10-QPeriod: Q3 FY1999

APPLIED MATERIALS INC /DE Quarterly Report for Q3 Ended Aug 1, 1999

Filed September 14, 1999For Securities:AMAT

Summary

Applied Materials, Inc. (AMAT) has demonstrated a strong rebound in its financial performance, particularly in the third fiscal quarter ending August 1, 1999. Net sales experienced a significant 62% increase year-over-year, reaching $1.43 billion, driven by a broad-based recovery in the semiconductor industry. This recovery is attributed to robust consumer demand for electronics and communication products, prompting semiconductor manufacturers to increase capital expenditures for advanced technology and capacity expansion. The company also reported record new orders of $1.5 billion in the latest quarter, indicating sustained demand. Profitability also saw substantial improvement, with net income surging to $244.4 million for the three months ended August 1, 1999, a marked increase from $47.5 million in the prior year's comparable period. This enhanced performance is supported by improved gross margins (48.7% in Q3 FY99 vs. 44.6% in Q3 FY98) due to higher business volumes and successful operational efficiency programs. The company maintains a healthy financial position with $2.3 billion in cash, cash equivalents, and short-term investments, and a strong current ratio of 3.1:1, suggesting ample liquidity to navigate industry cycles and invest in future growth initiatives.

Key Highlights

  • 1Significant year-over-year revenue growth: Net sales increased by 62% to $1.43 billion for the three months ended August 1, 1999, compared to $884 million in the same period of the prior year.
  • 2Strong recovery in the semiconductor equipment industry is fueling demand, indicated by record new orders of $1.5 billion in Q3 FY99.
  • 3Net income more than quintupled to $244.4 million for the quarter ended August 1, 1999, up from $47.5 million in the prior year.
  • 4Gross margin improved to 48.7% in Q3 FY99 from 44.6% in Q3 FY98, reflecting higher volumes and operational efficiencies.
  • 5The company ended the period with a robust liquidity position, holding $2.3 billion in cash, cash equivalents, and short-term investments.
  • 6Anticipated acquisition of Obsidian, Inc. for approximately $150 million, expected to be accounted for as a purchase business combination.

Frequently Asked Questions

The strong performance is primarily driven by a broad-based recovery in the semiconductor industry, fueled by robust consumer demand for electronics and communication products. This has led semiconductor manufacturers to increase their capital expenditures for expanding capacity and adopting advanced technologies. Applied Materials has benefited from its strong product positioning in these advanced applications.

While operating expenses increased in absolute dollars due to investments in R&D for next-generation technology (0.18 micron and below) and IT programs, they decreased as a percentage of net sales to 25% for the three months ended August 1, 1999, compared to 34% in the prior year's quarter. This indicates improved operating leverage and cost control efforts.

Applied Materials maintains a strong liquidity position with $2.3 billion in cash, cash equivalents, and short-term investments as of August 1, 1999. The company's current ratio is a healthy 3.1:1. Management believes that its cash generated from operations, combined with existing cash balances and borrowing capacity, will be sufficient to meet its liquidity requirements for the next 12 months.

The company has announced an agreement to acquire Obsidian, Inc. for approximately $150 million, subject to regulatory approval. Key risks highlighted include the historical cyclicality and volatility of the semiconductor equipment industry, dependence on DRAM prices and PC demand, rapid technological change, competitive pressures, and potential impacts from global economic conditions, particularly in Asia. The company also details extensive efforts and estimated costs related to Year 2000 readiness.