Applied Materials Announces Results for Third Quarter of Fiscal 2008

Applied Materials, Inc. reported results for its third fiscal quarter ended July 27, 2008. Net sales were $1.85 billion, down 28 percent from $2.56 billion for the third quarter of fiscal 2007, and down 14 percent from $2.15 billion for the second quarter of fiscal 2008. Gross margin for the third quarter of fiscal 2008 was 40.2 percent, down from 47.5 percent for the third quarter of fiscal 2007, and down from 45.0 percent for the second quarter of fiscal 2008. Net income for the third quarter of fiscal 2008 was $165 million, or $0.12 per share, down from net income of $474 million, or $0.34 per share, for the third quarter of fiscal 2007, and downfrom net income of $303 million, or $0.22 per share, for the second quarter of fiscal 2008.

New orders of $2.03 billion for the third quarter of fiscal 2008 decreased11 percent from $2.28 billion for the third quarter of fiscal 2007, and decreased 16 percent from $2.41 billion for the second quarter of fiscal 2008. Regional distribution of new orders for the third quarter of fiscal 2008 was: Japan21 percent, North America 19 percent, Korea 17 percent, Southeast Asia and China 17 percent, Europe 16 percent, and Taiwan 10 percent. Backlog at the end of the third quarter of fiscal 2008 was $4.74 billion, compared to $4.59 billion at the end of the second quarter of fiscal 2008.

"Applied Materials delivered financial and operational performance that was in line with our quarter forecast during a difficult semiconductor industry environment," said Mike Splinter, president and CEO. "While our silicon business was down, revenues increased in our display, service and solar businesses. We made significant progress in our solar division during the quarter, substantially increasing the number of crystalline silicon systems shipped and enabling start-up production on the first four SunFab(TM) Thin Film lines at customer sites. We are focused on operational execution, and we are taking advantage of opportunities to expand our leadership with next-generation innovations in silicon, display and solar."

Non-GAAP net income for the third quarter of fiscal 2008 was $228 million, or $0.17 per share, compared to non-GAAP net income of $518 million, or $0.37 per share, for the third quarter of fiscal 2007, and $362 million or $0.26 per share for the second 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 third quarter of fiscal 2008, the second quarter of fiscal 2008, and the third quarter of fiscal 2007 were:

Three Months Ended

Three Months Ended 

Three Months Ended

July 27, 2008

April 27, 2008

July 29, 2007

New Orders

Net Sales

Operating Income (Loss)

New Orders

Net Sales

Operating Income (Loss)

New Orders

Net Sales

Operating Income (Loss)

(In millions)

Silicon

$

793

$756

$

172

$

1,061

$1,268

$

448

$

1,614

$

1,772

$

702

Applied Global

Services

541

607

145

602

599 

159

559

599

155

Display

374

311

103

493

198

59

58

161

34

Energy and

Environmental

Solutions

322

174

(85

)

257

85

(71

)

53

29

(29

)

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 third quarter results, along with its outlook for the fourth 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 at www.appliedmaterials.com .

This press release contains forward-looking statements, including statements regarding Applied's performance, operational execution, 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 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) develop, deliver and support a broad range of products, expand its markets and develop new markets, (ii) maintain effective cost controls and timely align its cost structure with business conditions, (iii) 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 at www.appliedmaterials.com .

APPLIED MATERIALS, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

July 27,

July 29,

July 27,

July 29,

(In thousands, except per share amounts)

2008

2007

2008

2007

Net sales

$

1,848,168

$

2,560,984

$

6,085,563

$

7,367,812

Cost of products sold

1,105,854

1,344,594

3,441,440

3,952,274

Gross margin

742,314

1,216,390

2,644,123

3,415,538

Operating expenses:

Research, development and engineering

268,559

292,584

828,900

871,195

Marketing and selling

115,944

115,969 

359,271

334,988

General and administrative

129,341

134,359

367,352

375,561

Restructuring and asset impairments

138

1,616

49,634

23,382

Income from operations

228,332

671,862

1,038,966

1,810,412

Pre-tax loss of equity method investment

6,308

7,348

25,660

17,209

Interest expense

4,859

10,075

15,660

29,388

Interest income

25,399

32,468

88,383

96,593

Income before income taxes

242,564

686,907

1,086,029

1,860,408

Provision for income taxes

77,796

213,392

356,378

571,973

Net income

$ 

164,768

$

473,515 

$

729,651

$

1,288,435

Earnings per share:

Basic

$

0.12

$

0.34

$

0.54

$

0.92

Diluted 

$

0.12

$

0.34

$

0.53

$

0.91

Weighted average number of shares:

Basic

1,350,526

1,385,519

1,359,492

1,397,890

Diluted

1,367,557

1,407,264

1,375,656

1,415,720

APPLIED MATERIALS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

July 27, 2008

October 28, 2007

ASSETS

Current assets:

Cash and cash equivalents

$

1,140,532

$

1,202,722

Short-term investments

1,157,143

1,166,857

Accounts receivable, net

1,581,213

2,049,427

Inventories

1,853,316

1,313,237

Deferred income taxes

438,167

426,471

Income taxes receivable

72,717

-

Other current assets

380,787

448,879

Total current assets

6,623,875

6,607,593

Long-term investments

1,426,631

1,362,425

Property, plant and equipment

2,804,742

2,782,204

Less: accumulated depreciation and amortization

(1,714,280)

(1,730,962

)

Net property, plant and equipment

1,090,462

1,051,242

Goodwill, net

1,175,777

1,006,410

Purchased technology and other intangible assets, net

419,756

373,178

Equity method investment

89,400

115,060

Deferred income taxes and other assets

172,540

146,370

Total assets

$

10,998,441

$

10,662,278

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

981

$

2,561

Accounts payable and accrued expenses

2,790,984

2,221,516

Income taxes payable

119,411

157,549

Total current liabilities

2,911,376

2,381,626

Long-term debt

201,926

202,281

Other liabilities

344,344

256,962

Total liabilities

3,457,646

2,840,869

Stockholders' equity:

Common stock

13,417

13,857

Additional paid-in capital

5,060,833

4,658,832

Retained earnings

11,350,019

10,863,291

Treasury stock

(8,875,052)

(7,725,924

)

Accumulated other comprehensive income/(loss)

(8,422)

11,353

Total stockholders' equity

7,540,795

7,821,409

Total liabilities and stockholders' equity

$

10,998,441

$

10,662,278

APPLIED MATERIALS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended

(In thousands)

July 27, 2008

July 29, 2007

Cash flows from operating activities:

Net income

$

729,651

$

1,288,435

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

Depreciation and amortization

240,039

187,310

Loss on fixed asset retirements

27,880

15,961

Restructuring and asset impairments

49,634 

23,382

Deferred income taxes

(60,886

)

(6,234

)

Excess tax benefits from equity-based compensation plans

(5,406

)

(16,990

) 

Acquired in-process research and development expense

-

4,900

Net recognized (gain) loss on investments

(1,244

)

5,097

Pretax loss of equity-method investment

25,660

17,209

Equity-based compensation

135,165

130,308

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

Accounts receivable, net

534,104

(189,308

) 

Inventories

(504,555

)

46,331

Other current assets

77,593

(36,810

)

Other assets

(4,383

)

3,019 

Accounts payable and accrued expenses

402,924

129,120

Income taxes

(66,603

)

(78,212

)

Other liabilities

4,578

8,380

Cash provided by operating activities

1,584,151

1,531,898 

Cash flows from investing activities:

Capital expenditures

(209,512

)

(204,236 

)

Cash paid for acquisitions, net of cash acquired

(235,324

)

(136,828

)

Proceeds from disposition of assets held for sale

-

23,358

Proceeds from sales and maturities of investments 

2,162,900

2,114,602

Purchases of investments

(2,257,097

)

(2,376,791

)

Cash used in investing activities

(539,033

)

(579,895

)

Cash flows from financing activities:

Short-term debt repayments

(1,854

)

(250 

)

Proceeds from common stock issuances

334,575

436,443

Common stock repurchases

(1,199,984

)

(931,996

)

Excess tax benefits from equity-based compensation plans

5,406

16,990 

Payment of dividends to stockholders

(245,559

)

(222,537

)

Cash used in financing activities

(1,107,416

)

(701,350

)

Effect of exchange rate changes on cash and cash equivalents

108

559

Increase/(decrease) in cash and cash equivalents

(62,190

)

251,212

Cash and cash equivalents - beginning of period

1,202,722

861,463

Cash and cash equivalents - end of period

$

1,140,532

$

1,112,675

Supplemental cash flow information:

Cash payments for income taxes

$

349,914

$

653,351

Cash payments for interest

$

7,243

$

14,081

APPLIED MATERIALS, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS

Three Months Ended

Nine Months Ended

(In thousands, except per share amounts)

July 27, 2008

April 27, 2008

July 29, 2007

July 27, 2008

July 29,  2007

Non-GAAP Net Income

Reported net income (GAAP basis)

$

164,768

$

302,507

$

473,515

$

729,651

$

1,288,435

Equity-based compensation expensex 

46,121

50,322 

47,485

135,165

130,307

Certain items associated with acquisitions (1)

41,109

31,144

18,911

103,291

56,016

Restructuring and asset impairments (2,3,4)

138

510

1,616

49,634

23,382

Costs associated with ceasing development of

beamline implant products (5)

156

259

6,373

1,436

56,672

Resolution of audits of prior years' income 

tax filings(6)

-

-

(6,379

)

-

(36,242 

)

Income tax effect of non-GAAP adjustments

(24,601

)

(23,142

)

(23,137

)

(85,069

)

(85,810

)

Non-GAAP net income

$

227,691

$

361,600

$

518,384

$

934,108

$

1,432,760

Non-GAAP Net Income Per Diluted Share

Reported net income per diluted share

(GAAP basis)

$

0.12

$

0.22

$

0.34

$

0.53

$

0.91

Equity-based compensation expense

0.02

0.03

0.02

0.07

0.07

Certain items associated with acquisitions

0.02

0.02

0.01

0.05

0.03

Restructuring and asset impairments

-

-

-

0.02

0.01

Costs associated with ceasing development

of beamline implant products

-

-

-

-

0.03

Resolution of audits of prior years' income

tax filings

-

-

-

-

(0.03

)

Non-GAAP net income - per diluted share

$

0.17 

$

0.26

$

0.37

$

0.68

$

1.01

Shares used in diluted shares calculation

1,367,557

1,373,314