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Applied Materials Announces Second Quarter Results

  • Q2 net sales of  $2.44 billion up 4% year over year led by growth in Applied Global Services and Display
  • Q2 non-GAAP adjusted EPS of $0.29 up 4% year over year; GAAP EPS of $0.29 up 38% year over year

View conference call details/replay

SANTA CLARA, Calif., May 14, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in precision materials engineering solutions for the semiconductor, display and solar industries, today reported results for its second quarter ended April 26, 2015.

Second quarter orders were $2.52 billion, up 11 percent sequentially and down 4 percent year over year. Net sales were $2.44 billion, up 4 percent sequentially and up 4 percent year over year.

On a non-GAAP adjusted basis, the company reported gross margin of 43.2 percent, operating income of $476 million, and net income of $362 million or $0.29 per diluted share. The company recorded GAAP gross margin of 41.6 percent, operating income of $416 million, and net income of $364 million or $0.29 per diluted share.

"Applied posted our highest quarterly revenue in the past three years and earnings near the top of our guidance range," said Gary Dickerson, president and CEO. "These results demonstrate that Applied is delivering the enabling products and services our customers need as they transition complex new devices into volume production."

Quarterly Results Summary

        Change
GAAP Results Q2 FY2015 Q1 FY2015 Q2 FY2014 Q2 FY2015
vs.
Q1 FY2015
 Q2 FY2015
vs.

Q2 FY2014
Net sales $2.44 billion $2.36 billion $2.35 billion 4% 4%
Gross profit $1.02 billion $959 million $1.00 billion 6% 1%
Operating income $416 million $458 million $387 million (9)% 7%
Net income $364 million $348 million $262 million 5% 39%
Diluted earnings per share (EPS) $0.29 $0.28 $0.21 4% 38%
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross profit $1.06 billion $1.00 billion $1.04 billion 6% 1%
Non-GAAP adjusted operating income $476 million $447 million $482 million 6% (1)%
Non-GAAP adjusted net income $362 million $338 million $348 million 7% 4%
Non-GAAP adjusted diluted EPS $0.29 $0.27 $0.28 7% 4%


Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of strategic investments or facilities; and certain tax items. A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also "Use of Non-GAAP Adjusted Financial Measures" section.

Second Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.70 billion, up 19 percent, with increases in foundry, flash and DRAM more than offsetting a decline in logic/other. Net sales increased by 8 percent to $1.56 billion. Non-GAAP adjusted operating income increased by 19 percent to $418 million or 26.8 percent of net sales. GAAP operating income increased by 22 percent to $374 million or 24.0 percent of net sales.

SSG new order composition was: foundry 36 percent; DRAM 31 percent; flash 21 percent; and logic/other 12 percent.

Applied Global Services orders of $641 million declined 7 percent primarily due to a seasonal decline in service contract renewals. Net sales of $646 million increased by 11 percent. Operating income increased to $170 million or 26.3 percent of net sales on both a GAAP and non-GAAP basis.

Display orders of $120 million were up 12 percent reflecting an increase in TV equipment orders. Net sales declined 41 percent to $163 million, which was in line with expectations. Operating income decreased to $40 million or 24.5 percent of net sales on both a GAAP and non-GAAP basis.

Energy and Environmental Solutions orders remained flat at $50 million, and net sales increased by 33 percent to $73 million. EES reported a non-GAAP adjusted operating loss of $4 million and a GAAP operating loss of $5 million.

Applied's backlog remained essentially flat at $2.78 billion and included negative adjustments of $69 million, primarily consisting of order cancellations and other adjustments. Backlog composition by segment was:  SSG 53 percent; AGS 29 percent; Display 13 percent; and EES 5 percent.

Business Outlook

For the third quarter of fiscal 2015, Applied expects net sales to be in the range of up 2 percent to up 6 percent from the previous quarter, the midpoint of which would be up 12 percent year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.31 to $0.35, the midpoint of which would be up 18 percent year over year.

This outlook excludes known charges related to completed acquisitions of $0.03 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Adjusted Financial Measures

Management uses non-GAAP adjusted 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. A replay will be available on the website beginning at 5:00 p.m. Pacific Time today.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks, technology transitions, our financial performance and market share positions, our business outlook for the third quarter of fiscal 2015, and other statements that are not historical facts. These statements and their underlying assumptions are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our products; global economic and industry conditions; consumer demand for electronic products; the demand for semiconductors; customers' technology and capacity requirements; the introduction of new and innovative technologies, and the timing of technology transitions; our ability to develop, deliver and support new products and technologies; the concentrated nature of our customer base;  our ability to expand our current markets, increase market share and develop new markets; market acceptance of existing and newly developed products; our ability to obtain and protect intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, align our resources and cost structure with business conditions, and attract, motivate and retain key employees; the variability of operating expenses and results among products and segments, and our ability to accurately forecast future results, market conditions, customer requirements and business needs; and other risks and uncertainties described in our SEC filings, including our most recent Forms 10-Q and 8-K. All forward-looking statements are based on management's current estimates, projections and assumptions, and we assume no obligation to update them.

About Applied Materials

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Our technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world. Learn more at www.appliedmaterials.com.

Contact:

Kevin Winston (editorial/media) 408.235.4498
Michael Sullivan (financial community) 408.986.7977

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

  Three Months Ended Six Months Ended
(In millions, except per share amounts) April 26,
 2015
 January 25,
 2015
 April 27,
 2014
 April 26,
 2015
 April 27,
 2014
Net sales $2,442  $2,359  $2,353  $4,801  $4,543 
Cost of products sold 1,426  1,400  1,352  2,826  2,651 
Gross profit 1,016  959  1,001  1,975  1,892 
Operating expenses:          
Research, development and engineering 365  351  355  716  711 
Marketing and selling 109  111  107  220  216 
General and administrative 140  117  129  257  249 
Loss (gain) on derivatives associated with announced business combination (14) (78) 23  (92) (1)
Total operating expenses 600  501  614  1,101  1,175 
Income from operations 416  458  387  874  717 
Interest expense 24  23  23  47  48 
Interest income and other income (loss), net (3) 2  1  (1) 11 
Income before income taxes 389  437  365  826  680 
Provision for income taxes 25  89  103  114  165 
Net income $364  $348  $262  $712  $515 
Earnings per share:          
Basic $0.30  $0.28  $0.22  $0.58  $0.43 
Diluted $0.29  $0.28  $0.21  $0.57  $0.42 
Weighted average number of shares:          
Basic 1,230  1,224  1,216  1,227  1,211 
Diluted 1,241  1,240  1,229  1,241  1,227 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS


(In millions) April 26,
 2015
 January 25,
 2015
 October 26,
 2014
ASSETS      
Current assets:      
Cash and cash equivalents $3,067  $2,929  $3,002 
Short-term investments 163  158  160 
Accounts receivable, net 1,798  1,580  1,670 
Inventories 1,713  1,641  1,567 
Other current assets 706  625  568 
Total current assets 7,447  6,933  6,967 
Long-term investments 936  930  935 
Property, plant and equipment, net 887  864  861 
Goodwill 3,304  3,304  3,304 
Purchased technology and other intangible assets, net 860  905  951 
Deferred income taxes and other assets 153  137  156 
Total assets $13,587  $13,073  $13,174 
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $1,822  $1,737  $1,883 
Customer deposits and deferred revenue 874  784  940 
Total current liabilities 2,696  2,521  2,823 
Long-term debt 1,947  1,947  1,947 
Other liabilities 593  533  536 
Total liabilities 5,236  5,001  5,306 
Total stockholders' equity 8,351  8,072  7,868 
Total liabilities and stockholders' equity $13,587  $13,073  $13,174 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)Three Months Ended Six Months Ended
April 26,
 2015
 January 25,
 2015
 April 27,
 2014
April 26,
 2015
 April 27,
 2014
Cash flows from operating activities:         
Net income$364  $348  $262  $712  $515 
Adjustments required to reconcile net income to cash provided by operating activities:         
Depreciation and amortization90  92  94  182  188 
Share-based compensation47  48  42  95  88 
Excess tax benefits from share-based compensation(12) (39) (7) (51) (25)
Other(8) 36  12  28  21 
Net change in operating assets and liabilities(183) (425) 34  (608) 22 
Cash provided by operating activities298  60  437  358  809 
Cash flows from investing activities:         
Capital expenditures(64) (49) (65) (113) (113)
Proceeds from sales and maturities of investments177  140  157  317  521 
Purchases of investments(203) (141) (161) (344) (324)
Cash provided by (used in) investing activities(90) (50) (69) (140) 84 
Cash flows from financing activities:         
Proceeds from common stock issuances and others, net42  -  56  42  66 
Excess tax benefits from share-based compensation12  39  7  51  25 
Payments of dividends to stockholders(123) (122) (122) (245) (242)
Cash used in financing activities(69) (83) (59) (152) (151)
Effect of exchange rate changes on cash and cash equivalents(1) -  -  (1) - 
Increase (decrease) in cash and cash equivalents138  (73) 309  65  742 
Cash and cash equivalents - beginning of period2,929  3,002  2,144  3,002  1,711 
Cash and cash equivalents - end of period$3,067  $2,929  $2,453  $3,067  $2,453 
Supplemental cash flow information:         
Cash payments for income taxes$118  $89  $33  $207  $59 
Cash refunds from income taxes$2  $3  $3  $5  $12 
Cash payments for interest$7  $39  $7  $46  $46 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

  Q2 FY2015 Q1 FY2015 Q2 FY2014
(In millions) New
Orders
 Net
Sales
 Operating
Income
(Loss)
 New
Orders
 Net
Sales
 Operating
Income
(Loss)
 New
Orders
 Net
Sales
 Operating
Income
(Loss)
SSG $1,704  $1,560  $374  $1,426  $1,446  $307  $1,664  $1,584  $391 
AGS 641  646  170  690  583  153  537  534  148 
Display 120  163  40  107  275  72  340  147  26 
EES 50  73  (5) 50  55  (4) 88  88  5 
Corporate -  -  (163) -  -  (70) -  -  (183)
Con-
solidated
 $2,515  $2,442  $416  $2,273  $2,359  $458  $2,629  $2,353  $387 

Corporate Unallocated Expenses

(In millions) Q2 FY2015 Q1 FY2015 Q2 FY2014
Share-based compensation 47  48  42 
Certain items associated with announced business combination 29  20  16 
Loss (gain) on derivative associated with announced business combination, net (14) (78) 23 
Other unallocated expenses 101  80  102 
Total corporate $163  $70  $183 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

  Q2 FY2015 Q1 FY2015 Q2 FY2014
New Orders and Net Sales by Geography            
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 368  632  411  529  521  370 
% of Total 15% 26% 18% 22% 20% 16%
Europe 131  150  148  143  199  156 
% of Total 5% 6% 6% 6% 7% 7%
Japan 365  257  242  231  203  215 
% of Total 15% 10% 11% 10% 8% 9%
Korea 607  449  546  464  378  351 
% of Total 24% 18% 24% 20% 14% 15%
Taiwan 589  455  545  519  660  781 
% of Total 23% 19% 24% 22% 25% 33%
Southeast Asia 103  87  85  85  72  52 
% of Total 4% 4% 4% 4% 3% 2%
China 352  412  296  388  596  428 
% of Total 14% 17% 13% 16% 23% 18%
             
Employees (In thousands)            
Regular Full Time 14.3  14.1  13.7 


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

  Three Months Ended Six Months Ended
(In millions, except percentages) April 26,
 2015
 January 25,
 2015
 April 27,
 2014
 April 26,
 2015
 April 27,
 2014
Non-GAAP Adjusted Gross Profit          
Reported gross profit - GAAP basis $1,016  $959  $1,001  $1,975  $1,892 
Certain items associated with acquisitions1 39  40  39  79  78 
Acquisition integration costs -  -  1  -  1 
Non-GAAP adjusted gross profit $1,055  $999  $1,041  $2,054  $1,971 
Non-GAAP adjusted gross margin 43.2% 42.3% 44.2% 42.8% 43.4%
Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $416  $458  $387  $874  $717 
Certain items associated with acquisitions1 45  46  46  91  91 
Acquisition integration costs -  1  10  1  21 
Loss (gain) on derivatives associated with announced business combination, net (14) (78) 23  (92) (1)
Certain items associated with announced business combination2 29  20  16  49  27 
Restructuring charges and asset impairments3 -  -  -  -  7 
Non-GAAP adjusted operating income $476  $447  $482  $923  $862 
Non-GAAP adjusted operating margin 19.5% 18.9% 20.5% 19.2% 19.0%
Non-GAAP Adjusted Net Income          
Reported net income - GAAP basis4 $364  $348  $262  $712  $515 
Certain items associated with acquisitions1 45  46  46  91  91 
Acquisition integration costs -  1  10  1  21 
Loss (gain) on derivatives associated with announced business combination, net (14) (78) 23  (92) (1)
Certain items associated with announced business combination2 29  20  16  49  27 
Restructuring charges and asset impairments3 -  -  -  -  7 
Impairment (gain on sale) of strategic investments, net 6  1  2  7  (3)
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items4 (54) (17) 12  (71) (3)
Income tax effect of non-GAAP adjustments (14) 17  (23) 3  (27)
Non-GAAP adjusted net income $362  $338  $348  $700  $627 

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
  
3Results for the six months ended April 27, 2014 included a $7 million of employee-related costs related to the restructuring program announced on October 3, 2012.
  
4Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.


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

  Three Months Ended Six Months Ended
(In millions except per share amounts) April 26,
 2015
 January 25,
 2015
 April 27,
 2014
 April 26,
 2015
 April 27,
 2014
Non-GAAP Adjusted Earnings Per Diluted Share          
Reported earnings per diluted share - GAAP basis1 $0.29  $0.28  $0.21  $0.57  $0.42 
Certain items associated with acquisitions 0.03  0.03  0.03  0.07  0.06 
Acquisition integration costs -  -  0.01  -  0.01 
Certain items associated with announced business combination 0.02  0.01  0.01  0.03  0.02 
Loss (gain) on derivative associated with announced business combination, net (0.01) (0.04) 0.01  (0.05) - 
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items1 (0.04) (0.01) 0.01  (0.06) - 
Non-GAAP adjusted earnings per diluted share $0.29  $0.27  $0.28  $0.56  $0.51 
Weighted average number of diluted shares 1,241  1,240  1,229  1,241  1,227 

1Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.


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

  Three Months Ended Six Months Ended
(In millions, except percentages) April 26,
 2015
 January 25,
 2015
 April 27,
 2014
 April 26,
 2015
 April 27,
 2014
SSG Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $374  $307  $391  $681  $705 
Certain items associated with acquisitions1 44  43  42  87  84 
Acquisition integration costs -  -  -  -  1 
Non-GAAP adjusted operating income $418  $350  $433  $768  $790 
Non-GAAP adjusted operating margin 26.8% 24.2% 27.3% 25.5% 25.7%
AGS Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $170  $153  $148  $323  $273 
Certain items associated with acquisitions1 -  1  2  1  3 
Non-GAAP adjusted operating income $170  $154  $150  $324  $276 
Non-GAAP adjusted operating margin 26.3% 26.4% 28.1% 26.4% 26.5%
Display Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $40  $72  $26  $112  $52 
Certain items associated with acquisitions1 -  1  -  1  1 
Non-GAAP adjusted operating income $40  $73  $26  $113  $53 
Non-GAAP adjusted operating margin 24.5% 26.5% 17.7% 25.8% 17.3%
EES Non-GAAP Adjusted Operating Income (Loss)          
Reported operating income (loss) - GAAP basis $(5) $(4) $5  $(9) $(6)
Certain items associated with acquisitions1 1  1  2  2  3 
Non-GAAP adjusted operating income (loss) $(4) $(3) $7  $(7) $(3)
Non-GAAP adjusted operating margin (5.5)% (5.5)% 8.0% (5.5)% (2.3)%

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.


APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES

 Three Months Ended
(In millions)April 26, 2015 January 25, 2015
    
Operating expenses - GAAP basis$600  $501 
Gain on derivative associated with announced business combination, net14  78 
Certain items associated with acquisitions(6) (6)
Acquisition integration costs-  (1)
Certain items associated with announced business combination(29) (20)
Non-GAAP adjusted operating expenses$579  $552 

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

 Three Months Ended
(In millions, except percentages)April 26, 2015
  
Provision for income taxes - GAAP basis1 (a)$25 
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items54 
Income tax effect of non-GAAP adjustments114 
Non-GAAP adjusted provision for income taxes (b)$93 
  
Income before income taxes - GAAP basis (c)$389 
Certain items associated with acquisitions45 
Gain on derivative associated with announced business combination(14)
Certain items associated with announced business combination29 
Impairment of strategic investments, net6 
Non-GAAP adjusted income before income taxes (d)$455 
  
Effective income tax rate - GAAP basis1 (a/c)6.4%
  
Non-GAAP adjusted effective income tax rate (b/d)20.4%

1Amounts for the three months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.
 
HUG#1921623
May 14, 2015