10-QPeriod: Q3 FY2008

APPLIED MATERIALS INC /DE Quarterly Report for Q3 Ended Jul 27, 2008

Filed August 29, 2008For Securities:AMAT

Summary

Applied Materials Inc. (AMAT) reported a significant decrease in net sales and net income for the third quarter and nine months ended July 27, 2008, compared to the prior year. Net sales declined by 28% in the quarter and 17% year-to-date, primarily driven by lower demand for semiconductor equipment. Consequently, net income saw a sharp drop of 65% for the quarter and 43% year-to-date. The company's gross margin also decreased from 47.5% to 40.2% year-over-year for the quarter, attributed to lower revenue and reduced factory absorption. Despite the revenue decline, the company generated substantial operating cash flow of $1.6 billion in the first nine months of fiscal 2008. AMAT continued its share repurchase program, spending $1.2 billion in the year-to-date period, while also declaring consistent quarterly dividends. The company's cash position remained strong at $3.7 billion. Growth was observed in the Display and Energy and Environmental Solutions segments, although the latter reported a significant operating loss. Management is navigating a challenging market environment characterized by volatility and rapid technological change.

Financial Highlights

30 data points
Beta

Revenue

$1.85B

40.2% Gross Margin

Net Income

$164.77M

8.9% Net Margin

EPS (Diluted)

$0.12

Cash & Equivalents

$1.14B

Free Cash Flow

$1.58B

Financial Statements
Beta
Revenue$1.85B
Cost of Revenue$1.11B
Gross Profit$742.31M
R&D Expenses$268.56M
Operating Income$228.33M
Interest Expense$4.86M
Net Income$164.77M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)1.35B
Shares Outstanding (Diluted)1.37B

Key Highlights

  • 1Net sales decreased significantly by 28% for the third quarter of FY2008 and 17% for the nine months ended July 27, 2008, compared to the prior year, primarily due to reduced demand for semiconductor equipment.
  • 2Net income saw a substantial decline, down 65% for the third quarter and 43% for the nine months, reflecting lower sales alongside relatively stable operating expenses.
  • 3Gross margin percentage decreased to 40.2% in the third quarter of FY2008 from 47.5% in the prior year, mainly due to lower revenue and factory absorption.
  • 4The company generated robust operating cash flow of $1.6 billion in the first nine months of FY2008.
  • 5Applied Materials continued its aggressive share repurchase program, spending $1.2 billion year-to-date in FY2008, and maintained a quarterly dividend of $0.06 per share.
  • 6The Energy and Environmental Solutions segment showed strong order and sales growth, driven by new product lines, but incurred a significant operating loss of $85 million in the third quarter and $204 million year-to-date.
  • 7The Display segment experienced a significant surge in new orders and net sales, indicating strong demand for LCD manufacturing equipment, though management notes this may be at an inflection point.

Frequently Asked Questions

The primary driver is a decrease in demand for semiconductor equipment, particularly from Flash, DRAM, and logic chip manufacturers. This is compounded by lower revenue levels leading to reduced factory absorption, which negatively impacts the gross margin.

Applied Materials maintains a strong liquidity position with $3.7 billion in cash, cash equivalents, and investments as of July 27, 2008. The company continues to generate significant operating cash flow ($1.6 billion year-to-date) and actively repurchases its own shares, demonstrating confidence in its financial health and shareholder returns.

The Silicon segment is facing significant headwinds with a sharp decline in orders and sales. The Display segment is experiencing a surge in demand for LCD equipment. The Applied Global Services segment shows modest growth in sales but a slight decrease in operating income. The Energy and Environmental Solutions segment is growing rapidly in orders and sales, particularly with new solar product lines, but is currently operating at a substantial loss.

Management is focusing on cost control initiatives, including workforce reductions as part of a global cost reduction plan. They are also adapting their product offerings and resource allocation to respond to competition and rapid technological changes, while strategically expanding into new markets like solar energy.