Applied Materials Announces Third Quarter Results

Applied Materials, Inc. (NASDAQ:AMAT), the global leader in Nanomanufacturing Technology™ solutions for the semiconductor, flat panel display and solar industries, today reported results for its third quarter of fiscal 2010 ended August 1, 2010. Applied generated net sales of $2.52 billion, operating profit of $183 million, and net income of $123 million or $0.09 per share. Non-GAAP net income was $234 million or $0.17 per share.

"Applied had strong results across our semiconductor, display and crystalline silicon solar businesses, and we now expect Silicon Systems Group net sales to be up by more than 160 percent over fiscal 2009,” said Mike Splinter, chairman and chief executive officer. "During the quarter, we took actions that focus our Energy and Environmental Solutions segment on our most promising opportunities in solar and advanced energy, and strengthen our company’s financial outlook.”

The EES restructuring plan announced on July 21, 2010 resulted in charges totaling $405 million. These charges consisted of inventory-related charges of approximately $250 million and severance and asset impairment charges of $155 million. The inventory-related charges lowered gross margin by approximately 10 percentage points and reduced GAAP and non-GAAP EPS by $0.12. Excluding the EES restructuring plan charges, non-GAAP EPS would have been $0.29.

Applied’s May business outlook was for non-GAAP EPS of between $0.22 and $0.26. At the announcement of the EES restructuring plan on July 21, 2010, the non-GAAP EPS outlook was revised to between $0.10 and $0.14.

The non-GAAP results exclude the impact of the following, where applicable: restructuring and asset impairments, certain acquisition-related costs, investment impairments, and amounts associated with the resolution of income tax audits. Effective the first quarter of fiscal 2010, the non-GAAP results no longer exclude the impact of share-based compensation. A reconciliation of the GAAP and non-GAAP results is provided in the financial statements included in this release.

Reportable Segment Results

Silicon Systems Group (SSG) orders increased to $1.54 billion, net sales increased to $1.45 billion, and operating income rose to $525 million or 36 percent of sales. New order composition was: foundry 37 percent, DRAM 32 percent, logic and other 18 percent, and flash 13 percent.

Applied Global Services (AGS) orders were $595 million, up 23 percent from the second quarter led by higher demand for 200mm refurbished equipment. AGS net sales increased to $468 million, and operating income decreased to $84 million.

Display orders decreased to $242 million. Net sales decreased to $216 million, and operating income was lower, at $64 million or 30 percent of sales. The decrease in net sales and operating income from the second quarter was in line with the company’s expectations.

Energy and Environmental Solutions (EES) orders decreased to $353 million. Net sales more than doubled from the second quarter to $387 million led by record demand for crystalline silicon solar equipment. EES had an operating loss of $371 million, which included $405 million in charges associated with the restructuring plan.

Additional Quarterly Financial Information

• Gross margin was 34.2 percent including the thin film solar equipment inventory charge which lowered gross margin by approximately 10 percentage points.
• Operating cash flow was $299 million for the quarter or 12 percent of sales, and operating cash flow for the nine months was $1.20 billion or 18 percent of sales.
• Cash dividend payments totaled $94 million.
• The company used $100 million to repurchase 7.9 million shares of its common stock.
• Cash, cash equivalents and investments increased to $3.63 billion at quarter end.
• The effective tax rate was 30.8 percent.
• Backlog increased by $136 million to $3.13 billion.

Business Outlook

For the fourth quarter of fiscal 2010, Applied expects net sales to be in the range of flat to up 5 percent quarter over quarter. The company expects non-GAAP EPS to be in the range of $0.28 to $0.32 which excludes known charges related to completed acquisitions of approximately $0.01 per share. This outlook does not take into account 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 Materials 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, opportunities, and the business outlooks for the Silicon segment and total company. Forward-looking statements may contain words such as "expect,” "believe,” "may,” "can,” "should,” "will,” "forecast,” "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 implement effective cost reduction programs, realize expected benefits, and 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) maintain effective internal controls and procedures, (vi) obtain and protect intellectual property rights in key technologies, (vii) attract, motivate and retain key employees, and (viii) accurately forecast future operating and financial results, which depends on multiple assumptions related to, without limitation, market conditions and business needs; risks related to legal proceedings and claims; 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 Nanomanufacturing Technology™ solutions with a broad portfolio of innovative equipment, services and software products for the fabrication of semiconductor chips, flat panel displays, solar photovoltaic cells, flexible electronics and energy-efficient glass. At Applied Materials, we apply Nanomanufacturing Technology to improve the way people live. Learn more at www.appliedmaterials.com.

Effective in the first quarter of fiscal 2010, Applied changed its methodology for allocating certain expenses to its reportable segments. Applied has reclassified segment operating results for the three months ended July 26, 2009 to conform to the fiscal 2010 presentation.