10-QPeriod: Q1 FY2019

APPLIED MATERIALS INC /DE Quarterly Report for Q1 Ended Jan 27, 2019

Filed February 21, 2019For Securities:AMAT

Summary

Applied Materials Inc. (AMAT) reported its financial results for the first quarter of fiscal year 2019, ending January 27, 2019. The company experienced a notable decrease in net sales, down 11% year-over-year to $3.75 billion, primarily driven by reduced customer investments in semiconductor equipment. This led to a contraction in operating income and operating margin. However, net income saw a significant increase to $771 million from $165 million in the prior year quarter, largely due to a substantial reduction in the provision for income taxes. Diluted EPS improved to $0.80 from $0.15. Despite the decline in revenue, the company's Applied Global Services segment showed resilience with a 9% increase in net sales, and the Display and Adjacent Markets segment also grew by 14%, indicating a diversified revenue stream. The company continued to return capital to shareholders through dividends and share repurchases, utilizing $750 million for stock buybacks and $192 million for dividends in the quarter. Management highlighted ongoing investments in Research, Development, and Engineering (RD&E) to maintain its competitive edge in a rapidly evolving industry. While facing headwinds from lower memory customer spending and a shift in foundry/logic customer priorities, Applied Materials remains focused on key technology transitions and long-term growth drivers in the semiconductor and display markets.

Financial Highlights

56 data points
Beta

Revenue

$3.75B

44.4% Gross Margin

Net Income

$771.00M

20.5% Net Margin

EPS (Diluted)

$0.80

Total Assets

$18.92B

Cash & Equivalents

$3.19B

Free Cash Flow

$701.00M

Financial Statements
Beta
Revenue$3.75B
Cost of Revenue$2.09B
Gross Profit$1.67B
R&D Expenses$516.00M
Operating Expenses$757.00M
Operating Income$908.00M
Interest Expense$60.00M
Net Income$771.00M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)957.00M
Shares Outstanding (Diluted)965.00M

Key Highlights

  • 1Net sales decreased by 11% to $3.75 billion compared to the prior year quarter, primarily due to reduced semiconductor equipment spending.
  • 2Operating income declined by 25% to $908 million, and operating margin decreased by 4.7 percentage points to 24.2%, reflecting lower sales and unfavorable product mix.
  • 3Net income significantly increased by 366% to $771 million, largely attributable to a substantial decrease in income tax provision ($117 million vs. $1,018 million).
  • 4Diluted Earnings Per Share (EPS) rose to $0.80 from $0.15 year-over-year.
  • 5The Applied Global Services segment demonstrated strong performance with a 9% increase in net sales, reaching $962 million.
  • 6The company returned $942 million to shareholders through share repurchases ($750 million) and dividends ($192 million).
  • 7Research, Development and Engineering (RD&E) expenses increased by 5.4% to $516 million, reflecting continued investment in innovation.

Frequently Asked Questions

The significant increase in net income from $165 million to $771 million was primarily driven by a substantial decrease in the provision for income taxes. In the prior year's comparable quarter, the company recorded a large tax expense of $1,018 million related to the Tax Cuts and Jobs Act. In the current quarter, the income tax provision was significantly lower at $117 million, leading to a much higher net income.

Applied Materials is experiencing a slowdown in overall semiconductor capital equipment spending, particularly from memory customers. However, the company is seeing continued demand for services and spares through its Applied Global Services segment, which grew 9% year-over-year. Management is also emphasizing ongoing investments in Research, Development, and Engineering (RD&E) to capitalize on future technology transitions and maintain a competitive position for when market conditions improve.

The Display and Adjacent Markets segment showed positive performance, with net sales increasing by 14% year-over-year to $507 million. This growth was driven by increased customer investments in TV display manufacturing equipment and continued demand for mobile manufacturing equipment. The company expects this segment to contribute to overall revenue, though it acknowledges potential for quarter-over-quarter fluctuations due to uneven customer spending patterns.

Applied Materials is actively returning capital to shareholders. In this quarter, the company repurchased $750 million of its common stock and paid $192 million in dividends. The company also continues to invest in its business through RD&E expenses, which increased to $516 million, underscoring its commitment to innovation and long-term growth.