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Applied Materials Announces First Quarter Results

  • Net sales and non-GAAP EPS up sequentially and in high end of guidance
  • Silicon systems net sales up 19% sequentially reflecting strong customer demand for the company's latest technologies for advanced transistors and NAND memory
  • Prepares for planned merger with Tokyo Electron

SANTA CLARA, Calif., February 12, 2014 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in manufacturing solutions for the semiconductor, display and solar industries, today reported results for its first quarter of fiscal 2014 ended January 26, 2014.

Applied generated orders of $2.29 billion, up 9 percent from the prior quarter led by demand for Silicon Systems Group products. Net sales were $2.19 billion, up 10 percent sequentially. Non-GAAP adjusted gross margin increased to 42.5 percent while non-GAAP adjusted operating income grew 18 percent sequentially to $380 million or 17.4 percent of net sales. Non-GAAP adjusted net income grew 22 percent sequentially to $279 million or 23 cents per diluted share. The company recorded GAAP gross margin of 40.7 percent, operating income of $330 million or 15.1 percent of net sales, and net income of $253 million or 21 cents per diluted share.

"In our first fiscal quarter, Applied Materials delivered earnings near the high end of our guidance range, while demonstrating momentum in revenue, orders and market share," said Gary Dickerson, Chief Executive Officer.  "This performance reflects healthy investment by our semiconductor and display customers and major technology trends that are playing to our strengths in precision materials engineering."

Quarterly Results Summary

GAAP Results Q1 FY2014 Q4 FY2013 Q1 FY2013
Net sales $2.19 billion $1.99 billion $1.57 billion
Operating income $330 million $211 million $39 million
Net income $253 million $183 million $34 million
Diluted earnings per share (EPS) $0.21 $0.15 $0.03
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income $380 million $323 million $112 million
Non-GAAP adjusted net income $279 million $228 million $69 million
Non-GAAP adjusted diluted EPS $0.23 $0.19 $0.06

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain acquisition-related costs; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of facilities and strategic investments; 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.

First Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.57 billion, up 13 percent, with growth in foundry and flash partially offset by decreases in logic/other and DRAM. Net sales increased 19 percent to $1.48 billion. Non-GAAP adjusted operating income increased to $357 million or 24.1 percent of net sales. GAAP operating income increased to $314 million or 21.2 percent of net sales. New order composition was: foundry 60 percent; flash 27 percent; logic/other 8 percent; and DRAM 5 percent.

Applied Global Services (AGS) orders were $597 million, up 9 percent, primarily due to growth in 200mm equipment and services. Net sales of $507 million were down 6 percent. Non-GAAP adjusted operating income increased to $126 million or 24.9 percent of net sales. GAAP operating income increased to $125 million or 24.7 percent of net sales.

Display orders of $79 million were down 31 percent, while net sales declined slightly to $159 million. Non-GAAP adjusted operating income increased to $27 million or 17.0 percent of net sales. GAAP operating income increased to $26 million or 16.4 percent of net sales.

Energy and Environmental Solutions (EES) orders of $40 million were flat. Net sales declined 9 percent to $40 million. EES had a non-GAAP adjusted operating loss of $10 million and a GAAP operating loss of $11 million.

Backlog grew 3 percent to $2.44 billion including negative adjustments of $32 million, primarily related to currency adjustments. Backlog composition by segment was:  SSG 56 percent; AGS 27 percent; Display 12 percent; and EES 5 percent.

Business Outlook

For the second quarter of fiscal 2014, Applied expects net sales to be up 3 percent to 10 percent from the previous quarter. Non-GAAP adjusted diluted EPS is expected to be in the range of 25 cents to 29 cents.

Applied's second quarter non-GAAP adjusted diluted EPS outlook excludes known charges related to completed acquisitions and integration costs of 3 cents. The company's second quarter business outlook 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 Applied's performance, momentum and opportunities; industry trends; and its business outlook for the second quarter of fiscal 2014. These statements and their underlying assumptions 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, end-demand for electronic products and semiconductors, and customers' new technology and capacity requirements; the timing and nature of technology transitions; the concentrated nature of Applied's customer base; Applied's ability to (i) develop, deliver and support a broad range of products and expand its markets, (ii) achieve the objectives of operational and strategic initiatives, (iii) obtain and protect intellectual property rights in key technologies, (iv) attract, motivate and retain key employees, (v) successfully complete the announced business combination and realize expected benefits and synergies, and (vi) accurately forecast future results, which depends on multiple assumptions related to, without limitation, market conditions, customer requirements and business needs; and other risks described in Applied's SEC filings, including its most recent Forms 10-K 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.

About Applied Materials

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in providing innovative equipment, services and software to enable the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products. 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 26,
2014
October 27,
2013
January 27,
2013
Net sales $ 2,190 $ 1,988 $ 1,573
Cost of products sold 1,299 1,193 991
Gross margin 891 795 582
Operating expenses:
   Research, development and engineering 356 338 304
   Marketing and selling 109 99 105
   General and administrative 89 117 125
  Restructuring charges and asset impairments       7 30 9
Total operating expenses 561 584 543
Income from operations 330 211 39
Impairment of strategic investments 3 1 -
Interest expense 25 24 24
Interest and other income, net 13 8 3
Income before income taxes 315 194 18
Provision (benefit) for income taxes 62 11 (16 )
Net income $ 253 $ 183 $ 34
Earnings per share:
   Basic and diluted $ 0.21 $ 0.15 $ 0.03
Weighted average number of shares:
   Basic 1,206 1,204 1,198
   Diluted 1,225 1,222 1,212

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) January 26, October 27,
2014 2013
ASSETS
Current assets:
   Cash and cash equivalents $ 2,144 $ 1,711
   Short-term investments 145 180
   Accounts receivable, net 1,510 1,633
   Inventories 1,533 1,413
   Other current assets 682 705
Total current assets 6,014 5,642
Long-term investments 833 1,005
Property, plant and equipment, net 846 850
Goodwill 3,294 3,294
Purchased technology and other intangible assets, net      1,057 1,103
Deferred income taxes and other assets 155 149
Total assets $ 12,199 $ 12,043
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses $ 1,576 $ 1,649
   Customer deposits and deferred revenue 901 794
Total current liabilities 2,477 2,443
Long-term debt 1,946 1,946
Other liabilities 535 566
Total liabilities 4,958 4,955
Total stockholders' equity 7,241 7,088
Total liabilities and stockholders' equity $ 12,199 $ 12,043

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

(In millions) Three Months Ended
January 26, October 27, January 27,
2014 2013 2013
Cash flows from operating activities:
Net income $ 253 $ 183 $ 34
Adjustments required to reconcile net income to cash provided by operating activities:
 Depreciation and amortization 94 98 106
Restructuring charges and asset impairments 7 30 9
Unrealized loss (gain) on derivative associated with announced business combination (24 ) 7 -
Share-based compensation 46 41 42
Other (16 ) 11 (78 )
      Net change in operating assets and liabilities 12 (351 ) (97 )
Cash provided by operating activities 372 19 16
Cash flows from investing activities:
   Capital expenditures (48 ) (50 ) (49 )
   Proceeds from sales and maturities of investments 364 276 445
   Purchases of investments (163 ) (169 ) (143 )
Cash provided by investing activities 153 57 253
Cash flows from financing activities:
   Proceeds from common stock issuances and others 28 57 18
   Common stock repurchases - (47 ) (48 )
   Payments of dividends to stockholders (120 ) (120 ) (108 )
Cash used in financing activities (92 ) (110 ) (138 )
Increase (decrease) in cash and cash equivalents 433 (34 ) 131
Cash and cash equivalents - beginning of period 1,711 1,745 1,392
Cash and cash equivalents - end of period $ 2,144 $ 1,711 $ 1,523
Supplemental cash flow information:
   Cash payments for income taxes $ 26 $ 12 $ 32
   Cash refunds from income taxes $ 9 $ 35 $ 65
   Cash payments for interest $ 39 $ 7 $ 39

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

Q1 FY2014 Q4 FY2013 Q1 FY2013
(In millions) New Net Operating New Net Operating New Net Operating
Orders Sales Income Orders Sales Income Orders Sales Income
(Loss) (Loss) (Loss)
SSG $ 1,569 $ 1,484 $ 314 $ 1,390 $ 1,243 $ 213 $ 1,363 $ 969 $ 134
AGS 597 507 125 548 538 115 544 471 89
Display 79 159 26 114 163 19 138 87 3
EES 40 40 (11 ) 40 44 (30 ) 68 46 (54 )
Corporate - - (124 ) - - (106 ) - - (133 )
Consoli-
dated
$ 2,285 $ 2,190 $ 330 $ 2,092 $ 1,988 $ 211 $ 2,113 $ 1,573 $ 39

Corporate Unallocated Expenses

(In millions) Q1 FY2014 Q4 FY2013 Q1 FY2013
Restructuring charges and asset impairments $ 7 $ 23 $ 4
Share-based compensation 46 41 42
Other unallocated expenses 71 42 87
Corporate $ 124 $ 106 $ 133

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information 

Q1 FY2014 Q4 FY2013 Q1 FY2013
New Orders and Net Sales by Geography
(In $ millions) New
Orders
Net
Sales
New
Orders
Net
Sales
New
Orders
Net
Sales
United States 403 280 261 357 391 401
   % of Total 18 % 13 % 12 % 18 % 19 % 25 %
Europe 119 164 203 242 134 119
   % of Total 5 % 7 % 10 % 12 % 6 % 8 %
Japan 163 164 117 276 181 98
   % of Total 7 % 8 % 6 % 14 % 9 % 6 %
Korea 240 201 209 231 198 205
   % of Total 11 % 9 % 10 % 12 % 9 % 13 %
Taiwan 984 705 721 589 906 565
   % of Total 43 % 32 % 34 % 30 % 43 % 36 %
Southeast Asia 50 87 95 89 65 58
   % of Total 2 % 4 % 5 % 4 % 3 % 4 %
China 326 589 486 204 238 127
   % of Total 14 % 27 % 23 % 10 % 11 % 8 %
Employees (In thousands)
Regular Full Time 13.6 13.7 13.7

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

Three Months Ended
(In millions, except percentages and per share amounts) January 26, October 27, January 27,
2014 2013 2013
Non-GAAP Adjusted Gross Margin
Reported gross margin - GAAP basis $ 891 $ 795 $ 582
Certain items associated with acquisitions(1) 39 40 43
Acquisition integration and deal costs - - 1
Non-GAAP adjusted gross margin $ 930 $ 835 $ 626
Non-GAAP adjusted gross margin percent (% of net sales) 42.5 % 42.0 % 39.8 %
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 330 $ 211 $ 39
Certain items associated with acquisitions(1) 45 47 54
Acquisition integration and deal costs 11 11 10
Unrealized loss (gain) on derivative associated with announced business combination (24 ) 7 -
Certain items associated with announced business combination(2) 11 17 -
Restructuring charges and asset impairments(3), (4), (5) 7 30 9
Non-GAAP adjusted operating income $ 380 $ 323 $ 112
Non-GAAP adjusted operating margin percent (% of net sales) 17.4 % 16.2 % 7.1 %
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis $ 253 $ 183 $ 34
Certain items associated with acquisitions(1) 45 47 54
Acquisition integration and deal costs 11 11 10
Unrealized loss (gain) on derivative associated with announced business combination (24 ) 7 -
Certain items associated with announced business combination(2) 11 17 -
Restructuring charges and asset impairments(3), (4), (5) 7 30 9
Impairment (gain on sale) of strategic investments, net (5 ) (3 ) -
Reinstatement of federal R&D tax credit - - (10 )
Resolution of prior years' income tax filings and other tax items (15 ) (10 ) (11 )
Income tax effect of non-GAAP adjustments (4 ) (54 ) (17 )
Non-GAAP adjusted net income $ 279 $ 228 $ 69

1 These items are incremental charges attributable to completed acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.
2 These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration costs.
3 Results for the three months ended January 26, 2014 included employee-related costs of $7 million related to the restructuring program announced on October 3, 2012.
4 Results for the three months ended October 27, 2013 included $27 million of employee-related costs related to the restructuring program announced on October 3, 2012, and restructuring and asset impairment charges of $7 million related to the restructuring program announced on May 10, 2012, partially offset by a favorable adjustment of $4 million in restructuring charges related to other restructuring plans.
5 Results for the three months ended January 27, 2013 included $4 million of employee-related costs related to the restructuring program announced on October 3, 2012, asset impairment charges of $3 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.

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

Three Months Ended
(In millions except per share amounts) January 26,
2014
October 27,
2013
January 27,
2013
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis $ 0.21 $ 0.15 $ 0.03
Certain items associated with acquisitions 0.03 0.03 0.03
Acquisition integration and deal costs 0.01 - 0.01
Unrealized gain on derivative associated with announced business combination (0.01 ) - -
Certain items associated with announced business combination - 0.01 -
Restructuring charges and asset impairments - 0.01 0.01
Reinstatement of federal R&D tax credit and resolution of prior years' income tax filings and other tax items (0.01 ) (0.01 ) (0.02 )
Non-GAAP adjusted earnings per diluted share $ 0.23 $ 0.19 $ 0.06
Weighted average number of diluted shares 1,225 1,222 1,212

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

Three Months Ended
(In millions, except percentages) January 26,
2014
October 27,
2013
January 27,
2013
SSG Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 314 $ 213 $ 134
Certain items associated with acquisitions(1) 42 44 44
Acquisition integration and deal costs, net 1 1 1
Restructuring charges and asset impairments(3) - - 1
Non-GAAP adjusted operating income $ 357 $ 258 $ 180
Non-GAAP adjusted operating margin percent (% of net sales) 24.1 % 20.8 % 18.6 %
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 125 $ 115 $ 89
Certain items associated with acquisitions(1) 1 1 1
Restructuring charges and asset impairments(3) - - 1
Non-GAAP adjusted operating income $ 126 $ 116 $ 91
Non-GAAP adjusted operating margin percent (% of net sales) 24.9 % 21.6 % 19.3 %
Display Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis $ 26 $ 19 $ 3
Certain items associated with acquisitions(1) 1 1 2
Non-GAAP adjusted operating income $ 27 $ 20 $ 5
Non-GAAP adjusted operating margin percent (% of net sales) 17.0 % 12.3 % 5.7 %
EES Non-GAAP Adjusted Operating Loss
Reported operating loss - GAAP basis $ (11 ) $ (30 ) $ (54 )
Certain items associated with acquisitions(1) 1 1 7
Restructuring charges and asset impairments(2), (3) - 7 3
Non-GAAP adjusted operating loss $ (10 ) $ (22 ) $ (44 )
Non-GAAP adjusted operating margin percent (% of net sales) (25.0 )% (50.0 )% (95.7 )%

1 These items are incremental charges attributable to completed acquisitions, consisting of inventory fair value adjustments on products sold, and amortization of purchased intangible assets.
2 Results for the three months ended October 27, 2013 included restructuring and asset impairment charges of $7 million related to the restructuring program announced on May 10, 2012.
3 Results for the three months ended January 27, 2013 included asset impairment charges of $3 million related to the restructuring program announced on May 10, 2012 and severance charges of $2 million related to the integration of Varian.

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES

Three Months Ended
(In millions) January 26, 2014 October 27, 2013
Operating expenses - GAAP basis $ 561 $ 584
Unrealized gain (loss) on derivative associated with announced business combination 24 (7 )
Restructuring charges and asset impairments (7 ) (30 )
Certain items associated with acquisitions (6 ) (7 )
Acquisition integration costs (11 ) (11 )
Certain items associated with announced business combination (11 ) (17 )
Non-GAAP adjusted operating expenses $ 550 $ 512

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

Three Months Ended
(In millions, except percentages) January 26, 2014
Provision for income taxes - GAAP basis (a) $ 62
Resolutions of prior years' income tax filings and other tax items 15
Income tax effect of non-GAAP adjustments 4
Non-GAAP adjusted provision for income taxes (b) $ 81
Income before income taxes - GAAP basis (c) $ 315
Certain items associated with acquisitions 45
Restructuring charges and asset impairments 7
Acquisition integration costs 11
Unrealized gain on derivative associated with announced business combination (24 )
Certain items associated with announced business combination 11
Gain on sale strategic investments, net (5 )
Non-GAAP adjusted income before income taxes (d) $ 360
Effective income tax rate - GAAP basis (a/c) 19.7 %
Non-GAAP adjusted effective income tax rate (b/d) 22.5 %

HUG#1761060
February 12, 2014