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Applied Materials Announces Third Quarter 2019 Results

  • Quarterly revenue of $3.56 billion

  • GAAP EPS of $0.61 and non-GAAP EPS of $0.74

  • Returns $724 million to shareholders

SANTA CLARA, Calif., Aug. 15, 2019 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (AMAT) today reported results for its third quarter ended July 28, 2019.

Third Quarter Results

Applied generated revenue of $3.56 billion. On a GAAP basis, the company recorded gross margin of 43.7 percent, operating income of $802 million or 22.5 percent of net sales, and earnings per share (EPS) of $0.61.

On a non-GAAP adjusted basis, the company reported gross margin of 44.0 percent, operating income of $820 million or 23.0 percent of net sales, and EPS of $0.74.

The company returned $724 million to shareholders including $528 million in share repurchases and dividends of $196 million.

“Applied Materials is delivering solid financial performance in a market environment that remains challenging for the time being,” said Gary Dickerson, president and CEO. “We are excited about the company’s future opportunities and are fully funding our R&D programs to develop new products and capabilities that will accelerate customers’ roadmaps and underpin our growth in the years ahead.”

Quarterly Results Summary

Q3 FY2019

Q3 FY2018

Change

(In millions, except per share amounts and
percentages)

Net sales

$

3,562

$

4,162

(14)%

Gross margin

43.7

%

44.8

%

(1.1) points

Operating margin

22.5

%

26.3

%

(3.8) points

Net income

$

571

$

1,016

(44)%

Diluted earnings per share

$

0.61

$

1.01

(40)%

Non-GAAP Adjusted Results

Non-GAAP adjusted gross margin

44.0

%

45.9

%

(1.9) points

Non-GAAP adjusted operating margin

23.0

%

27.4

%

(4.4) points

Non-GAAP adjusted net income

$

692

$

1,048

(34)%

Non-GAAP adjusted diluted EPS

$

0.74

$

1.04

(29)%

Applied adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), as of the first day of fiscal 2019 using the full retrospective method. Applied also adopted Accounting Standards Update 2017-07, Compensation—Retirement Benefits, as of the first day of fiscal 2019 using the retrospective method. All prior periods included in the unaudited consolidated condensed balance sheet as of Oct. 28, 2018, and the unaudited consolidated condensed statements of operations and cash flows for the three and nine months ended July 29, 2018, were restated under the new standards.

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 fourth quarter of fiscal 2019, Applied expects net sales to be approximately $3.685 billion, plus or minus $150 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.72 to $0.80.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share and includes 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.

Third Quarter Reportable Segment Information

Semiconductor Systems

Q3 FY2019

Q3 FY2018

(In millions, except percentages)

Net sales

$

2,273

$

2,578

Foundry, logic and other

49

%

36

%

DRAM

27

%

25

%

Flash

24

%

39

%

Operating income

613

831

Operating margin

27.0

%

32.2

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

624

$

876

Non-GAAP adjusted operating margin

27.5

%

34.0

%



Applied Global Services

Q3 FY2019

Q3 FY2018

(In millions, except percentages)

Net sales

$

931

$

952

Operating income

259

280

Operating margin

27.8

%

29.4

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

259

$

280

Non-GAAP adjusted operating margin

27.8

%

29.4

%


Display and Adjacent Markets

Q3 FY2019

Q3 FY2018

(In millions, except percentages)

Net sales

$

339

$

616

Operating income

41

156

Operating margin

12.1

%

25.3

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

44

$

160

Non-GAAP adjusted operating margin

13.0

%

26.0

%

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 charges and any associated adjustments; impairments of assets, or investments; gain or loss on sale of strategic investments; tax effect of share-based compensation; certain income tax items and other discrete adjustments. Additionally, non-GAAP results exclude estimated discrete income tax expense items associated with changes to recent 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 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, our investment and growth strategies, our development of new products and technologies, our business outlook for the fourth quarter of fiscal 2019 and beyond, 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; global trade issues and changes in trade policies; 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; 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 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. (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

Nine Months Ended

(In millions, except per share amounts)

July 28,
2019

July 29,
2018

July 28,
2019

July 29,
2018

Net sales

$

3,562

$

4,162

$

10,854

$

12,946

Cost of products sold

2,005

2,298

6,102

7,086

Gross profit

1,557

1,864

4,752

5,860

Operating expenses:

Research, development and engineering

515

505

1,539

1,503

Marketing and selling

128

138

392

394

General and administrative

112

128

335

363

Total operating expenses

755

771

2,266

2,260

Income from operations

802

1,093

2,486

3,600

Interest expense

58

59

178

174

Interest and other income, net

38

43

121

95

Income before income taxes

782

1,077

2,429

3,521

Provision for income taxes

211

61

421

1,240

Net income

$

571

$

1,016

$

2,008

$

2,281

Earnings per share:

Basic

$

0.61

$

1.02

$

2.13

$

2.22

Diluted

$

0.61

$

1.01

$

2.11

$

2.20

Weighted average number of shares:

Basic

929

994

943

1,026

Diluted

937

1,005

950

1,039



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

July 28,
2019

October 28,
2018

ASSETS

Current assets:

Cash and cash equivalents

$

3,014

$

3,440

Short-term investments

547

590

Accounts receivable, net

2,373

2,323

Inventories

3,539

3,721

Other current assets

569

530

Total current assets

10,042

10,604

Long-term investments

1,650

1,568

Property, plant and equipment, net

1,513

1,407

Goodwill

3,399

3,368

Purchased technology and other intangible assets, net

170

213

Deferred income taxes and other assets

2,031

473

Total assets

$

18,805

$

17,633

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

2,355

$

2,721

Contract liabilities

1,430

1,201

Total current liabilities

3,785

3,922

Income taxes payable

1,253

1,254

Long-term debt

5,312

5,309

Other liabilities

339

303

Total liabilities

10,689

10,788

Total stockholders’ equity

8,116

6,845

Total liabilities and stockholders’ equity

$

18,805

$

17,633



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

(In millions)

Three Months Ended

Nine Months Ended

July 28,
2019

July 29,
2018

July 28,
2019

July 29,
2018

Cash flows from operating activities:

Net income

$

571

$

1,016

$

2,008

$

2,281

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

Depreciation and amortization

89

110

271

337

Share-based compensation

67

64

197

193

Deferred income taxes

8

22

57

94

Other

(10

)

(7

)

(19

)

4

Net change in operating assets and liabilities

62

(572

)

(93

)

(199

)

Cash provided by operating activities

787

633

2,421

2,710

Cash flows from investing activities:

Capital expenditures

(93

)

(133

)

(344

)

(457

)

Cash paid for acquisitions, net of cash acquired

(5

)

(28

)

(5

)

Proceeds from sales and maturities of investments

479

391

1,385

2,823

Purchases of investments

(543

)

(932

)

(1,370

)

(1,661

)

Cash provided by (used in) investing activities

(162

)

(674

)

(357

)

700

Cash flows from financing activities:

Proceeds from common stock issuances

73

56

Common stock repurchases

(528

)

(1,250

)

(1,903

)

(4,532

)

Tax withholding payments for vested equity awards

(3

)

(6

)

(83

)

(160

)

Payments of dividends to stockholders

(196

)

(199

)

(577

)

(410

)

Cash used in financing activities

(727

)

(1,455

)

(2,490

)

(5,046

)

Decrease in cash and cash equivalents

(102

)

(1,496

)

(426

)

(1,636

)

Cash and cash equivalents — beginning of period

3,116

4,870

3,440

5,010

Cash and cash equivalents — end of period

$

3,014

$

3,374

$

3,014

$

3,374

Supplemental cash flow information:

Cash payments for income taxes

$

221

$

64

$

453

$

281

Cash refunds from income taxes

$

2

$

10

$

20

$

51

Cash payments for interest

$

33

$

33

$

143

$

143



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)

Q3 FY2019

Q3 FY2018

Unallocated net sales

$

19

$

16

Unallocated cost of products sold and expenses

(63

)

(126

)

Share-based compensation

(67

)

(64

)

Total

$

(111

)

$

(174

)


Additional Information

Q3 FY2019

Q3 FY2018

Net Sales by Geography (In millions)

United States

552

348

% of Total

15

%

9

%

Europe

162

224

% of Total

5

%

5

%

Japan

556

700

% of Total

16

%

17

%

Korea

445

572

% of Total

12

%

14

%

Taiwan

596

506

% of Total

17

%

12

%

Southeast Asia

134

165

% of Total

4

%

4

%

China

1,117

1,647

% of Total

31

%

39

%

Employees (In thousands)

Regular Full Time

21.6

20.7



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

Three Months Ended

Nine Months Ended

(In millions, except percentages)

July 28,
2019

July 29,
2018

July 28,
2019

July 29,
2018

Non-GAAP Adjusted Gross Profit

Reported gross profit - GAAP basis

$

1,557

$

1,864

$

4,752

$

5,860

Certain items associated with acquisitions1

9

45

28

134

Non-GAAP adjusted gross profit

$

1,566

$

1,909

$

4,780

$

5,994

Non-GAAP adjusted gross margin

44.0

%

45.9

%

44.0

%

46.3

%

Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

802

$

1,093

$

2,486

$

3,600

Certain items associated with acquisitions1

13

49

41

147

Acquisition integration and deal costs

5

12

2

Non-GAAP adjusted operating income

$

820

$

1,142

$

2,539

$

3,749

Non-GAAP adjusted operating margin

23.0

%

27.4

%

23.4

%

29.0

%

Non-GAAP Adjusted Net Income

Reported net income - GAAP basis

$

571

$

1,016

$

2,008

$

2,281

Certain items associated with acquisitions1

13

49

41

147

Acquisition integration and deal costs

5

12

2

Impairment (gain on sale) of strategic investments, net

(14

)

(10

)

Loss (gain) on strategic investments, net

(8

)

(31

)

Income tax effect of share-based compensation2

13

(4

)

(13

)

Income tax effect of changes in applicable U.S. tax laws3

12

(24

)

1,089

Income tax effects related to amortization of intra-entity intangible asset transfers

115

56

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

(1

)

(29

)

75

(32

)

Income tax effect of non-GAAP adjustments4

(3

)

1

(2

)

(7

)

Non-GAAP adjusted net income

$

692

$

1,048

$

2,131

$

3,457


1

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

2

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

3

Charges to income tax provision related to a one-time transition tax and a decrease in U.S. deferred tax assets as a result of the recent U.S. tax legislation.

4

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

Nine Months Ended

(In millions, except per share amounts)

July 28,
2019

July 29,
2018

July 28,
2019

July 29,
2018

Non-GAAP Adjusted Earnings Per Diluted Share

Reported earnings per diluted share - GAAP basis

$

0.61

$

1.01

$

2.11

$

2.20

Certain items associated with acquisitions

0.01

0.05

0.04

0.13

Acquisition integration and deal costs

0.01

0.01

Impairment (gain on sale) of strategic investments, net

(0.01

)

(0.01

)

Loss (gain) on strategic investments, net

(0.01

)

(0.03

)

Income tax effect of share-based compensation

0.01

(0.01

)

Income tax effect of changes in applicable U.S. tax laws

0.01

(0.03

)

1.05

Income tax effects related to amortization of intra-entity intangible asset transfers

0.12

0.06

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

(0.03

)

0.08

(0.03

)

Non-GAAP adjusted earnings per diluted share

$

0.74

$

1.04

$

2.24

$

3.33

Weighted average number of diluted shares

937

1,005

950

1,039


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

Three Months Ended

Nine Months Ended

(In millions, except percentages)

July 28,
2019

July 29,
2018

July 28,
2019

July 29,
2018

Semiconductor Systems Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

613

$

831

$

1,823

$

2,847

Certain items associated with acquisitions1

11

45

32

137

Non-GAAP adjusted operating income

$

624

$

876

$

1,855

$

2,984

Non-GAAP adjusted operating margin

27.5

%

34.0

%

27.6

%

35.8

%

AGS Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

259

$

280

$

827

$

814

Acquisition integration costs

1

Non-GAAP adjusted operating income

$

259

$

280

$

827

$

815

Non-GAAP adjusted operating margin

27.8

%

29.4

%

28.7

%

29.3

%

Display and Adjacent Markets Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

41

$

156

$

198

$

456

Certain items associated with acquisitions1

2

4

9

10

Acquisition integration costs

1

1

1

Non-GAAP adjusted operating income

$

44

$

160

$

208

$

467

Non-GAAP adjusted operating margin

13.0

%

26.0

%

17.4

%

26.3

%


1

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

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)

July 28, 2019

Provision for income taxes - GAAP basis (a)

$

211

Income tax effects related to amortization of intra-entity intangible asset transfers

(115

)

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

1

Income tax effect of non-GAAP adjustments

3

Non-GAAP adjusted provision for income taxes (b)

$

100

Income before income taxes - GAAP basis (c)

$

782

Certain items associated with acquisitions

13

Acquisition integration and deal costs

5

Loss (gain) on strategic investments, net

(8

)

Non-GAAP adjusted income before income taxes (d)

$

792

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

27.0

%

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

12.6

%