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Applied Materials Announces Third Quarter Results

  • Q3 orders of $2.89 billion up 17% year over year, with record Silicon Systems orders
  • Q3 net sales of  $2.49 billion up 10% year over year led by growth in Silicon Systems and Services
  • Q3 non-GAAP adjusted EPS of $0.33 up 18% year over year; GAAP EPS of $0.27 up 13% year over year

View conference call details/replay

SANTA CLARA, Calif., Aug. 13, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in materials engineering solutions for the semiconductor, display and solar industries, today reported results for its third quarter ended July 26, 2015.

Third quarter orders were $2.89 billion, up 15 percent sequentially and up 17 percent year over year. Net sales were $2.49 billion, up 2 percent sequentially and up 10 percent year over year.

On a non-GAAP adjusted basis, the company reported gross margin of 43.9 percent, operating margin of 20.8 percent, and net income of $410 million or $0.33 per diluted share. The company recorded GAAP gross margin of 40.9 percent, operating margin of 15.9 percent, and net income of $329 million or $0.27 per diluted share. The GAAP results included the effect of cost reduction actions in the solar business consisting of $34 million of inventory charges and $17 million of restructuring and asset impairment charges.

The company generated $334 million in cash from operations, paid dividends of $123 million and used $625 million to repurchase 32 million shares of common stock.

"Applied is focused on profitable growth and the results show in our third-quarter performance when we delivered our highest ever 300mm semiconductor equipment orders and record revenue in services," said Gary Dickerson, president and CEO. "Our highly differentiated materials engineering products help customers accelerate major technology inflections including 3D NAND, and this quarter we generated the highest flash memory orders in our history."

Quarterly Results Summary

        Change
  Q3 FY2015 Q2 FY2015 Q3 FY2014 Q3 FY2015
vs.
Q2 FY2015
 Q3 FY2015
vs.

Q3 FY2014
  (In millions, except per share amounts and percentages)
New orders $2,892 $2,515 $2,479 15% 17%
Net sales $2,490 $2,442 $2,265 2% 10%
Gross margin 40.9% 41.6% 43.8% (0.7) points (2.9) points
Operating margin 15.9% 17.0% 17.3% (1.1) points (1.4) points
Net income $329 $364 $301 (10)% 9%
Diluted earnings per share (EPS) $0.27 $0.29 $0.24 (7)% 13%

        Change
Non-GAAP Adjusted Results Q3 FY2015 Q2 FY2015 Q3 FY2014 Q3 FY2015
vs.
Q2 FY2015
 Q3 FY2015
vs.
Q3 FY2014
  (In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin 43.9% 43.2% 45.5% 0.7 points (1.6) points
Non-GAAP adjusted operating margin 20.8% 19.5% 21.1% 1.3 points (0.3) points
Non-GAAP adjusted net income $410 $362 $349 13% 17%
Non-GAAP adjusted diluted EPS $0.33 $0.29 $0.28 14% 18%
           

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, or investments; gain or loss on sale of strategic investments; and certain discrete adjustments and 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.

Business Outlook

For the fourth quarter of fiscal 2015, Applied expects net sales to be in the range of flat to down 7 percent from the previous quarter, and non-GAAP adjusted diluted EPS is expected to be in the range of $0.27 to $0.31.

This outlook excludes known charges related to completed acquisitions of $0.04 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Third Quarter Reportable Segment Information

Silicon Systems GroupQ3 FY2015 Q2 FY2015 Q3 FY2014
 (In millions, except percentages)
New orders$2,007  $1,704  $1,565 
Foundry32% 36% 50%
DRAM18% 31% 14%
Flash39% 21% 22%
Logic and other11% 12% 14%
Net sales1,635  1,560  1,476 
Operating income411  374  381 
Operating margin25.1% 24.0% 25.8%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$455  $418  $423 
Non-GAAP adjusted operating margin27.8% 26.8% 28.7%

Applied Global Services

 
Q3 FY2015 Q2 FY2015 Q3 FY2014
 (In millions, except percentages)
New orders$561  $641  $552 
Net sales665  646  567 
Operating income170  170  154 
Operating margin25.6% 26.3% 27.2%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$173  $170  $154 
Non-GAAP adjusted operating margin26.0% 26.3% 27.2%

DisplayQ3 FY2015 Q2 FY2015 Q3 FY2014
 (In millions, except percentages)
New orders$295  $120  $296 
Net sales151  163  119 
Operating income25  40  25 
Operating margin16.6% 24.5% 21.0%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$26  $40  $26 
Non-GAAP adjusted operating margin17.2% 24.5% 21.8%

Energy and Environmental SolutionsQ3 FY2015 Q2 FY2015 Q3 FY2014
 (In millions, except percentages)
New orders$29  $50  $66 
Net sales39  73  103 
Operating income (loss)(52) (5) 24 
Operating margin(133.3)% (6.8)% 23.3%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income (loss)$(2) $(4) $25 
Non-GAAP adjusted operating margin(5.1)% (5.5)% 24.3%

Backlog Information

Applied's backlog grew 11 percent sequentially to $3.10 billion and included negative adjustments of $84 million, primarily consisting of order cancellations from a foundry customer. Backlog composition by reportable segment was as follows:

Silicon Systems Group57%
Applied Global Services22%
Display17%
Energy and Environmental Solutions4%

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 fourth 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 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 Nine Months Ended
(In millions, except per share amounts) July 26,
 2015
 April 26,
 2015
 July 27,
 2014
 July 26,
 2015
 July 27,
 2014
Net sales $2,490  $2,442  $2,265  $7,291  $6,808 
Cost of products sold 1,472  1,426  1,273  4,298  3,924 
Gross profit 1,018  1,016  992  2,993  2,884 
Operating expenses:          
Research, development and engineering 372  365  357  1,088  1,068 
Marketing and selling 112  109  108  332  324 
General and administrative 135  140  126  392  375 
Loss (gain) on derivatives associated with terminated business combination 3  (14) 10  (89) 9 
Total operating expenses 622  600  601  1,723  1,776 
Income from operations 396  416  391  1,270  1,108 
Interest expense 24  24  24  71  72 
Interest income and other income (loss), net 3  (3) 3  2  14 
Income before income taxes 375  389  370  1,201  1,050 
Provision for income taxes 46  25  69  160  234 
Net income $329  $364  $301  $1,041  $816 
Earnings per share:          
Basic $0.27  $0.30  $0.25  $0.85  $0.67 
Diluted $0.27  $0.29  $0.24  $0.84  $0.66 
Weighted average number of shares:          
Basic 1,221  1,230  1,218  1,225  1,213 
Diluted 1,231  1,241  1,233  1,238  1,230 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) July 26,
 2015
 April 26,
 2015
 October 26,
 2014
ASSETS      
Current assets:      
Cash and cash equivalents $2,574  $3,067  $3,002 
Short-term investments 169  163  160 
Accounts receivable, net 1,991  1,798  1,670 
Inventories 1,739  1,713  1,567 
Other current assets 570  706  568 
Total current assets 7,043  7,447  6,967 
Long-term investments 958  936  935 
Property, plant and equipment, net 882  887  861 
Goodwill 3,304  3,304  3,304 
Purchased technology and other intangible assets, net 811  860  951 
Deferred income taxes and other assets 155  153  156 
Total assets $13,153  $13,587  $13,174 
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable, notes payable and accrued expenses $2,162  $1,822  $1,883 
Customer deposits and deferred revenue 858  874  940 
Total current liabilities 3,020  2,696  2,823 
Long-term debt 1,547  1,947  1,947 
Other liabilities 609  593  536 
Total liabilities 5,176  5,236  5,306 
Total stockholders' equity 7,977  8,351  7,868 
Total liabilities and stockholders' equity $13,153  $13,587  $13,174 

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

(In millions)Three Months Ended Nine Months Ended
July 26,
 2015
 April 26,
 2015
 July 27,
 2014
July 26,
 2015
 July 27,
 2014
Cash flows from operating activities:         
Net income$329  $364  $301  $1,041  $816 
Adjustments required to reconcile net income
to cash provided by operating activities:
         
Depreciation and amortization93  90  93  275  281 
Share-based compensation46  47  44  141  132 
Excess tax benefits from share-based compensation(3) (12) (1) (54) (26)
Other61  (8) 49  89  70 
Net change in operating assets and liabilities(192) (183) 98  (800) 120 
Cash provided by operating activities334  298  584  692  1,393 
Cash flows from investing activities:         
Capital expenditures(51) (64) (65) (164) (178)
Proceeds from sales and maturities of investments583  177  181  900  702 
Purchases of investments(616) (203) (308) (960) (632)
Cash used in investing activities(84) (90) (192) (224) (108)
Cash flows from financing activities:         
Proceeds from common stock issuances and others, net1  42  1  43  67 
Common stock repurchases(625) -  -  (625) - 
Excess tax benefits from share-based compensation3  12  1  54  26 
Payments of dividends to stockholders(123) (123) (121) (368) (363)
Cash used in financing activities(744) (69) (119) (896) (270)
Effect of exchange rate changes on cash and cash equivalents1  (1) -  -  - 
Increase (decrease) in cash and cash equivalents(493) 138  273  (428) 1,015 
Cash and cash equivalents - beginning of period3,067  2,929  2,453  3,002  1,711 
Cash and cash equivalents - end of period$2,574  $3,067  $2,726  $2,574  $2,726 
Supplemental cash flow information:         
Cash payments for income taxes$51  $118  $49  $258  $108 
Cash refunds from income taxes$5  $2  $21  $10  $33 
Cash payments for interest$39  $7  $39  $85  $85 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate Unallocated Expenses

(In millions) Q3 FY2015 Q2 FY2015 Q3 FY2014
Share-based compensation $46  $47  $44 
Certain items associated with terminated business combination 1  29  23 
Loss (gain) on derivative associated with terminated business combination, net 3  (14) 10 
Other unallocated expenses 108  101  116 
Total corporate $158  $163  $193 

Additional Information

  Q3 FY2015 Q2 FY2015 Q3 FY2014
New Orders and Net Sales by Geography            
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 262  650  368  632  680  683 
% of Total 9% 26% 15% 26% 27% 30%
Europe 142  134  131  150  146  160 
% of Total 5% 6% 5% 6% 6% 7%
Japan 727  271  365  257  378  229 
% of Total 25% 11% 15% 10% 15% 10%
Korea 349  308  607  449  217  226 
% of Total 12% 12% 24% 18% 9% 10%
Taiwan 828  751  589  455  497  598 
% of Total 29% 30% 23% 19% 20% 26%
Southeast Asia 142  94  103  87  177  81 
% of Total 5% 4% 4% 4% 7% 4%
China 442  282  352  412  384  288 
% of Total 15% 11% 14% 17% 16% 13%
             
Employees (In thousands)            
Regular Full Time 14.5  14.3  13.8 

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

  Three Months Ended Nine Months Ended
(In millions, except percentages) July 26,
 2015
 April 26,
 2015
 July 27,
 2014
 July 26,
 2015
 July 27,
 2014
Non-GAAP Adjusted Gross Profit          
Reported gross profit - GAAP basis $1,018  $1,016  $992  $2,993  $2,884 
Certain items associated with acquisitions1 41  39  38  120  116 
Inventory charges related to restructuring3 34  -  -  34  - 
Acquisition integration costs -  -  -  -  1 
Non-GAAP adjusted gross profit $1,093  $1,055  $1,030  $3,147  $3,001 
Non-GAAP adjusted gross margin 43.9% 43.2% 45.5% 43.2% 44.1%
Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $396  $416  $391  $1,270  $1,108 
Certain items associated with acquisitions1 47  45  44  138  135 
Acquisition integration costs 1  -  9  2  30 
Loss (gain) on derivatives associated with terminated business combination, net 3  (14) 10  (89) 9 
Certain items associated with terminated business combination2 1  29  23  50  50 
Restructuring, inventory charges and asset impairments3, 4 50  -  -  50  7 
Foreign exchange loss due to functional currency change5 19  -  -  19  - 
Non-GAAP adjusted operating income $517  $476  $477  $1,440  $1,339 
Non-GAAP adjusted operating margin 20.8% 19.5% 21.1% 19.8% 19.7%
Non-GAAP Adjusted Net Income          
Reported net income - GAAP basis6 $329  $364  $301  $1,041  $816 
Certain items associated with acquisitions1 47  45  44  138  135 
Acquisition integration costs 1  -  9  2  30 
Loss (gain) on derivatives associated with terminated business combination, net 3  (14) 10  (89) 9 
Certain items associated with terminated business combination2 1  29  23  50  50 
Restructuring, inventory charges and asset impairments3, 4 50  -  -  50  7 
Impairment (gain on sale) of strategic investments, net (1) 6  (1) 6  (4)
Foreign exchange loss due to functional currency change5 19  -  -  19  - 
Reinstatement of federal R&D tax credit, resolution of prior years'
income tax filings and other tax items6
 (21) (54) (19) (92) (22)
Income tax effect of non-GAAP adjustments (18) (14) (18) (15) (45)
Non-GAAP adjusted net income $410  $362  $349  $1,110  $976 

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
  
3Results for the three and nine months ended July 26, 2015 primarily included $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to cost reductions in the solar business.
  
4Results for the nine months ended July 27, 2014 included a $7 million of employee-related costs related to the restructuring program announced on October 3, 2012.
  
5Results for the three and nine months ended July 26, 2015 included a $19 million foreign exchange loss due to an immaterial correction of an error related to functional currency change.
  
6Amounts for the three months ended April 26, 2015 and nine months ended July 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, resulting in an increase in 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 Nine Months Ended
(In millions except per share amounts) July 26,
 2015
 April 26,
 2015
 July 27,
 2014
 July 26,
 2015
 July 27,
 2014
Non-GAAP Adjusted Earnings Per Diluted Share          
Reported earnings per diluted share - GAAP basis1 $0.27  $0.29  $0.24  $0.84  $0.66 
Certain items associated with acquisitions 0.03  0.03  0.03  0.10  0.09 
Acquisition integration costs -  -  0.01  -  0.02 
Certain items associated with terminated business combination -  0.02  0.02  0.03  0.04 
Gain on derivative associated with terminated business combination, net -  (0.01) -  (0.05) - 
Restructuring, inventory charges and asset impairments 0.03  -  -  0.03  - 
Reinstatement of federal R&D tax credit, resolution of
prior years' income tax filings and other tax items1
 (0.02) (0.04) (0.02) (0.07) (0.02)
Foreign exchange loss due to functional currency change 0.02  -  -  0.02  - 
Non-GAAP adjusted earnings per diluted share $0.33  $0.29  $0.28  $0.90  $0.79 
Weighted average number of diluted shares 1,231  1,241  1,233  1,238  1,230 

1Amounts for the three months ended April 26, 2015 and nine months ended July 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, resulting in an increase in 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 Nine Months Ended
(In millions, except percentages) July 26,
 2015
 April 26,
 2015
 July 27,
 2014
 July 26,
 2015
 July 27,
 2014
SSG Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $411  $374  $381  $1,092  $1,086 
Certain items associated with acquisitions1 44  44  42  131  126 
Acquisition integration costs -  -  -  -  1 
Non-GAAP adjusted operating income $455  $418  $423  $1,223  $1,213 
Non-GAAP adjusted operating margin 27.8% 26.8% 28.7% 26.4% 26.7%
AGS Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $170  $170  $154  $493  $427 
Certain items associated with acquisitions1 -  -  -  1  3 
Inventory charges related to restructuring2 3  -  -  3  - 
Non-GAAP adjusted operating income $173  $170  $154  $497  $430 
Non-GAAP adjusted operating margin 26.0% 26.3% 27.2% 26.2% 26.7%
Display Non-GAAP Adjusted Operating Income          
Reported operating income - GAAP basis $25  $40  $25  $137  $77 
Certain items associated with acquisitions1 1  -  1  2  2 
Non-GAAP adjusted operating income $26  $40  $26  $139  $79 
Non-GAAP adjusted operating margin 17.2% 24.5% 21.8% 23.6% 18.6%
EES Non-GAAP Adjusted Operating Income (Loss)          
Reported operating income (loss) - GAAP basis $(52) $(5) $24  $(61) $18 
Certain items associated with acquisitions1 2  1  1  4  4 
Restructuring, inventory charges and asset impairments2 48  -  -  48  - 
Non-GAAP adjusted operating income (loss) $(2) $(4) $25  $(9) $22 
Non-GAAP adjusted operating margin (5.1)% (5.5)% 24.3% (5.4)% 9.5%

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Results for the three and nine months ended July 26, 2015 included a $34 million of inventory charges and $17 million of restructuring charges and asset impairments related to cost reductions in the solar business.

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

 Three Months Ended
(In millions)July 26, 2015 April 26, 2015
Operating expenses - GAAP basis$622  $600 
Gain (loss) on derivative associated with terminated business combination, net(3) 14 
Restructuring charges and asset impairments(16) - 
Certain items associated with acquisitions(6) (6)
Acquisition integration costs(1) - 
Certain items associated with terminated business combination(1) (29)
Foreign exchange loss due to functional currency change(19) - 
Non-GAAP adjusted operating expenses$576  $579 

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

 Three Months Ended
(In millions, except percentages)July 26, 2015
Provision for income taxes - GAAP basis (a)$46 
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items21 
Income tax effect of non-GAAP adjustments18 
Non-GAAP adjusted provision for income taxes (b)$85 
  
Income before income taxes - GAAP basis (c)$375 
Certain items associated with acquisitions47 
Restructuring, inventory charges and asset impairments50 
Acquisition integration costs1 
Loss on derivative associated with terminated business combination3 
Certain items associated with terminated business combination1 
Gain on strategic investments, net(1)
Foreign exchange loss due to functional currency change19 
Non-GAAP adjusted income before income taxes (d)$495 
  
Effective income tax rate - GAAP basis (a/c)12.3%
  
Non-GAAP adjusted effective income tax rate (b/d)17.2%
 
HUG#1945298
August 13, 2015