Applied Materials: Q4 & full year 2011 results

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Applied Materials, Inc., the world's leading supplier of manufacturing solutions for the semiconductor, display and solar industries, today reported results for its fourth quarter and fiscal year ended Oct. 30, 2011.

In the fourth quarter, Applied generated orders of $1.60 billion, net sales of $2.18 billion and operating income of $361 million. Fourth-quarter net income was $456 million or 34 cents per share, including a tax benefit equivalent to 13 cents per share that was disclosed previously in a Form 8-K filed on Sept. 8, 2011. Non-GAAP operating income was $384 million, and non-GAAP net income was $271 million or 21 cents per share.

For fiscal year 2011, the company reported orders of $10.14 billion, record net sales of $10.52 billion, operating income of $2.40 billion, and net income of $1.93 billion or $1.45 per share. Non-GAAP operating income was $2.41 billion, and non-GAAP net income was $1.72 billion or $1.30 per share.

"Applied's record year was driven by strength in our silicon business and our highest-ever revenue in solar and services, as well as strategic programs that improved the efficiency of our operations," said Mike Splinter, chairman and chief executive officer. "While we expect the first half of fiscal 2012 to be impacted by the challenging economic environment, we anticipate that our overall business will strengthen during the second half of the year."

After the end of the quarter, Applied completed the acquisition of Varian Semiconductor Equipment. "The combination of Applied and Varian creates the industry leader in transistor technologies," Splinter added. "Together, we will partner with our customers to accelerate the development of new generations of chips enabling smaller, faster and more power-efficient mobile devices."

During the quarter, Applied generated operating cash flow of $698 million or 32 percent of net sales, including a $276 million tax refund. The company paid cash dividends of $106 million and used $175 million to repurchase 16 million shares of its common stock at an average price of $11.04 per share.

"In 2011, Applied invested $1.1 billion in research, development and engineering and generated $2.4 billion in operating cash flow, the most in company history," said George Davis, chief financial officer. "During the year, we increased our quarterly dividend payment by 14 percent and returned $865 million to our stockholders through dividends and stock buybacks."

Non-GAAP results for the above periods 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.

Fourth Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $925 million, down 25 percent primarily due to weaker demand in flash and DRAM. Net sales were $1.07 billion, down 24 percent. Operating income decreased to $278 million or 26 percent of net sales, reflecting the decrease in net sales. New order composition was: foundry 46 percent, logic and other 32 percent, flash 15 percent, and DRAM 7 percent.

Applied Global Services (AGS) orders were $564 million, down 8 percent. Net sales were $629 million, up 4 percent and included $71 million in net sales for two thin film solar production lines. Operating income increased to $160 million or 26 percent of net sales, reflecting the increase in net sales.

Display orders were $20 million, down 91 percent, due to lower demand for TV and mobile device display equipment. Net sales were $171 million, down 23 percent, and operating income decreased to $31 million or 18 percent of net sales, driven by lower net sales and a higher proportion of lower-margin products.

Energy and Environmental Solutions (EES) orders were $86 million, down 73 percent, as customers continued to absorb recent capital additions. Net sales were $315 million, down 44 percent. Operating income decreased to $17 million or 5 percent of net sales, reflecting the net sales decline.

Full-Year Reportable Segment Results and Comparisons to the Prior Year

SSG orders decreased by 5 percent to $5.49 billion, net sales increased by 2 percent to $5.41 billion, and operating income decreased to $1.76 billion or 33 percent of net sales.

AGS orders increased by 7 percent to $2.33 billion, net sales increased by 29 percent to a record $2.41 billion, and operating income rose to $482 million or 20 percent of net sales.

Display orders decreased by 20 percent to $636 million, net sales decreased by 22 percent to $699 million, and operating income decreased to $147 million or 21 percent of net sales.

EES orders increased by 12 percent to $1.68 billion, net sales increased by 34 percent to a record $1.99 billion, and operating income increased to a record $453 million or 23 percent of net sales.

Additional Quarterly Financial Information

    Backlog decreased by $851 million to $2.39 billion and included $271 million in negative adjustments.

    Gross margin was 39.0 percent, down from 42.5 percent in the third quarter, driven primarily by the overall decline in net sales.

    The effective tax rate was a benefit of 32.7 percent including the tax benefit described above. The non-GAAP effective tax rate was a provision of 26.6 percent.

    Cash, cash equivalents and investments increased to $7.17 billion. After the end of the quarter, Applied completed the acquisition of Varian Semiconductor Equipment for approximately $4.2 billion net of cash acquired. Applied funded the acquisition and certain associated costs through a combination of existing cash balances and the net proceeds of senior unsecured notes in the aggregate principal amount of $1.75 billion issued on June 8, 2011.   

Business Outlook
For the first quarter of fiscal 2012, and including the impact of the recent acquisition of Varian Semiconductor Equipment, Applied expects net sales to be down 5 percent to 15 percent sequentially. The company expects non-GAAP EPS to be in the range of $0.08 to $0.16. The non-GAAP EPS outlook excludes known charges related to completed acquisitions of approximately $0.10 per share but does not exclude other non-GAAP adjustments that may arise subsequent to this release.

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

Michael Sullivan (financial community) 408.986.7977
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