Applied Materials Announces Results for Third Quarter of Fiscal 2008

August 12, 2008

-- Net Sales: $1.85 billion (28% decrease year over year; 14%
decrease quarter over quarter)

-- Net Income: $165 million (65% decrease year over year; 46%
decrease quarter over quarter)

-- EPS: $0.12 ($0.22 decrease year over year; $0.10 decrease
quarter over quarter)

-- New Orders: $2.03 billion (11% decrease year over year; 16%
decrease quarter over quarter)

SANTA CLARA, Calif.--(BUSINESS WIRE)--Aug. 12, 2008--Applied Materials, Inc. reported results for its third fiscal quarter ended July 27, 2008. Net sales were $1.85 billion, down 28 percent from $2.56 billion for the third quarter of fiscal 2007, and down 14 percent from $2.15 billion for the second quarter of fiscal 2008. Gross margin for the third quarter of fiscal 2008 was 40.2 percent, down from 47.5 percent for the third quarter of fiscal 2007, and down from 45.0 percent for the second quarter of fiscal 2008. Net income for the third quarter of fiscal 2008 was $165 million, or $0.12 per share, down from net income of $474 million, or $0.34 per share, for the third quarter of fiscal 2007, and down from net income of $303 million, or $0.22 per share, for the second quarter of fiscal 2008.

New orders of $2.03 billion for the third quarter of fiscal 2008 decreased 11 percent from $2.28 billion for the third quarter of fiscal 2007, and decreased 16 percent from $2.41 billion for the second quarter of fiscal 2008. Regional distribution of new orders for the third quarter of fiscal 2008 was: Japan 21 percent, North America 19 percent, Korea 17 percent, Southeast Asia and China 17 percent, Europe 16 percent, and Taiwan 10 percent. Backlog at the end of the third quarter of fiscal 2008 was $4.74 billion, compared to $4.59 billion at the end of the second quarter of fiscal 2008.

"Applied Materials delivered financial and operational performance that was in line with our quarter forecast during a difficult semiconductor industry environment," said Mike Splinter, president and CEO. "While our silicon business was down, revenues increased in our display, service and solar businesses. We made significant progress in our solar division during the quarter, substantially increasing the number of crystalline silicon systems shipped and enabling start-up production on the first four SunFab(TM) Thin Film lines at customer sites. We are focused on operational execution, and we are taking advantage of opportunities to expand our leadership with next-generation innovations in silicon, display and solar."

Non-GAAP net income for the third quarter of fiscal 2008 was $228 million, or $0.17 per share, compared to non-GAAP net income of $518 million, or $0.37 per share, for the third quarter of fiscal 2007, and $362 million or $0.26 per share for the second quarter of fiscal 2008. Non-GAAP adjustments are explained below and detailed in the accompanying Reconciliation of GAAP to Non-GAAP Results.

Results by reportable segment for the third quarter of fiscal 2008, the second quarter of fiscal 2008, and the third quarter of fiscal 2007 were:

   

Three Months Ended

 

Three Months Ended

 

Three Months Ended

 

 

July 27, 2008

 

April 27, 2008

 

July 29, 2007

   

New Orders

 

Net Sales

 

Operating
Income
(Loss)

 

New Orders

 

Net Sales

 

Operating
Income
(Loss)

 

New Orders

 

Net Sales

 

Operating
Income
(Loss)

(In millions)

                                   
Silicon   $ 793  

 

$756

  $ 172     $

1,061

 

$1,268

  $ 448     $

1,614

 

$

1,772

  $ 702  
Applied Global Services     541     607     145       602   599     159      

559

   

599

    155  
Display     374     311     103       493   198     59      

58

   

161

    34  
Energy and Environmental Solutions     322     174     (85 )     257   85     (71 )    

53

   

29

    (29 )

Effective in the first quarter of fiscal 2008, Applied changed its management reporting system for services, with all service results reported in the Applied Global Services segment. Fiscal 2007 segment information has been reclassified to conform to the fiscal 2008 presentation.

Non-GAAP net income and non-GAAP EPS, detailed in the accompanying Reconciliation of GAAP to Non-GAAP Results, exclude charges related to (i) equity-based compensation, (ii) certain items associated with acquisitions, including amortization of intangibles and inventory fair value adjustments on products sold, (iii) restructuring and asset impairments, (iv) certain costs associated with ceasing development of beamline implant products, and/or (v) the resolution of income tax audits and changes in tax credits. Management uses non-GAAP net income and non-GAAP EPS 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 that 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 net income or EPS prepared in accordance with GAAP.

Applied Materials will discuss its fiscal 2008 third quarter results, along with its outlook for the fourth quarter of fiscal 2008, on the earnings call today beginning at 1:30 p.m. Pacific Daylight Time. A webcast of the earnings call will be available at www.appliedmaterials.com.

This press release contains forward-looking statements, including statements regarding Applied’s performance, operational execution, products, strategic position and opportunities, and the industry outlook. Forward-looking statements may contain words such as “expect,” “believe,” “may,” “should,” “will,” “forecast” 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 nanomanufacturing technology products, which is subject to many factors, including global economic and market conditions, business and consumer spending, demand for electronic products and semiconductors, governmental renewable energy policies and incentives, and geopolitical uncertainties; customers’ utilization rates and capacity requirements, including capacity utilizing the latest technology; customers’ ability to acquire sufficient capital, obtain regulatory approvals and/or fulfill infrastructure requirements; variability of operating results among the company’s segments caused by differing conditions in the served markets; the successful implementation and effectiveness of initiatives to enhance global operations and efficiencies; the successful performance of acquired businesses and joint ventures; Applied’s ability to (i) develop, deliver and support a broad range of products, expand its markets and develop new markets, (ii) maintain effective cost controls and timely align its cost structure with business conditions, (iii) plan and manage its resources and production capability, including its supply chain, (iv) obtain and protect intellectual property rights in key technologies, and (v) attract, motivate and retain key employees; and other risks described in Applied Materials’ SEC filings, including its reports on Forms 10-K, 10-Q and 8-K. 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.

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.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 

 

  Three Months Ended Nine Months Ended
 
    July 27, July 29,   July 27,   July 29,

(In thousands, except per share amounts)

 

2008

2007   2008   2007
       
Net sales  

$

1,848,168

 

$

2,560,984

   

$

6,085,563

 

$

7,367,812

Cost of products sold     1,105,854     1,344,594       3,441,440     3,952,274
Gross margin     742,314     1,216,390       2,644,123     3,415,538
       
Operating expenses:                  
Research, development and engineering     268,559     292,584       828,900     871,195
Marketing and selling     115,944     115,969       359,271     334,988
General and administrative     129,341     134,359       367,352     375,561
Restructuring and asset impairments     138     1,616       49,634     23,382
Income from operations     228,332     671,862       1,038,966     1,810,412
       
Pre-tax loss of equity method investment     6,308     7,348       25,660     17,209
Interest expense     4,859     10,075       15,660     29,388
Interest income     25,399     32,468       88,383     96,593
Income before income taxes     242,564     686,907       1,086,029     1,860,408
       
Provision for income taxes     77,796     213,392       356,378     571,973
Net income  

$

164,768

 

$

473,515

   

$

729,651

 

$

1,288,435

       
Earnings per share:                  
Basic  

$

0.12

 

$

0.34

   

$

0.54

 

$

0.92

Diluted  

$

0.12

 

$

0.34

   

$

0.53

 

$

0.91

       

Weighted average number of shares:

                 
Basic     1,350,526     1,385,519       1,359,492     1,397,890
Diluted     1,367,557     1,407,264       1,375,656     1,415,720

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

 

(In thousands)

 

July 27,

2008

 

October 28,

2007

ASSETS        
 
Current assets:        
Cash and cash equivalents   $ 1,140,532   $ 1,202,722  
Short-term investments     1,157,143     1,166,857  
Accounts receivable, net     1,581,213     2,049,427  
Inventories     1,853,316     1,313,237  
Deferred income taxes     438,167     426,471  
Income taxes receivable     72,717   -  
Other current assets     380,787     448,879  
Total current assets     6,623,875     6,607,593  
     
Long-term investments     1,426,631     1,362,425  
Property, plant and equipment     2,804,742     2,782,204  
Less: accumulated depreciation and amortization     (1,714,280)     (1,730,962 )
Net property, plant and equipment     1,090,462     1,051,242  
     
Goodwill, net     1,175,777     1,006,410  
Purchased technology and other intangible assets, net     419,756     373,178  
Equity method investment     89,400     115,060  
Deferred income taxes and other assets     172,540     146,370  
Total assets   $ 10,998,441   $ 10,662,278  
 
LIABILITIES AND STOCKHOLDERS' EQUITY        
 
Current liabilities:        
Current portion of long-term debt   $ 981   $ 2,561  
Accounts payable and accrued expenses     2,790,984     2,221,516  
Income taxes payable     119,411     157,549  
Total current liabilities     2,911,376     2,381,626  
     
Long-term debt     201,926     202,281  
Other liabilities     344,344     256,962  
Total liabilities     3,457,646     2,840,869  
     
Stockholders' equity:        
Common stock     13,417     13,857  
Additional paid-in capital     5,060,833     4,658,832  
Retained earnings     11,350,019     10,863,291  
Treasury stock     (8,875,052)     (7,725,924 )

Accumulated other comprehensive income/(loss)

    (8,422)     11,353  
Total stockholders' equity     7,540,795     7,821,409  
Total liabilities and stockholders' equity   $ 10,998,441   $ 10,662,278  
 

  APPLIED MATERIALS, INC.

 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

 

Nine Months Ended

(In thousands)

July 27,

2008

 

July 29,

2007

 
Cash flows from operating activities:      
Net income $ 729,651     $ 1,288,435  
Adjustments required to reconcile net income to cash provided by operating activities:      
Depreciation and amortization   240,039       187,310  
Loss on fixed asset retirements   27,880       15,961  
Restructuring and asset impairments   49,634       23,382  
Deferred income taxes   (60,886 )     (6,234 )
Excess tax benefits from equity-based compensation plans   (5,406 )     (16,990 )
Acquired in-process research and development expense  

-

      4,900  
Net recognized (gain) loss on investments   (1,244 )     5,097  
Pretax loss of equity-method investment   25,660       17,209  
Equity-based compensation   135,165       130,308  
Changes in operating assets and liabilities, net of amounts acquired:      
Accounts receivable, net   534,104       (189,308 )
Inventories   (504,555 )     46,331  
Other current assets   77,593       (36,810 )
Other assets   (4,383 )     3,019  
Accounts payable and accrued expenses   402,924       129,120  
Income taxes   (66,603 )     (78,212 )
Other liabilities   4,578       8,380  
Cash provided by operating activities   1,584,151       1,531,898  
Cash flows from investing activities:      
Capital expenditures   (209,512 )     (204,236 )
Cash paid for acquisitions, net of cash acquired   (235,324 )     (136,828 )
Proceeds from disposition of assets held for sale  

-

      23,358  
Proceeds from sales and maturities of investments   2,162,900       2,114,602  
Purchases of investments   (2,257,097 )     (2,376,791 )
Cash used in investing activities   (539,033 )     (579,895 )
Cash flows from financing activities:      
Short-term debt repayments   (1,854 )     (250 )
Proceeds from common stock issuances   334,575       436,443  
Common stock repurchases   (1,199,984 )     (931,996 )
Excess tax benefits from equity-based compensation plans   5,406       16,990  
Payment of dividends to stockholders   (245,559 )     (222,537 )
Cash used in financing activities   (1,107,416 )     (701,350 )
Effect of exchange rate changes on cash and cash equivalents   108       559  

Increase/(decrease) in cash and cash equivalents

  (62,190 )     251,212  
Cash and cash equivalents — beginning of period   1,202,722       861,463  
Cash and cash equivalents — end of period $ 1,140,532     $ 1,112,675  
Supplemental cash flow information:      
Cash payments for income taxes $ 349,914     $ 653,351  
Cash payments for interest $ 7,243     $ 14,081  
 

APPLIED MATERIALS, INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

 
   

Three Months Ended

 

Nine Months Ended

(In thousands, except per share amounts)

 

July 27,

2008

April 27,

2008

July 29,

2007

 

July 27,

2008

 

July 29,

2007

                     
Non-GAAP Net Income                    
     
Reported net income (GAAP basis)   $ 164,768     $ 302,507     $ 473,515     $ 729,651     $ 1,288,435  
Equity-based compensation expensex     46,121       50,322       47,485       135,165       130,307  
Certain items associated with acquisitions (1)     41,109       31,144       18,911       103,291       56,016  
Restructuring and asset impairments (2,3,4)     138       510       1,616       49,634       23,382  
Costs associated with ceasing development of                    
beamline implant products (5)     156       259       6,373       1,436       56,672  
Resolution of audits of prior years' income                    
tax filings(6)   -     -       (6,379 )   -       (36,242 )
Income tax effect of non-GAAP adjustments     (24,601 )     (23,142 )     (23,137 )     (85,069 )     (85,810 )
     
Non-GAAP net income   $ 227,691     $ 361,600     $ 518,384     $ 934,108     $ 1,432,760  
     
Non-GAAP Net Income Per Diluted Share                    
     
Reported net income per diluted share                    
(GAAP basis)   $ 0.12     $ 0.22     $ 0.34     $ 0.53     $ 0.91  
Equity-based compensation expense     0.02       0.03       0.02       0.07       0.07  
Certain items associated with acquisitions     0.02       0.02       0.01       0.05       0.03  
Restructuring and asset impairments   -  

-

  -       0.02       0.01  
Costs associated with ceasing development                    
of beamline implant products   -     -     -     -       0.03  
Resolution of audits of prior years' income                    
tax filings   -     -     -     -       (0.03 )
     
Non-GAAP net income - per diluted share   $ 0.17     $ 0.26     $ 0.37     $ 0.68     $ 1.01  
     
Shares used in diluted shares calculation     1,367,557       1,373,314       1,407,264       1,375,656       1,415,720  
   

1 Incremental charges attributable to acquisitions consisting of inventory fair value adjustments on products sold and amortization of purchased intangible assets. Results for the nine months ended July 29, 2007 included an in-process research and development charge of $5 million associated with the acquisition of the software division of Brooks Automation, Inc. in the second fiscal quarter of 2007.

2 Results for the nine months ended July 27, 2008 included restructuring charges of $38 million associated with a global cost reduction plan.

3 Results for the fiscal quarters ended July 27, 2008, April 27, 2008 and July 29, 2007 included restructuring and asset impairment charges of $138,000, $510,000 and $2 million, respectively, associated with ceasing development of beamline implant products. Results for the nine months ended July 27, 2008 and July 29, 2007 included restructuring and asset impairment charges of $12 million and $27 million, respectively, associated with ceasing development of beamline implant products.

4 Results for the nine months ended July 29, 2007 included a net benefit of $3 million from the sale of the Hillsboro, Oregon facility.

5 Results for the fiscal quarters ended July 27, 2008, April 27, 2008 and July 29, 2007 included other operating charges of $156,000, $259,000, and $6 million, respectively, associated with ceasing development of beamline implant products. Results for the nine months ended July 27, 2008 and July 29, 2007 included other operating charges of $1 million and $57 million, respectively, associated with ceasing development of beamline implant products.

6 Results for the nine months ended July 29, 2007 consisted of a $30 million benefit from the resolution of audits of prior years’ income tax filings and a $6 million benefit related to the retroactive reinstatement to January 1, 2006 of the research and development tax credit.

Contacts

Applied Materials, Inc.
Robert Friess, 408-986-7977 (investment community)
David Miller, 408-563-9582 (editorial/media)

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