01—Abstract
Summary
Summary of the 10-K filed December 12, 2008. Cited figures are marked; the original filing is the authoritative source.
Applied Materials Inc. (AMAT) is a leading global supplier of Nanomanufacturing Technology solutions, serving the semiconductor, flat panel display, and solar industries.
For the fiscal year ended October 25, 2008, the company experienced a notable decline in net sales and net income compared to the previous year, largely attributed to weakened demand in the semiconductor industry amid a challenging global economic environment. The company's revenue streams are cyclical and highly dependent on capital equipment spending by its customers. Despite the macroeconomic headwinds, Applied Materials continued to invest significantly in Research, Development, and Engineering (RD&E), focusing on next-generation technologies for semiconductor fabrication, including advanced transistor designs and smaller process nodes.
The company also saw growth in its Display and Energy and Environmental Solutions segments, although these were impacted by market conditions. Looking ahead, management anticipated an unusually challenging fiscal year 2009 due to the ongoing financial crisis, leading to plans for a restructuring program to reduce costs and maintain financial flexibility. The company also temporarily suspended stock repurchases.
02—Key points
Key Highlights
- Net sales decreased by 16% to $8.1 billion in fiscal 2008, down from $9.7 billion in fiscal 2007, reflecting a slowdown in the semiconductor industry.
- Net income fell significantly to $961 million in fiscal 2008, compared to $1.7 billion in fiscal 2007, with diluted earnings per share dropping from $1.20 to $0.70.
- The company invested $1.1 billion (14% of net sales) in RD&E in fiscal 2008, underscoring its commitment to innovation in semiconductor technology, particularly for 45nm and below geometries.
- The backlog increased to $4.8 billion at the end of fiscal 2008, up from $3.7 billion in the prior year, boosted by acquisitions and new orders in emerging segments like solar.
- Applied Materials announced a restructuring program in November 2008, planning to reduce its global workforce by approximately 1,800 positions (12%) to manage costs in anticipation of a challenging fiscal year 2009.
- The company experienced significant order growth in the Display and Energy and Environmental Solutions segments, though these segments were also impacted by broader market conditions.
- Applied Materials temporarily suspended its stock repurchase program in November 2008 to preserve financial flexibility amidst deteriorating global economic and market conditions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Applied Materials kept $0.12.
- Revenue$8.13B100.0%
- Cost of revenue−$4.69B57.6%
- Gross profit$3.44B42.4%
- Operating costs−$2.09B25.7%
- Operating income$1.36B16.7%
- Interest, other & tax−$394.7M4.9%
- Net income$960.7M11.8%
Where FY2008 revenue went
$8.13B- Cost of revenue: $4.69B, 58% of revenue
- R&D: $1.10B, 14% of revenue
- Other operating costs: $983.3M, 12% of revenue
- Net income: $960.7M, 12% of revenue
- Interest, other & tax: $394.7M, 4.9% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed December 12, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $8.13B$9.73B | −16.5% |
| Cost of Revenue | $4.69B$5.24B | −10.6% |
| Gross Profit | $3.44B$4.49B | −23.4% |
| R&D Expenses | $1.10B$1.14B | −3.3% |
| Operating Expenses | $2.09B— | — |
| Operating Income | $1.36B$2.37B | −42.8% |
| Interest Expense | $20.51M$38.63M | −46.9% |
| Net Income | $960.75M$1.71B | −43.8% |
| EPS (Basic) | $0.71$1.22 | −41.8% |
| EPS (Diluted) | $0.70$1.20 | −41.7% |
| Shares Outstanding (Basic) | 1.35B1.41B | −3.7% |
| Shares Outstanding (Diluted) | 1.37B1.43B | −3.7% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decline in Applied Materials' financial performance in fiscal year 2008?
The primary driver for the decline in net sales and net income in fiscal year 2008 was the significant weakening of demand in the semiconductor industry, exacerbated by unfavorable global economic conditions and tightening credit markets. This led to reduced capital equipment spending by memory, logic, and foundry chip manufacturers.
How did Applied Materials address the challenging economic environment?
Applied Materials announced a significant restructuring program in November 2008, which included planned workforce reductions of approximately 1,800 employees (12%) to reduce costs. Additionally, the company temporarily suspended its stock repurchase program to maintain financial flexibility.
What are the company's key areas of focus for Research, Development, and Engineering (RD&E)?
Applied Materials continued to invest heavily in RD&E, focusing on developing advanced technologies for semiconductor fabrication. Key areas included systems for 45nm and below geometries, enabling faster transistors through strain engineering and high-k/metal gate technologies, and solutions for double patterning processes. The company also focused on developing products to reduce the cost-per-watt of solar energy.
How did the different business segments perform in fiscal year 2008?
The Silicon segment experienced a significant decline in orders and sales. The Applied Global Services segment saw a slight decrease in net sales due to lower factory utilization. The Display segment showed strong order growth earlier in the year but softened later, while the Energy and Environmental Solutions segment, including solar, experienced substantial growth in orders and sales, though it reported an operating loss due to increased R&D and operating costs.
06—Continue