APPLIED MATERIALS DELIVERS STRONG THIRD QUARTER RESULTS

FINANCIAL NEWS RELEASE

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APPLIED MATERIALS DELIVERS STRONG THIRD QUARTER RESULTS

        

  • Net sales of $2.79 billion, up 11 percent year over year and down 3 percent sequentially 

  • Q3 EPS of $0.36; Q3 non-GAAP EPS of $0.35 

 

SANTA CLARA, Calif., August 24, 2011 -- Applied Materials, Inc. (NASDAQ: AMAT), the world's leading supplier of manufacturing solutions for the semiconductor, display and solar industries, today reported results for its third quarter of fiscal 2011 ended July 31, 2011. Applied generated orders of $2.39 billion, net sales of $2.79 billion, operating income of $687 million, and net income of $476 million or $0.36 per share. Non-GAAP operating income was $683 million, and non-GAAP net income was $467 million or $0.35 per share.

 

"Applied delivered solid third quarter results, with earnings and revenue at the upper end of our expectations," said Mike Splinter, chairman and chief executive officer. "While the fundamental drivers of our markets remain strong, we are seeing softness in our business resulting from the uncertain economic environment and overcapacity in solar."

 

"Our cumulative net sales and non-GAAP earnings per share over the past four quarters have been the strongest in the company's history," said George Davis, chief financial officer. "In our most recent quarter, Applied generated nearly $600 million in operating cash flow and issued $1.75 billion in long-term debt to support the Varian acquisition."

 

Financial Results Summary


GAAP Results Q3 FY2011 Q2 FY2011 Q3 FY2010
Net sales $2.79 billion   $2.86 billion   $2.52 billion
Operating income $687 million $677 million $183 million
Net income $476 million $489 million  $123 million
Earnings per share (EPS) $0.36 $0.37 $0.09
Non-GAAP Results      
Non-GAAP operating income     $683 million    $685 million    $339 million    
Non-GAAP net income $467 million $501 million $234 million
Non-GAAP EPS $0.35 $0.38 $0.17


Applied's Q3 FY2010 results included $405 million in charges associated with the EES restructuring plan announced in July 2010, consisting in part of $250 million in inventory-related charges that reduced GAAP and non-GAAP EPS by $0.12. Non-GAAP results for the above periods exclude the impact of the following, where applicable: restructuring and asset impairment charges and any associated adjustment related to restructuring actions, certain discrete tax items, certain acquisition-related costs, investment impairments, and gain or loss on sale of facilities. A reconciliation of the GAAP and non-GAAP results is provided in the financial statements included in this release. See also "Use of Non-GAAP Financial Measures" below.


 

Fiscal Third Quarter Reportable Segment Results and Comparisons to the Prior Quarter
Silicon Systems Group (SSG) orders were $1.24 billion, down 28 percent primarily due to weaker demand in foundry. Net sales were $1.40 billion, down 4 percent. Operating income decreased to $452 million or 32 percent of net sales, reflecting the lower revenue. New order composition was: foundry 37 percent, logic and other 25 percent, flash 23 percent, and DRAM 15 percent.

 

Applied Global Services (AGS) orders were $613 million, up 2 percent. Net sales were $603 million, down 2 percent. Operating income increased by 61 percent to $146 million or 24 percent of net sales driven primarily by higher margins in 200 millimeter equipment as well as services.

 

Display orders were $220 million, down 14 percent due primarily to reduced demand from LCD TV customers. Net sales were $223 million, up 41 percent, and operating income increased to $58 million or 26 percent of net sales.

 

Energy and Environmental Solutions (EES) orders were $318 million, down 48 percent as customers digested record capital additions in recent quarters. Net sales were $563 million, down 12 percent. Operating income decreased to $123 million or 22 percent of net sales and included $3 million in asset impairment charges.

 

Additional Quarterly Financial Information

  • Backlog decreased by $637 million to $3.24 billion and included $248 million in negative adjustments. 
  • Gross margin was 42.5 percent, up from 41.5 percent in the second quarter. 
  • The effective tax rate was 28.8 percent. 
  • Operating cash flow was $599 million or 21 percent of net sales. 
  • Cash dividend payments totaled $105 million. 
  • The company used $25 million to repurchase 2 million shares of its common stock.  
  • Cash, cash equivalents and investments increased to $6.81 billion at quarter end. The amount included proceeds from the $1.75 billion of notes issued during the quarter.  

 

Business Outlook
For the fourth quarter of fiscal 2011, Applied expects net sales to be down in the range of 15 percent to 30 percent sequentially. The company expects non-GAAP EPS to be in the range of $0.16 to $0.24. The non-GAAP EPS outlook excludes known charges related to completed acquisitions of approximately $0.01 per share, but does not exclude other non-GAAP adjustments that may arise subsequent to this release.

 

Use of Non-GAAP Financial Measures
Management uses non-GAAP results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied believes these measures enhance investors' ability to review the company's business from the same perspective as the company's management and facilitate comparisons of this period's results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.

 

Webcast Information
Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today.
A live webcast will be available at  www.appliedmaterials.com.

 

Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding Applied's performance, market drivers, and the business outlook for the fourth quarter of fiscal 2011. Forward-looking statements may contain words such as "expect," "believe," "may," "can," "should," "will," "anticipate" or similar expressions, and include the assumptions that underlie such statements. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to: the level of demand for Applied's products, which is subject to many factors, including uncertain global economic and industry conditions, business and consumer spending, demand for electronic products and semiconductors, government renewable energy policies and incentives, and customers' utilization rates and new technology and capacity requirements; variability of operating expenses and results among the company's segments caused by differing conditions in the served markets; Applied's ability to (i) develop, deliver and support a broad range of products, expand its markets and develop new markets, (ii) timely  align its cost structure with business conditions, (iii) plan and manage its resources and production capability, including its supply chain, (iv) implement initiatives that enhance global operations and efficiencies, (v) consummate the proposed merger with Varian in a timely manner or at all, which depends on satisfaction of conditions precedent, including receipt of certain regulatory approvals, (vi) integrate Varian's operations, product lines, technology and employees and realize synergies, (vii) obtain and protect intellectual property rights in key technologies, (viii) attract, motivate and retain key employees, and (ix) accurately forecast future operating and financial results, which depends on multiple assumptions related to, without limitation, market conditions, customer requirements and business needs; and other risks described in Applied Materials' SEC filings. All forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof. The company undertakes no obligation to update any forward-looking statements.

 

About Applied Materials
Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in providing innovative equipment, services and software to enable the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products. Our technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world. At Applied Materials, we turn today's innovations into the industries of tomorrow. Learn more at  www.appliedmaterials.com.

 

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                 
     Three Months Ended  
   Nine Months Ended  
 
July 31,
2011

August 1,
2010

July 31,
2011

August 1,
2010
(In millions, except per share amounts)
                 
Net sales $   2,787   $    2,518
   $ 8,336  $ 6,662
Cost of products sold   1,603   1,658       
4,827   4,164
Gross margin   1,184   860   3,509   2,498
                 
Operating expenses:                
   Research, deve lopment and engineering   282   290   850   865
   Selling, general and administrative   240   252   679   700
   Restructuring charges and asset impairments   3   135   (30)   248
   Gain on sale of facilities, net   (28)   -   (27)   -
Total operating expenses   497   677   1,472   1,813
                 
Income from operations   687   183   2,037   685
                 
Impairment of strategic investments   -   8   -   13
Interest and other expense   25   5   35   15
Interest and other income, net   7   8   33   27
Income before income taxes   669   178   2,035   684
                 
Provision for income taxes   193   55   564   214
Net income $ 476   $ 123  $ 1,471  $ 470
                 
Earnings per share:                
   Basic $ 0.36   $ 0.09  $ 1.11  $ 0.35
   Diluted $ 0.36   $ 0.09  $ 1.10  $ 0.35
                 
Weighted average number of shares:                
   Basic   1,318   1,340   1,321   1,342
   Diluted   1,330   1,349   1,333   1,351

 

  

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
         
  July 31,
2011
October 31,
2010
(In millions)
         
ASSETS        
         
Current assets:        
   Cash and cash equivalents $ 5,018  $ 1,858
   Short-term investments   739   727
   Accounts receivable, net   1,812   1,831
   Inventories   1,849   1,547
   Deferred income taxes, net   541   513
   Other current assets   314   289
Total current assets   10,273   6,765
         
Long-term investments   1,052   1,307
Property, plant and equipment, net   854   963
Goodwill   1,335   1,336
Purchased technology and other intangible assets, net   223   287
Deferred income taxes and other assets   366   285
Total assets $ 14,103  $ 10,943
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Current liabilities:        
   Current portion of long-term debt $ -  $ 1
   Accounts payable and accrued expenses   1,653   1,766
   Customer deposits and deferred revenue   1,347   847
   Income taxes payable   278   274
Total current liabilities   3,278   2,888
         
Long-term debt   1,947   204
Employee benefits and other liabilities   327   315
Total liabilities   5,552   3,407
         
Total stockholders' equity   8,551   7,536
Total liabilities and stockholders' equity $ 14,103 $
10,943

 

 

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
         
    Nine Months Ended
    July 31,
2011
  August 1,
2010
(In millions)    
         
Cash flows from operating activities:        
Net income $ 1,471     $ 470
Adjustments required to reconcile net income to cash provided by        
operating activities:        
Depreciation and amortization   187   236
Net loss (gain) on dispositions and fixed asset retirements   (24)   14
Provision for bad debts   -   7
Restructuring charges and asset impairments   (30)   248
Deferred income taxes   (100)   (215)
Net recognized loss on investments   13   28
Share-based compensation   110   95
Net change in operating assets and liabilities, net of amounts acquired   101   315
Cash provided by operating activities   1,728   1,198
Cash flows from investing activities:        
Capital expenditures   (136)   (134)
Proceeds from sale of facilit ies and dispositions, net of cash sold   126   -
Cash paid for acquisition, net of cash acquired   -   (323)
Proceeds from sales and maturities of investments   1,173   967
Purchases of investments   (945)   (1,357)
Cash provided by (used in) investing activities   218   (847)
Cash flows from financing activities:        
Debt borrowings (repayments), net   1,744   (6)
Payments of debt issuance costs   (14)   -
Proceeds from common stock issuances   64   99
Common stock repurchases   (293)   (200)
Payment of dividends to stockholders   (291)   (255)
Cash provided by (used in) financing activities   1,210   (362)
Effect of exchange rate changes on cash and cash equivalents   4   (1)
Increase (decrease) in cash and cash equivalents   3,160   (12)
Cash and cash equivalents - beginning of period   1,858   1,576
Cash and cash equivalents - end of period $ 5,018   $ 1,564
Supplemental cash flow information:        
Cash payments for income taxes $ 657   $ 56
Cash payments for interest $ 7   $ 7

 

 

 

Reportable Segment Results

  Q3 FY2011 Q2 FY2011 Q3 FY2010
(In millions) New Orders Net Sales Operating
Income (Loss)      
New Orders Net Sales Operating Income (Loss) New Orders Net Sales Operating Income (Loss)
SSG $1,239 $1,398  $452 $1,715 $1,453 $491 $1,535 $1,447 $525
AGS $613 $603 $146 $603 $614 $91 $595 $468 $84
Display $220 $223 $58 $255 $158 $31 $242 $216 $64
EES $318 $563 $123 $612 $637 $170 $353 $387 $(371)
Corporate - - $(92) - - $(106) - - $(119)
Consolidated $2,390 $2,787 $687 $3,185   $2,862   $677 $2,725   $2,518   $183

 

Corporate Unallocated Expenses

(In millions)    Q3 FY2011  
   Q2 FY2011      Q3 FY2010  
Restructuring charges and asset impairments, net $- $(20) $(20)
Share-based compensation $38 $39 $32
Gain on sale of facilities $(28) $- $-
Other unallocated expenses $82 $87 $107
Corporate $92 $106 $119

 

Additional Information

  Q3 FY2011 Q2 FY2011 Q3 FY2010
New Orders and Net Sales by Geography
(In $ millions)   New Orders 
  Net Sales    New Orders    Net Sales    New Orders    Net Sales 
North America 356 451 710 467 342 294
% of Total 15 16 22 16 13 12
Europe 254 259 246 312 238 285
% of Total 11 9 8 11 9 11
Japan 372 284 269 208 233 203
% of Total 15 10 8 7 8 8
Korea 362 432 367 299 519 398
% of Total 15 16 12 10 19 16
Taiwan 425 454 782 650 733 707
% of Total 18 16 25 23 27 28
Southeast Asia 87 156 143 185 245 162
% of Total 4 6 4 7 9 6
China 534 751 668 741 415 469
% of Total 22 27 21 26 15 19
 
Employees (In thousands)
Regular Full Time 12.7 13.0 12.9

 

 

APPLIED MATERIALS, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
 

 
Three Months Ended   Nine Months Ended
(In millions, except per share amounts)
July 31, 2011   May 1, 2011   August 1, 2010   July 31, 2011    August 1, 2010

     
 
                 
Non -GAAP Operating Income
                 
 
                 
Reportedoperating income (GAAP basis) $ 687  $ 677  $ 183  $ 2,037   $ 685
Certain items associated with acquisitions 1
12   12   21   37   77
Varian and Semitool deal cost
9   -   -   9   10
Restructuring charges and asset impairments 2,3,4,5,6 3   (4)   135   (30)   248
Gain on sale of facilit ies, net
(28)   -   -   (27)   -
Non -GAAP operating income $ 683    $ 685      $ 339     $ 2,026     $ 1,020
 
                 
Non -GAAP Net Income
                 
 
                 
Reported net income (GAAP basis) $ 476  $ 489  $ 123  $ 1,471   $ 470
Certain items associated with acquisitions 1
12   12   21   37   77
Varian and Semitool deal cost
9   -   -   9   10
Restructuring charges and asset impairments 2,3,4,5,6 3   (4)   135   (30)   248
Impairment of strategic investments
-   -   8   -   13
Gain on sale of facilit ies, net
(28)   -   -   (27)   -
Reinstatement of federal R&D tax credit
-   -   -   (13)   -
Income tax effect of non-GAAP adjustments
(5)   4   (53)   5   (113)
Non -GAAP net income $ 467  $ 501  $ 234  $ 1,452   $ 705
 
                 
Non -GAAP Earnings Per Diluted Share
                 
 
                 
Reported earnings per diluted share
                 
   (GAAP basis) $ 0.36  $ 0.37  $ 0.09  $ 1.10   $ 0.35
Certain items associated with acquisitions
0.01   0.01   0.01   0.02   0.04
Varian and Semitool deal cost
-   -   -   0.01   0.01
Restructuring charges and asset impairments
-   -   0.07   (0.01)   0.12
Impairment of strategic investments
-   -   -   -   -
Gain on sale of facilit ies, net
(0.02)   -   -   (0.02)   -
Reinstatement of federal R&D tax credit
-   -   -   (0.01)   -
Non -GAAP earnings per diluted share $ 0.35  $ 0.38  $ 0.17  $ 1.09  $ 0.52
Weighted average number of diluted shares
1,330   1,333   1,349   1,333   1,351
 
1 These items are incremental charges attributable to acquisitions consisting of inventory fair value adjustments on products sold and amortization of purchased intangible assets.

2 Results for the three months ended July 31, 2011 included asset impairment charges of $3 million related to certain fixed assets.

3 Results for the three months ended May 1, 2011 included asset impairment charges of $24 million related to certain intangible assets, offset by favorable adjustments of $8 million related to a restructuring program announced on July 21, 2010, $19 million related to a restructuring program announced on November 11, 2009, and $1 million related to a restructuring program announced on November 12, 2008.

4 Results for the three months ended August 1, 2010 included asset impairment charges of $110 million and restructuring charges of $45 million related to a restructuring program announced on July 21, 2010, offset by a $20 million favorable adjustment to a restructuring program announced on November 11, 2009.

5 Results for the nine months ended July 31, 2011 included asset impairment charges of $30 million primarily related to certain intangible assets, offset by favorable adjustments of $36 million related to a restructuring program announced on July 21, 2010, $19 million related to a restructuring program announced on November 11, 2009, and $5 million related to a restructuring program announced on November 12, 2008.

6 Results for the nine months ended August 1, 2010 included asset impairment charges of $110 million and restructuring charges of $45 million related to a restructuring program announced on July 21, 2010, restructuring charges of $84 million associated with a restructuring program announced on November 11, 2009, and asset impairment charges of $9 million related to a facility held for sale.

 

Contact: 
Howard Clabo (editorial/media) 408.748.5775
Michael Sullivan (financial community) 408.986.7977

 

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