Applied Materials: Q2 Results
Applied Materials, Inc., the global leader in providing manufacturing solutions for the semiconductor, display and solar industries, today reported results for its second quarter of fiscal 2012 ended April 29, 2012.
Applied generated orders of $2.77 billion and net sales of $2.54 billion. Non-GAAP operating income was $490 million, and non-GAAP net income was $349 million or 27 cents per share. GAAP operating income was $409 million, and GAAP net income was $289 million or 22 cents per share.
"Our strong performance in the quarter was driven by growing global demand for mobile products such as smartphones and tablets," said Mike Splinter, chairman and chief executive officer. "Applied's semiconductor products are enabling the next generation of more powerful and feature-rich devices."
"Applied delivered profitability at the high end of our expectations and increased operating cash flow to 24 percent of net sales," said George Davis, chief financial officer. "During the quarter, we announced a 13-percent dividend increase, established a new three-year $3 billion share repurchase program, and used $200 million to repurchase over 16 million shares of our common stock."
During the quarter, Varian generated orders of $366 million and net sales of $333 million which were reported within the Silicon Systems Group (SSG) and Applied Global Services (AGS) segments. The business contributed approximately $0.04 to the company's non-GAAP EPS, which excluded acquisition-related charges equivalent to approximately $0.04 per share. In the prior quarter, Varian generated orders of $267 million and net sales of $202 million; the business contributed approximately $0.01 to the company's non-GAAP EPS, which excluded acquisition-related charges equivalent to approximately $0.09 per share.
Non-GAAP results exclude the impact of the following, where applicable: certain discrete tax items, restructuring and asset impairment charges and any associated adjustment related to restructuring actions, certain acquisition-related costs, investment impairments, and gain or loss on sale of facilities. A reconciliation of the GAAP and non-GAAP results is provided in the financial statements included in this release. See also "Use of Non-GAAP Financial Measures" below.
Second Quarter Reportable Segment Results and Comparisons to the Prior Quarter
Silicon Systems Group orders were $1.97 billion, up 39 percent led by increased demand from foundry customers. Net sales were $1.78 billion, up 32 percent. Non-GAAP operating income increased to $574 million or 32 percent of net sales. GAAP operating income increased to $504 million or 28 percent of net sales. New order composition was: foundry 72 percent, logic and other 12 percent, flash 12 percent, and DRAM 4 percent.
Applied Global Services orders were $650 million, up 26 percent, reflecting a thin film solar equipment order along with higher demand for semiconductor spares and services. Net sales increased slightly to $551 million. Non-GAAP operating income was essentially flat at $111 million or 20 percent of net sales. GAAP operating income was $109 million or 20 percent of net sales.
Display orders were $84 million, up $44 million from low levels. Net sales were $134 million, up 29 percent, and non-GAAP operating income increased slightly to $9 million or 7 percent of net sales, with the benefit of higher sales partially offset by a weaker product mix. GAAP operating income was $7 million or 5 percent of net sales.
Energy and Environmental Solutions (EES) orders increased to $62 million, and net sales were $79 million, down 62 percent, reflecting excess manufacturing capacity in the solar industry. The segment had a non-GAAP operating loss of $57 million and a GAAP operating loss of $63 million. Subsequent to the end of the second quarter, Applied announced a restructuring plan consistent with its goal to lower the segment's annual revenue breakeven level to $500 million in FY2013.
Additional Quarterly Financial Information and Comparisons to the Prior Quarter
New orders were $2.77 billion, up 38 percent. The book to bill ratio was 1.09.
Ending backlog was $2.37 billion, up 10 percent.
Gross margin was 42.1 percent on a non-GAAP basis, up from 40.7 percent, driven by the increase in net sales. GAAP gross margin was 39.8 percent, up from 35.9 percent.
The effective income tax rate was 25.9 percent on a non-GAAP basis and 25.3 percent on a GAAP basis.
Cash, cash equivalents and investments increased to $3.24 billion.
For the third quarter of fiscal 2012, Applied expects net sales to be flat to down 10 percent sequentially. The company expects non-GAAP EPS to be in the range of $0.21 to $0.29. The non-GAAP EPS outlook excludes known charges related to completed acquisitions of approximately $0.04 per share but does not exclude other non-GAAP adjustments that may arise subsequent to this release. The non-GAAP outlook includes charges related to the EES restructuring plan equivalent to approximately $0.01 per share.
For the full year, Applied is updating its previous outlook for net sales and non-GAAP EPS, provided on March 28, 2012. The company now expects net sales to be at the high end of the range of $9.1 billion to $9.5 billion, and non-GAAP EPS to be at the high end of the range of $0.85 to $0.95. The non-GAAP EPS outlook excludes known charges related to completed acquisitions of approximately $0.23 per share but does not exclude other non-GAAP adjustments that may arise subsequent to this release. The non-GAAP EPS outlook includes charges related to the EES restructuring equivalent to approximately $0.01 per share.
Use of Non-GAAP Financial Measures
Management uses non-GAAP results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied believes these measures enhance investors' ability to review the company's business from the same perspective as the company's management and facilitate comparisons of this period's results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.
About Applied Materials
Applied Materials, Inc. is the global leader in providing innovative equipment, services and software to enable the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products. Our technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world. At Applied Materials, we turn today's innovations into the industries of tomorrow. Learn more at www.appliedmaterials.com.
Michael Sullivan (investors) 408.986.7977