scalable, technology-driven business model.
• Heavy investment in R&D, balanced by efficiency in operating costs.
• Ongoing growth is driven by demand for advanced chip manufacturing, expansion of the installed base, and innovation in new technologies.

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FAQ About AMAT's Income Statement

1. What is the main source of AMAT's revenue in 2025?

AMAT generates over 74% of its revenue from Semiconductor Systems, supplying advanced equipment to semiconductor manufacturers. Additional revenue comes from Applied Global Services 22% and Display 4%.

2. How profitable is AMAT in Q3 2025?

AMAT reported net income of $1.78B in Q3 2025, with a net margin of approximately 24.4%, reflecting strong profitability driven by high-margin equipment sales and efficient operations.

3. What are the largest expense categories for AMAT?

The biggest expenses on AMAT's income statement are operating expenses, particularly Research & Development (R&D) at $901M in Q3 2025, as AMAT prioritizes innovation in semiconductor process technology and advanced materials. SG&A costs totaled $428M.

4. Why does Display operate at a loss?

Display, despite generating $263M in revenue, posted an operating loss in Q3 2025. This is because AMAT aggressively invests in next-generation display technologies, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does AMAT's effective tax rate compare to previous years?

AMAT's effective tax rate in Q3 2025 was 30.6%, consistent with previous years. This moderate rate is primarily due to the company's global operations and tax benefits from R&D investments.