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Applied Materials Announces First Quarter 2016 Results

  • Applied delivers in line results and expects sequential growth in net sales and non-GAAP EPS
  • Company returns $740 million to shareholders through dividends and share repurchases

SANTA CLARA, Calif., Feb. 18, 2016 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in materials engineering solutions for the semiconductor, display and solar industries, today reported results for its first quarter ended January 31, 2016.

First quarter orders were $2.28 billion, down 6 percent sequentially and flat year over year. Net sales were $2.26 billion, down 5 percent sequentially and down 4 percent year over year.

On a non-GAAP adjusted basis, the company reported first quarter gross margin of 42.4 percent, operating margin of 17.8 percent, and net income of $302 million or $0.26 per diluted share. The company recorded GAAP gross margin of 40.6 percent, operating margin of 15.7 percent, and net income of $286 million or $0.25 per diluted share.

The company generated $207 million in cash from operations during the first quarter, paid dividends of $115 million and used $625 million to repurchase 35 million shares of common stock.

"As the market moves into the sweet spot for Applied's materials engineering technology, we see strong demand for our semiconductor, display and service businesses," said Gary Dickerson, president and CEO. "We are maintaining a positive outlook for 2016 as our customers make strategic, inflection-driven investments that play to our strengths."

Quarterly Results Summary

        Change
  Q1 FY2016 Q4 FY2015 Q1 FY2015 Q1 FY2016
vs.
Q4 FY2015
 Q1 FY2016
vs.
Q1 FY2015
  (In millions, except per share amounts and percentages)
New orders $2,275 $2,424 $2,273 (6)% -%
Net sales $2,257 $2,368 $2,359 (5)% (4)%
Gross margin 40.6% 40.5% 40.7% 0.1 points (0.1) points
Operating margin 15.7% 17.9% 19.4% (2.2) points (3.7) points
Net income $286 $336 $348 (15)% (18)%
Diluted earnings per share (EPS) $0.25 $0.28 $0.28 (11)% (11)%

        Change
Non-GAAP Adjusted Results Q1 FY2016 Q4 FY2015 Q1 FY2015 Q1 FY2016
vs.
Q4 FY2015
 Q1 FY2016
vs.
Q1 FY2015
  (In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin 42.4% 42.2% 42.3% 0.2 points 0.1 points
Non-GAAP adjusted operating margin 17.8% 19.3% 18.9% (1.5) points (1.1) points
Non-GAAP adjusted net income $302 $347 $338 (13)% (11)%
Non-GAAP adjusted diluted EPS $0.26 $0.29 $0.27 (10)% (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, 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 second quarter of fiscal 2016, Applied expects net sales to be up 5 percent to 10 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.30 to $0.34.

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.

First Quarter Reportable Segment Information

Silicon SystemsQ1 FY2016 Q4 FY2015 Q1 FY2015
      
 (In millions, except percentages)
New orders$1,275  $1,444  $1,426 
Foundry38% 35% 34%
DRAM29% 21% 34%
Flash22% 31% 18%
Logic and other11% 13% 14%
Net sales1,373  1,494  1,446 
Operating income265  318  307 
Operating margin19.3% 21.3% 21.2%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$312  $365  $350 
Non-GAAP adjusted operating margin22.7% 24.4% 24.2%

Applied Global ServicesQ1 FY2016 Q4 FY2015 Q1 FY2015
      
 (In millions, except percentages)
New orders$773  $761  $690 
Net sales626  637  583 
Operating income156  171  153 
Operating margin24.9% 26.8% 26.2%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$156  $170  $154 
Non-GAAP adjusted operating margin24.9% 26.7% 26.4%

DisplayQ1 FY2016 Q4 FY2015 Q1 FY2015
      
 (In millions, except percentages)
New orders$183  $195  $107 
Net sales213  191  275 
Operating income38  19  72 
Operating margin17.8% 9.9% 26.2%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income$38  $19  $73 
Non-GAAP adjusted operating margin17.8% 9.9% 26.5%

Energy and Environmental SolutionsQ1 FY2016 Q4 FY2015 Q1 FY2015
      
 (In millions, except percentages)
New orders$44  $24  $50 
Net sales45  46  55 
Operating income (loss)6  -  (4)
Operating margin13.3% -% (7.3)%
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income (loss)$4  $(1) $(3)
Non-GAAP adjusted operating margin8.9% (2.2)% (5.5)%

Backlog Information

Applied's backlog decreased 1% to $3.11 billion and included negative adjustments of $51 million. Backlog composition by reportable segment was as follows:

Silicon Systems51%
Applied Global Services30%
Display16%
Energy and Environmental Solutions3%

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 second quarter of fiscal 2016, 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-K 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
(In millions, except per share amounts) January 31,
 2016
 October 25,
 2015
 January 25,
 2015
Net sales $2,257  $2,368  $2,359 
Cost of products sold 1,341  1,409  1,400 
Gross profit 916  959  959 
Operating expenses:      
Research, development and engineering 374  363  351 
Marketing and selling 106  96  111 
General and administrative 82  77  117 
Gain on derivatives associated with terminated business combination -  -  (78)
Total operating expenses 562  536  501 
Income from operations 354  423  458 
Interest expense 42  32  23 
Interest income and other income, net 2  6  2 
Income before income taxes 314  397  437 
Provision for income taxes 28  61  89 
Net income $286  $336  $348 
Earnings per share:      
Basic and diluted $0.25  $0.28  $0.28 
Weighted average number of shares:      
Basic 1,146  1,182  1,224 
Diluted 1,154  1,190  1,240 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) January 31,
 2016
 October 25,
 2015
ASSETS    
Current assets:    
Cash and cash equivalents $2,962  $4,797 
Short-term investments 154  168 
Accounts receivable, net 1,625  1,739 
Inventories 1,835  1,833 
Other current assets 334  724 
Total current assets 6,910  9,261 
Long-term investments 996  946 
Property, plant and equipment, net 908  892 
Goodwill 3,302  3,302 
Purchased technology and other intangible assets, net 714  762 
Deferred income taxes and other assets 496  145 
Total assets $13,326  $15,308 
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Short-term debt $-  $1,200 
Accounts payable and accrued expenses 1,457  1,833 
Customer deposits and deferred revenue 850  765 
Total current liabilities 2,307  3,798 
Long-term debt 3,343  3,342 
Other liabilities 508  555 
Total liabilities 6,158  7,695 
Total stockholders' equity 7,168  7,613 
Total liabilities and stockholders' equity $13,326  $15,308 


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

(In millions)Three Months Ended
January 31,
 2016
 October 25,
 2015
 January 25,
 2015
Cash flows from operating activities:     
Net income$286  $336  $348 
Adjustments required to reconcile net income to cash provided by operating activities:     
Depreciation and amortization96  96  92 
Share-based compensation54  46  48 
Excess tax benefits from share-based compensation(10) (2) (39)
Deferred income taxes15  (159) 28 
Other10  (11) 8 
Net change in operating assets and liabilities(244) 165  (425)
Cash provided by operating activities207  471  60 
Cash flows from investing activities:     
Capital expenditures(68) (55) (49)
Proceeds from sales and maturities of investments241  200  140 
Purchases of investments(282) (202) (141)
Cash used in investing activities(109) (57) (50)
Cash flows from financing activities:     
Debt borrowings (repayments), net of issuance costs(1,205) 2,581  - 
Proceeds from common stock issuances and others, net2  45  - 
Common stock repurchases(625) (700) - 
Excess tax benefits from share-based compensation10  2  39 
Payments of dividends to stockholders(115) (119) (122)
Cash provided by (used in) financing activities(1,933) 1,809  (83)
Increase (decrease) in cash and cash equivalents(1,835) 2,223  (73)
Cash and cash equivalents - beginning of period4,797  2,574  3,002 
Cash and cash equivalents - end of period$2,962  $4,797  $2,929 
Supplemental cash flow information:     
Cash payments for income taxes$44  $149  $89 
Cash refunds from income taxes$5  $2  $3 
Cash payments for interest$34  $7  $39 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate Unallocated Expenses

(In millions) Q1 FY2016 Q4 FY2015 Q1 FY2015
Share-based compensation $54  $46  $48 
Certain items associated with terminated business combination -  -  20 
Gain on derivatives associated with terminated business combination, net -  -  (78)
Other unallocated expenses 57  39  80 
Total corporate $111  $85  $70 

Additional Information

  Q1 FY2016 Q4 FY2015 Q1 FY2015
New Orders and Net Sales by Geography            
(In $ millions) New
Orders
 Net
Sales
 New
Orders
 Net
Sales
 New
Orders
 Net
Sales
United States 369  293  282  301  411  369 
% of Total 16% 13% 12% 13% 18% 16%
Europe 156  138  155  172  148  153 
% of Total 7% 6% 6% 7% 6% 6%
Japan 109  334  452  278  242  243 
% of Total 5% 15% 19% 12% 11% 10%
Korea 373  268  207  239  546  536 
% of Total 17% 12% 8% 10% 24% 23%
Taiwan 574  637  846  758  545  556 
% of Total 25% 28% 35% 32% 24% 24%
Southeast Asia 232  90  100  143  85  92 
% of Total 10% 4% 4% 6% 4% 4%
China 462  497  382  477  296  410 
% of Total 20% 22% 16% 20% 13% 17%
             
Employees (In thousands)            
Regular Full Time 14.6  14.6  14.1 


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

  Three Months Ended
(In millions, except percentages) January 31,
 2016
 October 25,
 2015
 January 25,
 2015
Non-GAAP Adjusted Gross Profit      
Reported gross profit - GAAP basis $916  $959  $959 
Certain items associated with acquisitions1 42  42  40 
Inventory charges (reversals) related to restructuring3, 4 (1) 1  - 
Other significant gains, losses or charges, net5 -  (2) - 
Non-GAAP adjusted gross profit $957  $1,000  $999 
Non-GAAP adjusted gross margin 42.4% 42.2% 42.3%
Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $354  $423  $458 
Certain items associated with acquisitions1 48  47  46 
Acquisition integration costs -  -  1 
Gain on derivatives associated with terminated business combination, net -  -  (78)
Certain items associated with terminated business combination2 -  -  20 
Reversals related to restructuring, net3, 4 (1) (1) - 
Other significant gains, losses or charges, net5 -  (13) - 
Non-GAAP adjusted operating income $401  $456  $447 
Non-GAAP adjusted operating margin 17.8% 19.3% 18.9%
Non-GAAP Adjusted Net Income      
Reported net income - GAAP basis $286  $336  $348 
Certain items associated with acquisitions1 48  47  46 
Acquisition integration costs -  -  1 
Gain on derivatives associated with terminated business combination, net -  -  (78)
Certain items associated with terminated business combination2 -  -  20 
Reversals related to restructuring, net3, 4 (1) (1) - 
Impairment (gain on sale) of strategic investments, net (2) (2) 1 
Loss on early extinguishment of debt 5  -  - 
Other significant gains, losses or charges, net5 -  (13) - 
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items (29) (18) (17)
Income tax effect of non-GAAP adjustments (5) (2) 17 
Non-GAAP adjusted net income $302  $347  $338 

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 three months ended January 31, 2016 included a $1 million reversal of inventory charges related to cost reductions in the solar business.
  
4Results for the three months ended October 25, 2015 included a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans and $1 million of inventory charges related to cost reductions in the solar business.
  
5These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future.
  

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

  Three Months Ended
(In millions except per share amounts) January 31,
 2016
 October 25,
 2015
 January 25,
 2015
Non-GAAP Adjusted Earnings Per Diluted Share      
Reported earnings per diluted share - GAAP basis $0.25  $0.28  $0.28 
Certain items associated with acquisitions 0.04  0.04  0.03 
Certain items associated with terminated business combination -  -  0.01 
Gain on derivatives associated with terminated business combination, net -  -  (0.04)
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items (0.03) (0.02) (0.01)
Other significant gains, losses or charges, net -  (0.01) - 
Non-GAAP adjusted earnings per diluted share $0.26  $0.29  $0.27 
Weighted average number of diluted shares 1,154  1,190  1,240 

  


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

  Three Months Ended
(In millions, except percentages) January 31,
 2016
 October 25,
 2015
 January 25,
 2015
Silicon Systems Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $265  $318  $307 
Certain items associated with acquisitions1 47  47  43 
Non-GAAP adjusted operating income $312  $365  $350 
Non-GAAP adjusted operating margin 22.7% 24.4% 24.2%
AGS Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $156  $171  $153 
Certain items associated with acquisitions1 -  -  1 
Other significant gains, losses or charges, net4 -  (1) - 
Non-GAAP adjusted operating income $156  $170  $154 
Non-GAAP adjusted operating margin 24.9% 26.7% 26.4%
Display Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $38  $19  $72 
Certain items associated with acquisitions1 -  -  1 
Non-GAAP adjusted operating income $38  $19  $73 
Non-GAAP adjusted operating margin 17.8% 9.9% 26.5%
EES Non-GAAP Adjusted Operating Income (Loss)      
Reported operating income (loss) - GAAP basis $6  $-  $(4)
Certain items associated with acquisitions1 1  -  1 
Reversals related to restructuring, net2,3 (3) (1) - 
Non-GAAP adjusted operating income (loss) $4  $(1) $(3)
Non-GAAP adjusted operating margin 8.9% (2.2)% (5.5)%

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Results for the three months ended January 31, 2016 included $3 million of favorable adjustment of employee-related costs and $1 million reversal of inventory charges, partially offset by $1 million of fixed asset impairment charges related to cost reductions in the solar business.
  
3Results for the three months ended October 25, 2015 included a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans and $1 million of inventory charges related to cost reductions in the solar business.
  
4These items are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future.

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

 Three Months Ended
(In millions)January 31, 2016 October 25, 2015
    
Operating expenses - GAAP basis$562  $536 
Reversals related to restructuring, net-  2 
Certain items associated with acquisitions(6) (5)
Other significant gains, losses or charges, net-  11 
Non-GAAP adjusted operating expenses$556  $544 

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

 Three Months Ended
(In millions, except percentages)January 31, 2016
  
Provision for income taxes - GAAP basis (a)$28 
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items29 
Income tax effect of non-GAAP adjustments5 
Non-GAAP adjusted provision for income taxes (b)$62 
  
Income before income taxes - GAAP basis (c)$314 
Certain items associated with acquisitions48 
Reversals related to restructuring, net(1) 
Gain on sale of strategic investments, net(2) 
Loss on early extinguishment of debt5 
Non-GAAP adjusted income before income taxes (d)$364 
  
Effective income tax rate - GAAP basis (a/c)8.9%
  
Non-GAAP adjusted effective income tax rate (b/d)17.0%
 
HUG#1987030
February 18, 2016