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Applied Materials Announces First Quarter 2021 Results

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·16 min read
In this article:
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  • Record quarterly revenue of $5.16 billion, up 24 percent year over year

  • Quarterly GAAP EPS of $1.22 and record non-GAAP EPS of $1.39, up 27 percent and 42 percent year over year, respectively

  • Generated $1.42 billion in cash from operations

SANTA CLARA, Calif., Feb. 18, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its first quarter ended Jan. 31, 2021.

First Quarter Results

Applied generated revenue of $5.16 billion. On a GAAP basis, the company recorded gross margin of 45.5 percent, operating income of $1.28 billion or 24.9 percent of net sales, and earnings per share (EPS) of $1.22.

On a non-GAAP adjusted basis, the company reported gross margin of 45.9 percent, operating income of $1.50 billion or 29.0 percent of net sales, and EPS of $1.39.

The company generated $1.42 billion in cash from operations and paid dividends of $201 million to shareholders.

“In our first fiscal quarter, we’ve seen a continued acceleration of demand in our semiconductor business as major macro and industry trends fuel increasing consumption of silicon across a wide range of markets and applications,” said Gary Dickerson, president and CEO. “We have strong momentum across the company, as our broad portfolio and exposure to technology inflections, combined with the traction of our new products, put us in a great position to substantially outgrow our markets again in 2021 and beyond.”

Quarterly Results Summary

Q1 FY2021

Q1 FY2020

Change

(In millions, except per share amounts and percentages)

Net sales

$

5,162

$

4,162

24%

Gross margin

45.5

%

44.6

%

0.9 points

Operating margin

24.9

%

25.0

%

(0.1) points

Net income

$

1,130

$

892

27%

Diluted earnings per share

$

1.22

$

0.96

27%

Non-GAAP Adjusted Results

Non-GAAP adjusted gross margin

45.9

%

44.9

%

1.0 points

Non-GAAP adjusted operating margin

29.0

%

25.7

%

3.3 points

Non-GAAP adjusted net income

$

1,282

$

904

42%

Non-GAAP adjusted diluted EPS

$

1.39

$

0.98

42%

First quarter GAAP results included $152 million of severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees, which reduced earnings per share by $0.13.

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

In the second quarter of fiscal 2021, Applied expects net sales to be approximately $5.39 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.44 to $1.56.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share, includes the normalized tax benefit of share-based compensation of $0.01 per share and a net income tax benefit related to intra-entity intangible asset transfers of $0.03 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

First Quarter Reportable Segment Information

Semiconductor Systems

Q1 FY2021

Q1 FY2020

(In millions, except percentages)

Net sales

$

3,553

$

2,814

Foundry, logic and other

58

%

68

%

DRAM

17

%

15

%

Flash memory

25

%

17

%

Operating income

1,261

915

Operating margin

35.5

%

32.5

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

1,281

$

925

Non-GAAP adjusted operating margin

36.1

%

32.9

%


Applied Global Services

Q1 FY2021

Q1 FY2020

(In millions, except percentages)

Net sales

$

1,155

$

997

Operating income

332

278

Operating margin

28.7

%

27.9

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

340

$

278

Non-GAAP adjusted operating margin

29.4

%

27.9

%







Display and Adjacent Markets

Q1 FY2021

Q1 FY2020

(In millions, except percentages)

Net sales

$

411

$

332

Operating income

65

38

Operating margin

15.8

%

11.4

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

75

$

41

Non-GAAP adjusted operating margin

18.2

%

12.3

%

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted for the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring and severance charges and any associated adjustments; certain incremental expenses related to COVID-19; impairments of assets, or investments; gain or loss on sale of strategic investments; loss on early extinguishment of debt; certain income tax items and other discrete adjustments. On a non-GAAP basis, the tax effect related to share-based compensation is recognized ratably over the fiscal year. Additionally, non-GAAP results exclude estimated discrete income tax expense items associated with U.S. tax legislation. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of its performance and 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 on a consistent basis by excluding items that management does not believe are indicative of Applied's ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures 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 and related slide presentation 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 and demand drivers, technology transitions, our business and financial performance and market share positions, our capital allocation and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook for the second quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto on our operations and financial results, strategic acquisitions and investments, including the proposed acquisition of Kokusai Electric Corporation, 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; the effects of regional or global health epidemics, including the severity and duration of the ongoing COVID-19 pandemic; global trade issues and changes in trade and export license policies, including the recent rules and interpretations promulgated by U.S. Department of Commerce expanding export license requirements for certain products sold to certain entities in China; 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; acquisitions, investments and divestitures; changes in income tax laws; 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 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 leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. Learn more at www.appliedmaterials.com.

Contact:

Ricky Gradwohl (editorial/media) 408.235.4676
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,
2021

January 26,
2020

Net sales

$

5,162

$

4,162

Cost of products sold

2,813

2,304

Gross profit

2,349

1,858

Operating expenses:

Research, development and engineering

606

552

Marketing and selling

147

135

General and administrative

161

129

Severance and related charges

152

Total operating expenses

1,066

816

Income from operations

1,283

1,042

Interest expense

61

59

Interest and other income, net

18

22

Income before income taxes

1,240

1,005

Provision for income taxes

110

113

Net income

$

1,130

$

892

Earnings per share:

Basic

$

1.23

$

0.97

Diluted

$

1.22

$

0.96

Weighted average number of shares:

Basic

915

916

Diluted

925

927


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

January 31,
2021

October 25,
2020

ASSETS

Current assets:

Cash and cash equivalents

$

6,213

$

5,351

Short-term investments

410

387

Accounts receivable, net

3,045

2,963

Inventories

3,925

3,904

Other current assets

676

764

Total current assets

14,269

13,369

Long-term investments

1,601

1,538

Property, plant and equipment, net

1,638

1,604

Goodwill

3,479

3,466

Purchased technology and other intangible assets, net

140

153

Deferred income taxes and other assets

2,178

2,223

Total assets

$

23,305

$

22,353

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

2,932

$

3,138

Contract liabilities

1,572

1,321

Total current liabilities

4,504

4,459

Long-term debt, net of current portion

5,449

5,448

Income taxes payable

1,210

1,206

Other liabilities

669

662

Total liabilities

11,832

11,775

Total stockholders’ equity

11,473

10,578

Total liabilities and stockholders’ equity

$

23,305

$

22,353


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

(In millions)

Three Months Ended

January 31,
2021

January 26,
2020

Cash flows from operating activities:

Net income

$

1,130

$

892

Adjustments required to reconcile net income to cash provided by operating activities:

Depreciation and amortization

94

94

Severance and related charges

148

Share-based compensation

107

93

Deferred income taxes

28

30

Other

15

Net change in operating assets and liabilities

(86

)

(137

)

Cash provided by operating activities

1,421

987

Cash flows from investing activities:

Capital expenditures

(121

)

(102

)

Cash paid for acquisitions, net of cash acquired

(12

)

Proceeds from sales and maturities of investments

358

368

Purchases of investments

(441

)

(428

)

Cash used in investing activities

(216

)

(162

)

Cash flows from financing activities:

Proceeds from common stock issuances

15

Common stock repurchases

(200

)

Tax withholding payments for vested equity awards

(142

)

(153

)

Payments of dividends to stockholders

(201

)

(192

)

Cash used in financing activities

(343

)

(530

)

Increase in cash, cash equivalents and restricted cash equivalents

862

295

Cash, cash equivalents and restricted cash equivalents—beginning of period

5,466

3,129

Cash, cash equivalents and restricted cash equivalents—end of period

$

6,328

$

3,424

Reconciliation of cash, cash equivalents, and restricted cash equivalents

Cash and cash equivalents

$

6,213

$

3,424

Restricted cash equivalents included in deferred income taxes and other assets

115

Total cash, cash equivalents, and restricted cash equivalents

$

6,328

$

3,424

Supplemental cash flow information:

Cash payments for income taxes

$

110

$

82

Cash refunds from income taxes

$

19

$

1

Cash payments for interest

$

35

$

34


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)

Q1 FY2021

Q1 FY2020

Unallocated net sales

$

43

$

19

Unallocated cost of products sold and expenses

(167

)

(115

)

Share-based compensation

(107

)

(93

)

Severance and related charges

(144

)

Total

$

(375

)

$

(189

)

Additional Information

Q1 FY2021

Q1 FY2020

Net Sales by Geography (In millions)

United States

343

441

% of Total

6

%

10

%

Europe

299

153

% of Total

6

%

4

%

Japan

458

351

% of Total

9

%

8

%

Korea

1,289

508

% of Total

25

%

12

%

Taiwan

1,200

1,365

% of Total

23

%

33

%

Southeast Asia

190

72

% of Total

4

%

2

%

China

1,383

1,272

% of Total

27

%

31

%

Employees (In thousands)

Regular Full Time

24.2

22.3


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

Three Months Ended

(In millions, except percentages)

January 31,
2021

January 26,
2020

Non-GAAP Adjusted Gross Profit

Reported gross profit - GAAP basis

$

2,349

$

1,858

Certain items associated with acquisitions1

8

9

Certain incremental expenses related to COVID-192

12

Non-GAAP adjusted gross profit

$

2,369

$

1,867

Non-GAAP adjusted gross margin

45.9

%

44.9

%

Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,283

$

1,042

Certain items associated with acquisitions1

13

13

Acquisition integration and deal costs

24

13

Certain incremental expenses related to COVID-192

24

Severance and related charges3

152

Non-GAAP adjusted operating income

$

1,496

$

1,068

Non-GAAP adjusted operating margin

29.0

%

25.7

%

Non-GAAP Adjusted Net Income

Reported net income - GAAP basis

$

1,130

$

892

Certain items associated with acquisitions1

13

13

Acquisition integration and deal costs

24

13

Certain incremental expenses related to COVID-192

24

Severance and related charges3

152

Realized loss (gain) on strategic investments, net

(2

)

2

Unrealized loss (gain) on strategic investments, net

(6

)

2

Income tax effect of share-based compensation4

(29

)

(33

)

Income tax effects related to intra-entity intangible asset transfers

20

21

Resolution of prior years’ income tax filings and other tax items

(3

)

(1

)

Income tax effect of non-GAAP adjustments5

(41

)

(5

)

Non-GAAP adjusted net income

$

1,282

$

904


1

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

2

Temporary incremental employee compensation during the COVID-19 pandemic.

3

The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.

4

GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.

5

Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.


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

Three Months Ended

(In millions, except per share amounts)

January 31,
2021

January 26,
2020

Non-GAAP Adjusted Earnings Per Diluted Share

Reported earnings per diluted share - GAAP basis

$

1.22

$

0.96

Certain items associated with acquisitions

0.01

0.01

Acquisition integration and deal costs

0.02

0.01

Certain incremental expenses related to COVID-19

0.02

Severance and related charges

0.13

Income tax effect of share-based compensation

(0.03

)

(0.03

)

Income tax effects related to intra-entity intangible asset transfers

0.02

0.03

Non-GAAP adjusted earnings per diluted share

$

1.39

$

0.98

Weighted average number of diluted shares

925

927


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

Three Months Ended

(In millions, except percentages)

January 31,
2021

January 26,
2020

Semiconductor Systems Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,261

$

915

Certain items associated with acquisitions1

10

10

Acquisition integration costs

(2

)

Certain incremental expenses related to COVID-192

12

Non-GAAP adjusted operating income

$

1,281

$

925

Non-GAAP adjusted operating margin

36.1

%

32.9

%

AGS Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

332

$

278

Certain incremental expenses related to COVID-192

8

Non-GAAP adjusted operating income

$

340

$

278

Non-GAAP adjusted operating margin

29.4

%

27.9

%

Display and Adjacent Markets Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

65

$

38

Certain items associated with acquisitions1

1

3

Certain incremental expenses related to COVID-192

1

Severance and related charges3

8

Non-GAAP adjusted operating income

$

75

$

41

Non-GAAP adjusted operating margin

18.2

%

12.3

%


1

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

2

Temporary incremental employee compensation during the COVID-19 pandemic.

3

The severance and related charges related to workforce reduction actions globally across the Display and Adjacent Markets business.

Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.


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

Three Months
Ended

(In millions, except percentages)

January 31, 2021

Provision for income taxes - GAAP basis (a)

$

110

Income tax effect of share-based compensation

29

Income tax effects related to intra-entity intangible asset transfers

(20

)

Resolutions of prior years’ income tax filings and other tax items

3

Income tax effect of non-GAAP adjustments

41

Non-GAAP adjusted provision for income taxes (b)

$

163

Income before income taxes - GAAP basis (c)

$

1,240

Certain items associated with acquisitions

13

Acquisition integration and deal costs

24

Certain incremental expenses related to COVID-19

24

Severance and related charges

152

Realized loss (gain) on strategic investments, net

(2

)

Unrealized loss (gain) on strategic investments, net

(6

)

Non-GAAP adjusted income before income taxes (d)

$

1,445

Effective income tax rate - GAAP basis (a/c)

8.9

%

Non-GAAP adjusted effective income tax rate (b/d)

11.3

%