10-QPeriod: Q2 FY2012

APPLIED MATERIALS INC /DE Quarterly Report for Q2 Ended Apr 29, 2012

Filed May 24, 2012For Securities:AMAT

Summary

Applied Materials Inc. reported net sales of $2.54 billion for the three months ended April 29, 2012, a decrease from $2.86 billion in the prior year period. Net income for the quarter was $289 million, down from $489 million in the same period last year, leading to diluted EPS of $0.22 compared to $0.37. The significant decrease in profitability is largely attributable to substantial acquisition-related costs associated with the Varian Semiconductor Equipment Associates, Inc. acquisition, which closed in November 2011. Despite the revenue and profit decline, the company demonstrated sequential improvement from the prior quarter, with new orders and net sales increasing. The Silicon Systems Group remains the largest segment, driven by semiconductor manufacturing equipment demand, while the Energy and Environmental Solutions segment continues to face challenging industry conditions. Cash flow from operations remained positive, but the company's cash and cash equivalents significantly decreased from $5.96 billion to $1.76 billion, primarily due to the cash outflow for the Varian acquisition and continued stock repurchases and dividend payments. The company also announced a restructuring plan for its Energy and Environmental Solutions segment, highlighting its proactive approach to managing segment-specific challenges. Investors should monitor the integration of Varian and the performance of the semiconductor equipment market, which is currently a key driver for Applied Materials.

Financial Highlights

53 data points
Beta

Revenue

$2.54B

39.8% Gross Margin

Net Income

$289.00M

11.4% Net Margin

EPS (Diluted)

$0.22

Total Assets

$13.88B

Cash & Equivalents

$1.76B

Free Cash Flow

$603.00M

Financial Statements
Beta
Revenue$2.54B
Cost of Revenue$1.53B
Gross Profit$1.01B
R&D Expenses$321.00M
SG&A Expenses$281.00M
Operating Expenses$602.00M
Operating Income$409.00M
Interest Expense$23.00M
Net Income$289.00M
EPS (Basic)$0.22
EPS (Diluted)$0.22
Shares Outstanding (Basic)1.29B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Net sales for the quarter decreased by 11.2% year-over-year to $2.54 billion.
  • 2Net income declined by 40.9% year-over-year to $289 million.
  • 3Diluted Earnings Per Share (EPS) decreased to $0.22 from $0.37 in the prior year period.
  • 4The company completed the acquisition of Varian Semiconductor Equipment Associates, Inc. for $4.2 billion, which impacted cash balances and incurred significant integration costs.
  • 5Cash and cash equivalents decreased significantly from $5.96 billion to $1.76 billion due to the Varian acquisition and capital allocation activities.
  • 6New orders and net sales showed sequential improvement quarter-over-quarter, driven by strong demand in the Silicon Systems Group.
  • 7The company announced a restructuring plan for its Energy and Environmental Solutions segment due to challenging industry conditions.

Frequently Asked Questions

The year-over-year decline in net sales and net income was primarily driven by a decrease in demand for display and solar equipment, alongside significant acquisition-related costs and charges totaling $69 million for the quarter associated with the Varian acquisition. These costs included inventory fair value adjustments, amortization of purchased intangible assets, share-based compensation, deal costs, and other integration costs.

The acquisition of Varian Semiconductor Equipment Associates, Inc. for $4.2 billion significantly impacted the company's financial position. It resulted in a substantial decrease in cash and cash equivalents from $5.96 billion to $1.76 billion. The integration of Varian also led to significant acquisition-related costs and contributed to the revenue streams of the Silicon Systems Group and Applied Global Services segments.

The Silicon Systems Group is experiencing strong demand, driven by investments in semiconductor manufacturing equipment. The Applied Global Services segment showed modest growth. However, the Display and Energy and Environmental Solutions segments are facing challenging industry conditions, with the latter undergoing a restructuring plan due to overcapacity in the solar industry. Management is actively managing these segment-specific challenges.

Applied Materials maintained a cash and cash equivalents balance of $1.76 billion as of April 29, 2012. The company generated $784 million in cash from operating activities in the first half of fiscal 2012. Despite the decrease in cash due to the Varian acquisition and capital returns to shareholders, management believes that cash generated from operations, combined with existing balances and borrowing capacity, will be sufficient to meet liquidity requirements for the next 12 months.