Applied Materials Announces Results for Second Quarter of Fiscal 2008

Applied Materials, Inc. reported results for its second fiscal quarter ended April 27, 2008. Net sales were $2.15 billion, down 15 percent from $2.53 billion for the second quarter of fiscal 2007, and up 3 percent from $2.09 billion for the first quarter of fiscal 2008. Gross margin for the second quarter of fiscal 2008 was 45.0 percent, up from 44.9 percent for the second quarter of fiscal 2007, and up from 44.8 percent for the first quarter of fiscal 2008. Net income for the second quarter of fiscal 2008 was $303 million, or $0.22 per share, down from net income of $411 million, or $0.29 per share, for the second quarter of fiscal 2007, and upfrom net income of $262 million, or $0.19 per share, for the first quarter of fiscal 2008.

New orders of $2.41 billion for the second quarter of fiscal 2008 decreased9 percent from $2.65 billion for the second quarter of fiscal 2007, and decreased 3 percent from $2.50 billion for the first quarter of fiscal 2008. Regional distribution of new orders for the second quarter of fiscal 2008 was: Korea 22 percent, Taiwan 22 percent, Southeast Asia and China 18 percent, Japan13 percent, Europe 13 percent, and North America 12 percent. Backlog at the end of the second quarter of fiscal 2008 was $4.59 billion, compared to $4.10 billion at the end of the first quarter of fiscal 2008.

"This quarter's performance demonstrates our focus on operational execution and prudent cost controls across all of our businesses," said Mike Splinter, president and CEO. "We are ramping our display and solar businesses while addressing the challenges of a weaker global chip equipment market.

"During the quarter, we established our leadership in the crystalline silicon solar equipment market, built on our momentum in thin film solar products and disclosed the industry's first gigawatt-scale, thin film solar project. In addition, we launched a new mask inspection system, the Aera2(TM). Applied has significant opportunities ahead as we deliver on our promise to utilize our nanomanufacturing technology to improve the way people live," concluded Splinter.

Non-GAAP net income for the second quarter of fiscal 2008 was $362 million, or $0.26 per share, compared to non-GAAP net income of $509 million, or $0.36 per share, for the second quarter of fiscal 2007, and $345 million or $0.25 per share for the first quarter of fiscal 2008. Non-GAAP adjustments are explained below and detailed in the accompanying Reconciliation of GAAP to Non-GAAP Results.

Results by reportable segment for the second quarter of fiscal 2008, the first quarter of fiscal 2008, and the second quarter of fiscal 2007 were:

Three Months Ended

Three Months Ended

Three Months Ended

April 27, 2008

January 27, 2008

April 29, 2007

Operating

Operating

Operating

New

Net

Income

New

Net

Income

New

Net

Income

Orders

Sales

(Loss)

Orders

Sales

(Loss) 

Orders

Sales

(Loss)

(In millions)

Silicon

$

1,061

$

1,268

$

448

$

1,075

$

1,237

$

445

$

1,939

$

1,738

$

606

Applied Global

Services

602

599

159

610

595

149

586

589

157

Display

493

198

59

555

133

34

60 

160

28

Energy and

Environmental

Solutions

257

85

(71

)

260

122

(48

) 

63

43

(15

)

Effective in the first quarter of fiscal 2008, Applied changed its management reporting system for services, with all service results reported in the Applied Global Services segment. Fiscal 2007 segment information has been reclassified to conform to the fiscal 2008 presentation.

Non-GAAP net income and non-GAAP EPS, detailed in the accompanying Reconciliation of GAAP to Non-GAAP Results, exclude charges related to (i) equity-based compensation, (ii)certain items associated with acquisitions, including amortization of intangibles and inventory fair value adjustments on products sold, (iii) restructuring and asset impairments, (iv) certain costs associated with ceasing development of beamline implant products, and/or (v) the resolution of income tax audits and changes in tax credits. Management uses non-GAAP net income and non-GAAP EPS 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 that 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 net income or EPS prepared in accordance with GAAP.

Applied Materials will discuss its fiscal 2008 second quarter results, along with its outlook for the third quarter of fiscal 2008, on the earnings call today beginning at 1:30 p.m. Pacific Daylight Time. A webcast of the earnings call will be available atwww.appliedmaterials.com.

This press release contains forward-looking statements, including statements regarding Applied's performance, operational efficiencies, products, strategic position and opportunities, and the industry outlook. Forward-looking statements may contain words such as "expect," "believe," "may," "should," "will," "forecast" or similar expressions, and include the assumptions that underlie such statements. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to: the level of demand for nanomanufacturing technology products, which is subject to many factors, including global economic and market conditions, business and consumer spending, demand for electronic products and semiconductors, governmental renewable energy policies and incentives, and geopolitical uncertainties; customers' utilization rates and capacity requirements, including capacity utilizing the latest technology; customers' ability to acquire sufficient capital, obtain regulatory approvals and/or fulfill infrastructure requirements; variability of operating results among the company's reportable segments caused by differing conditions in the served markets; the successful implementation and effectiveness of initiatives to enhance global operations and efficiencies; the successful performance of acquired businesses and joint ventures; Applied's ability to (i) successfully develop, deliver and support a broad range of products and expand its markets and develop new markets, (ii) maintain effective cost controls and timely align its cost structure with business conditions, (iii) effectively plan and manage its resources and production capability, including its supply chain, (iv) obtain and protect intellectual property rights in key technologies, and (v) attract, motivate and retain key employees; and other risks described in Applied Materials' SEC filings, including its reports on Forms 10-K, 10-Q and 8-K. All forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof. The company undertakes no obligation to update any forward-looking statements.

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in Nanomanufacturing Technology(TM) solutions with a broad portfolio of innovative equipment, services and software products for the fabrication of semiconductor chips, flat panel displays, solar photovoltaic cells, flexible electronics and energy-efficient glass. At Applied Materials, we apply Nanomanufacturing Technology to improve the way people live. Learn more atwww.appliedmaterials.com.

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

April 27,

April 29,

April 27,

April 29,

(In thousands, except per share amounts)

2008

2007

2008

2007

Net sales

$

2,149,998

$

2,529,561

$

4,237,395

$

4,806,828

Cost of products sold

1,183,170

1,392,951

2,335,586

2,607,680

Gross margin

966,828

1,136,610 

1,901,809

2,199,148

Operating expenses:

Research, development and engineering

287,122

291,044

560,341

578,611

Marketing and selling

119,410

112,107

243,327

219,019

General and administrative

122,035

119,391

238,011

241,202

Restructuring and asset impairments

510

25,044

49,496

21,766

Income from operations

437,751

589,024

810,634

1,138,550

Pre-tax loss of equity method investment

9,766

5,924

19,352

9,861

Interest expense

6,256

8,845

10,801

19,313

Interest income

32,414

34,022

62,984

64,125

Income before income taxes

454,143

608,277

843,465

1,173,501

Provision for income taxes

151,636

196,833

278,582

358,581

Net income

$

302,507

$

411,444

$

564,883

$

814,920

Earnings per share:

Basic

$

0.22

$

0.30

$

0.41

$

0.59

Diluted

$

0.22

$

0.29

$

0.41 

$

0.58

Weighted average number of shares:

Basic

1,356,705

1,391,076

1,363,975

1,392,477

Diluted

1,373,314

1,407,255

1,379,071

1,408,224

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

April 27,

October 28,

(In thousands)

2008

2007

ASSETS

Current assets:

Cash and cash equivalents

$

1,098,259

$

1,202,722

Short-term investments

1,357,097

1,166,857

Accounts receivable, net

1,729,487

2,049,427

Inventories

1,626,239

1,313,237

Deferred income taxes

450,187

426,471

Other current assets

345,669

448,879

Total current assets

6,606,938 

6,607,593

Long-term investments

1,392,504

1,362,425

Property, plant and equipment

2,766,315

2,782,204

Less: accumulated depreciation and amortization

(1,692,513

)

(1,730,962

)

Net property, plant and equipment

1,073,802

1,051,242

Goodwill, net

1,176,122

1,006,410 

Purchased technology and other intangible assets, net

456,920

373,178

Equity method investment

95,708

115,060

Deferred income taxes and other assets

168,956

146,370

Total assets

$

10,970,950 

$

10,662,278

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

2,749

$

2,561

Accounts payable and accrued expenses

2,598,891

2,221,516

Income taxes payable

105,785

157,549

Total current liabilities

2,707,425

2,381,626

Long-term debt

202,000

202,281

Other liabilities

350,721

256,962

Total liabilities

3,260,146

2,840,869

Stockholders' equity:

Common stock

13,554

13,857

Additional paid-in capital

5,004,030

4,658,832

Retained earnings

11,265,710

10,863,291

Treasury stock

(8,575,054

)

(7,725,924

)

Accumulated other comprehensive income

2,564

11,353

Total stockholders' equity

7,710,804

7,821,409

Total liabilities and stockholders' equity

$

10,970,950

$

10,662,278

APPLIED MATERIALS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Six Months Ended

April 27,

April 29,

(In thousands)

2008

2007

Cash flows from operating activities:

Net income

$

564,883

$

814,920

Adjustments required to reconcile net income to cash provided by operating activities:

Depreciation and amortization

154,321

123,978

Loss on fixed asset retirements

21,527 

12,476

Restructuring and asset impairments

49,496 

21,766

Deferred income taxes

(38,538

)

(7,553

)

Excess tax benefits from equity-based compensation plans

(5,406 

)

(3,243

)

Acquired in-process research and development expense

-

4,900

Net recognized loss (gain) on investments

(3,560

)

3,129

Pretax loss of equity-method investment

19,352

9,861

Equity-based compensation

89,044

82,823

Changes in operating assets and liabilities, net of amounts acquired: 

Accounts receivable, net

385,830

(71,064

)

Inventories

(277,478

)

(62,442

)

Other current assets

116,352

2,969

Other assets

(4,875

)

(3,483

) 

Accounts payable and accrued expenses

195,040

(36,546

)

Income taxes payable

(11,803

)

(3,725

)

Other liabilities

9,548

5,565

Cash provided by operating activities

1,263,733

894,331

Cash flows from investing activities:

Capital expenditures

(137,699

)

(131,266

)

Cash paid for acquisitions, net of cash acquired

(235,324

)

(127,677

)

Proceeds from disposition of assets held for sale

-

17,727

Proceeds from sales and maturities of investments

1,285,365

1,400,576

Purchases of investments

(1,530,288

)

(1,484,869

)

Cash provided (used) for investing activities

(617,946

)

(325,509

)

Cash flows from financing activities:

Short-term debt repayments

(12

)

(302

)

Proceeds from common stock issuances

308,463

169,884

Common stock repurchases

(899,984

)

(532,015

)

Excess tax benefits from equity-based compensation plans

5,406

3,243

Payment of dividends to stockholders

(164,274

) 

(139,489

)

Cash used for financing activities

(750,401

)

(498,679

)

Effect of exchange rate changes on cash and cash equivalents

151

438

Increase in cash and cash equivalents

(104,463

)

70,581

Cash and cash equivalents - beginning of period

1,202,722

861,463

Cash and cash equivalents - end of period

$

1,098,259

$

932,044

Supplemental cash flow information: 

Cash payments for income taxes

$

167,185

$

365,012

Cash payments for interest

$

7,229

$

14,049

APPLIED MATERIALS, INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

Three Months Ended 

Six Months Ended

April 27, 

January 27,

April 29,

April 27,

April 29,

(In thousands, except per share amounts)

2008

2008

2007

2008

2007

Non-GAAP Net Income

Reported net income (GAAP basis)

$

302,507

$

262,376

$

411,444 

$

564,883

$

814,920

Equity-based compensation expense

50,322

38,722

47,922

89,044

82,822

Certain items associated with acquisitions 1

31,144

31,038

23,725

62,182

37,105 

Restructuring and asset impairments 2,3,4

510

48,986

25,044

49,496

21,766

Costs associated with ceasing development of beamline implant products 5

259 

1,021

50,299

1,280

50,299

Resolution of audits of prior years' income tax filings 6

-

-

-

-

(29,863

)

Income tax effect of non-GAAP adjustments

(23,142

)

(37,326

)

(49,239

)

(60,468

)

(62,673

)

Non-GAAP net income

$

361,600

$

344,817

$

509,195

$

706,417

$

914,376

Non-GAAP Net Income Per Diluted Share

Reported net income per diluted share

(GAAP basis)

$

0.22

$

0.19

$

0.29

$

0.41

$

0.58

Equity-based compensation expense

0.03

0.02

0.02

0.05

0.04

Certain items associated with acquisitions

0.02

0.02