Applied Materials, Inc. (NASDAQ:AMAT) today reported results for
its first quarter ended Jan. 27, 2019.
First Quarter Results
Applied generated revenue of $3.75 billion. On a GAAP basis, the
company recorded gross margin of 44.4 percent, operating income of
$908 million or 24.2 percent of net sales, and earnings per share
(EPS) of $0.80.
On a non-GAAP adjusted basis, the company reported gross margin
of 44.6 percent, operating income of $925 million or 24.6 percent
of net sales, and EPS of $0.81.
The company returned $942 million to shareholders including $750
million in share repurchases and dividends of $192 million.
“Applied Materials delivered solid first quarter results in a
challenging business environment,” said Gary Dickerson, president
and CEO. “As we navigate the current market dynamics, we remain
highly optimistic about the long term and are investing in new
technology, products and capabilities that position the company to
play a bigger and broader role in the industry's future.”
Quarterly Results Summary
|
Q1 FY2019 |
|
Q1 FY2018 |
|
Change |
|
|
|
(In millions, except per share amounts and
percentages) |
Net sales |
$ |
3,753 |
|
|
$ |
4,205 |
|
|
(11 |
)% |
Gross margin |
44.4 |
% |
|
46.1 |
% |
|
(1.7)
points |
|
Operating margin |
24.2 |
% |
|
28.9 |
% |
|
(4.7)
points |
|
Net income |
$ |
771 |
|
|
$ |
165 |
|
|
367 |
% |
Diluted earnings per
share |
$ |
0.80 |
|
|
$ |
0.15 |
|
|
433 |
% |
Non-GAAP Adjusted Results |
|
|
|
|
|
Non-GAAP adjusted gross
margin |
44.6 |
% |
|
47.2 |
% |
|
(2.6)
points |
|
Non-GAAP adjusted
operating margin |
24.6 |
% |
|
30.1 |
% |
|
(5.5)
points |
|
Non-GAAP adjusted net
income |
$ |
779 |
|
|
$ |
1,165 |
|
|
(33 |
)% |
Non-GAAP adjusted
diluted EPS |
$ |
0.81 |
|
|
$ |
1.08 |
|
|
(25 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Applied adopted Accounting Standards Update 2014-09, Revenue
from Contracts with Customers (ASC 606), as of the first day of
fiscal 2019 using the full retrospective method. Applied also
adopted Accounting Standards Update 2017-07,
Compensation—Retirement Benefits, as of the first day of fiscal
2019 using the retrospective method. All prior periods included in
the unaudited consolidated condensed balance sheet as of Oct. 28,
2018, and the unaudited consolidated condensed statements of
operations and cash flows for the three months ended Jan. 28, 2018,
were restated under the new standards. The cumulative impact of the
adoption was an increase of approximately $6 million to beginning
retained earnings of the first quarter of fiscal 2019.
A reconciliation of the GAAP and non-GAAP adjusted results is
provided in the financial tables included in this release. See also
“Use of Non-GAAP Adjusted Financial Measures” section.
Business Outlook
In the second quarter of fiscal 2019, Applied expects net sales
to be in the range of $3.33 billion to $3.63 billion. Non-GAAP
adjusted diluted EPS is expected to be in the range of $0.62 to
$0.70.
This outlook for non-GAAP adjusted diluted EPS excludes known
charges related to completed acquisitions of $0.01 per share and
net income tax benefit related to intra-entity intangible asset
transfers of $0.02 per share, but does not reflect any items that
are unknown at this time, such as any additional charges related to
acquisitions or other non-operational or unusual items, as well as
other tax related items, which we are not able to predict without
unreasonable efforts due to their inherent uncertainty.
First Quarter Reportable Segment
Information
Semiconductor
Systems |
Q1 FY2019 |
|
Q1 FY2018 |
|
|
|
(In millions, except percentages) |
Net sales |
$ |
2,268 |
|
|
$ |
2,852 |
|
Foundry,
logic and other |
44 |
% |
|
37 |
% |
DRAM |
21 |
% |
|
26 |
% |
Flash |
35 |
% |
|
37 |
% |
Operating income |
631 |
|
|
1,024 |
|
Operating margin |
27.8 |
% |
|
35.9 |
% |
Non-GAAP Adjusted Results |
|
|
Non-GAAP adjusted
operating income |
$ |
642 |
|
|
$ |
1,070 |
|
Non-GAAP adjusted
operating margin |
28.3 |
% |
|
37.5 |
% |
|
|
Applied Global
Services |
Q1 FY2019 |
|
Q1 FY2018 |
|
|
|
(In millions, except percentages) |
Net sales |
$ |
962 |
|
|
$ |
881 |
|
Operating income |
285 |
|
|
255 |
|
Operating margin |
29.6 |
% |
|
28.9 |
% |
Non-GAAP Adjusted Results |
|
|
Non-GAAP adjusted
operating income |
$ |
285 |
|
|
$ |
256 |
|
Non-GAAP adjusted
operating margin |
29.6 |
% |
|
29.1 |
% |
|
Display and
Adjacent Markets |
Q1 FY2019 |
|
Q1 FY2018 |
|
|
|
(In millions, except percentages) |
Net sales |
$ |
507 |
|
|
$ |
443 |
|
Operating income |
115 |
|
|
90 |
|
Operating margin |
22.7 |
% |
|
20.3 |
% |
Non-GAAP Adjusted Results |
|
|
Non-GAAP adjusted
operating income |
$ |
118 |
|
|
$ |
93 |
|
Non-GAAP adjusted
operating margin |
23.3 |
% |
|
21.0 |
% |
|
|
|
|
|
|
Use of Non-GAAP Adjusted Financial Measures
Applied provides investors with certain non-GAAP
adjusted financial measures, which are adjusted for the impact of
certain costs, expenses, gains and losses, including certain items
related to mergers and acquisitions; restructuring charges and any
associated adjustments; impairments of assets, or investments; gain
or loss on sale of strategic investments; tax effect of share-based
compensation; certain income tax items and other discrete
adjustments. Additionally, non-GAAP results exclude estimated
discrete income tax expense items associated with changes to recent
U.S. tax legislation. Reconciliations of these non-GAAP measures to
the most directly comparable financial measures calculated and
presented in accordance with GAAP are provided in the financial
tables included in this release.
Management uses these non-GAAP adjusted financial measures to
evaluate the company’s operating and financial performance and for
planning purposes, and as performance measures in its executive
compensation program. Applied believes these measures enhance an
overall understanding of its performance and 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 on a consistent basis by excluding items
that management does not believe are indicative of Applied's
ongoing operating performance. There are limitations in using
non-GAAP financial measures because the non-GAAP financial measures
are not prepared in accordance with generally accepted accounting
principles, may be different from non-GAAP financial measures used
by other companies, and may exclude certain items that may have a
material impact upon our reported financial results. The
presentation of this additional information is not meant to be
considered in isolation or as a substitute for the directly
comparable financial measures prepared in accordance with GAAP.
Webcast Information
Applied Materials will discuss these results during an earnings
call that begins at 1:30 p.m. Pacific Time today. A live webcast
will be available at www.appliedmaterials.com. A replay will be
available on the website beginning at 5:00 p.m. Pacific Time
today.
Forward-Looking Statements
This press release contains forward-looking statements,
including those regarding anticipated growth and trends in our
businesses and markets, industry outlooks and demand drivers,
technology transitions, our business and financial performance and
market share positions, our capital allocation, our investment and
growth strategies, our development of new products and
technologies, our business outlook for the second quarter of fiscal
2019, and other statements that are not historical facts. These
statements and their underlying assumptions are subject to risks
and uncertainties and are not guarantees of future performance.
Factors that could cause actual results to differ materially from
those expressed or implied by such statements include, without
limitation: the level of demand for our products; global economic
and industry conditions; global trade issues and changes in trade
policies; consumer demand for electronic products; the demand for
semiconductors; customers’ technology and capacity requirements;
the introduction of new and innovative technologies, and the timing
of technology transitions; our ability to develop, deliver and
support new products and technologies; the concentrated nature of
our customer base; our ability to expand our current markets,
increase market share and develop new markets; market acceptance of
existing and newly developed products; our ability to obtain and
protect intellectual property rights in key technologies; our
ability to achieve the objectives of operational and strategic
initiatives, align our resources and cost structure with business
conditions, and attract, motivate and retain key employees; the
variability of operating expenses and results among products and
segments, and our ability to accurately forecast future results,
market conditions, customer requirements and business needs;
changes in U.S. tax laws and regulation, and our interpretations of
them; and other risks and uncertainties described in our SEC
filings, including our most recent Forms 10-K and 8-K. All
forward-looking statements are based on management’s current
estimates, projections and assumptions, and we assume no obligation
to update them.
About Applied Materials
Applied Materials, Inc. (Nasdaq: AMAT) is the leader in
materials engineering solutions used to produce virtually every new
chip and advanced display in the world. Our expertise in modifying
materials at atomic levels and on an industrial scale enables
customers to transform possibilities into reality. At Applied
Materials, our innovations make possible the technology shaping the
future. Learn more at www.appliedmaterials.com.
Contact:
Ricky Gradwohl (editorial/media) 408.235.4676Michael Sullivan
(financial community) 408.986.7977
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
|
Three Months Ended |
(In
millions, except per share amounts) |
January 27, |
|
January 28, |
2019 |
2018 |
Net sales |
$ |
3,753 |
|
|
$ |
4,205 |
|
Cost of products
sold |
2,088 |
|
|
2,265 |
|
Gross profit |
1,665 |
|
|
1,940 |
|
Operating
expenses: |
|
|
|
Research,
development and engineering |
516 |
|
|
489 |
|
Marketing
and selling |
131 |
|
|
126 |
|
General
and administrative |
110 |
|
|
110 |
|
Total operating
expenses |
757 |
|
|
725 |
|
Income from
operations |
908 |
|
|
1,215 |
|
Interest expense |
60 |
|
|
59 |
|
Interest and other
income, net |
40 |
|
|
27 |
|
Income before income
taxes |
888 |
|
|
1,183 |
|
Provision for income
taxes |
117 |
|
|
1,018 |
|
Net income |
$ |
771 |
|
|
$ |
165 |
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.81 |
|
|
$ |
0.16 |
|
Diluted |
$ |
0.80 |
|
|
$ |
0.15 |
|
Weighted average number
of shares: |
|
|
|
Basic |
957 |
|
|
1,056 |
|
Diluted |
965 |
|
|
1,071 |
|
|
|
|
|
|
|
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED
CONDENSED BALANCE SHEETS
(In
millions) |
January 27, |
|
October 28, |
2019 |
2018 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
3,192 |
|
|
$ |
3,440 |
|
Short-term investments |
520 |
|
|
590 |
|
Accounts
receivable, net |
2,444 |
|
|
2,323 |
|
Inventories |
3,703 |
|
|
3,721 |
|
Other
current assets |
426 |
|
|
530 |
|
Total current
assets |
10,285 |
|
|
10,604 |
|
Long-term
investments |
1,588 |
|
|
1,568 |
|
Property, plant and
equipment, net |
1,456 |
|
|
1,407 |
|
Goodwill |
3,368 |
|
|
3,368 |
|
Purchased technology
and other intangible assets, net |
199 |
|
|
213 |
|
Deferred income taxes
and other assets |
2,026 |
|
|
473 |
|
Total assets |
$ |
18,922 |
|
|
$ |
17,633 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable and accrued expenses |
$ |
2,420 |
|
|
$ |
2,721 |
|
Contract
liabilities |
1,356 |
|
|
1,201 |
|
Total current
liabilities |
3,776 |
|
|
3,922 |
|
Income taxes
payable |
1,303 |
|
|
1,254 |
|
Long-term debt |
5,310 |
|
|
5,309 |
|
Other liabilities |
324 |
|
|
303 |
|
Total liabilities |
10,713 |
|
|
10,788 |
|
Total stockholders’
equity |
8,209 |
|
|
6,845 |
|
Total liabilities and
stockholders’ equity |
$ |
18,922 |
|
|
$ |
17,633 |
|
|
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(In
millions) |
Three Months Ended |
January 27, |
|
January 28, |
2019 |
2018 |
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
771 |
|
|
$ |
165 |
|
Adjustments required to reconcile net income to cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
88 |
|
|
119 |
|
Share-based compensation |
65 |
|
|
65 |
|
Deferred
income taxes |
41 |
|
|
32 |
|
Other |
1 |
|
|
— |
|
Net
change in operating assets and liabilities |
(132 |
) |
|
1,085 |
|
Cash provided by
operating activities |
834 |
|
|
1,466 |
|
Cash flows from
investing activities: |
|
|
|
Capital
expenditures |
(133 |
) |
|
(203 |
) |
Cash paid
for acquisitions, net of cash acquired |
— |
|
|
(5 |
) |
Proceeds
from sales and maturities of investments |
464 |
|
|
1,944 |
|
Purchases
of investments |
(397 |
) |
|
(384 |
) |
Cash provided by (used
in) investing activities |
(66 |
) |
|
1,352 |
|
Cash flows from
financing activities: |
|
|
|
Common
stock repurchases |
(750 |
) |
|
(782 |
) |
Tax
withholding payments for vested equity awards |
(74 |
) |
|
(141 |
) |
Payments
of dividends to stockholders |
(192 |
) |
|
(106 |
) |
Cash used in financing
activities |
(1,016 |
) |
|
(1,029 |
) |
Increase (decrease) in
cash and cash equivalents |
(248 |
) |
|
1,789 |
|
Cash and cash
equivalents — beginning of period |
3,440 |
|
|
5,010 |
|
Cash and cash
equivalents — end of period |
$ |
3,192 |
|
|
$ |
6,799 |
|
Supplemental cash flow
information: |
|
|
|
Cash
payments for income taxes |
$ |
34 |
|
|
$ |
78 |
|
Cash
refunds from income taxes |
$ |
8 |
|
|
$ |
40 |
|
Cash
payments for interest |
$ |
34 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
APPLIED MATERIALS, INC.UNAUDITED SUPPLEMENTAL
INFORMATION
Corporate and Other |
|
|
|
(In millions) |
Q1 FY2019 |
|
Q1 FY2018 |
Unallocated net
sales |
$ |
16 |
|
|
$ |
29 |
|
Unallocated cost of
products sold and expenses |
(74 |
) |
|
(118 |
) |
Share-based
compensation |
(65 |
) |
|
(65 |
) |
Total |
$ |
(123 |
) |
|
$ |
(154 |
) |
|
Additional Information |
|
|
Q1 FY2019 |
|
Q1 FY2018 |
Net Sales by Geography
(In millions) |
|
|
|
|
|
|
|
United States |
450 |
|
|
370 |
|
% of
Total |
12 |
% |
|
9 |
% |
Europe |
296 |
|
|
252 |
|
% of
Total |
8 |
% |
|
6 |
% |
Japan |
651 |
|
|
482 |
|
% of
Total |
17 |
% |
|
11 |
% |
Korea |
572 |
|
|
1,203 |
|
% of
Total |
15 |
% |
|
29 |
% |
Taiwan |
656 |
|
|
741 |
|
% of
Total |
18 |
% |
|
18 |
% |
Southeast Asia |
160 |
|
|
193 |
|
% of
Total |
4 |
% |
|
4 |
% |
China |
968 |
|
|
964 |
|
% of
Total |
26 |
% |
|
23 |
% |
|
|
|
|
Employees (In
thousands) |
|
|
|
Regular Full Time |
21.2 |
|
|
19.0 |
|
|
|
|
|
|
|
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION
OF GAAP TO NON-GAAP ADJUSTED RESULTS
|
Three Months Ended |
(In
millions, except percentages) |
January 27, |
|
January 28, |
2019 |
2018 |
Non-GAAP Adjusted Gross
Profit |
|
|
|
Reported gross profit -
GAAP basis |
$ |
1,665 |
|
|
$ |
1,940 |
|
Certain items
associated with acquisitions1 |
10 |
|
|
45 |
|
Non-GAAP adjusted gross
profit |
$ |
1,675 |
|
|
$ |
1,985 |
|
Non-GAAP adjusted gross
margin |
44.6 |
% |
|
47.2 |
% |
Non-GAAP Adjusted
Operating Income |
|
|
|
Reported operating
income - GAAP basis |
$ |
908 |
|
|
$ |
1,215 |
|
Certain items
associated with acquisitions1 |
14 |
|
|
49 |
|
Acquisition integration
and deal costs |
3 |
|
|
1 |
|
Non-GAAP adjusted
operating income |
$ |
925 |
|
|
$ |
1,265 |
|
Non-GAAP adjusted
operating margin |
24.6 |
% |
|
30.1 |
% |
Non-GAAP Adjusted Net
Income |
|
|
|
Reported net income -
GAAP basis |
$ |
771 |
|
|
$ |
165 |
|
Certain items
associated with acquisitions1 |
14 |
|
|
49 |
|
Acquisition integration
and deal costs |
3 |
|
|
1 |
|
Impairment (gain on
sale) of strategic investments, net |
— |
|
|
(1 |
) |
Loss (gain) on
strategic investments, net |
(12 |
) |
|
— |
|
Income tax effect of
share-based compensation2 |
(5 |
) |
|
(39 |
) |
Income tax effect of
changes in applicable U.S. tax laws3 |
(24 |
) |
|
1,006 |
|
Income tax effects
related to amortization of intra-entity intangible asset
transfers |
(28 |
) |
|
— |
|
Resolution of prior
years’ income tax filings and other tax items |
59 |
|
|
(13 |
) |
Income tax effect of
non-GAAP adjustments4 |
1 |
|
|
(3 |
) |
Non-GAAP adjusted net
income |
$ |
779 |
|
|
$ |
1,165 |
|
|
|
|
|
|
|
|
|
1 These items are incremental charges attributable to completed
acquisitions, consisting of amortization of purchased intangible
assets.2 GAAP basis tax benefit related to share-based compensation
is being recognized ratably over the fiscal year on a non-GAAP
basis.
3 Charges to income tax provision related to a one-time
transition tax and a decrease in U.S. deferred tax assets as a
result of the recent U.S. tax legislation.
4 Adjustment to provision for income taxes related to non-GAAP
adjustments reflected in income before income taxes.
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION
OF GAAP TO NON-GAAP ADJUSTED RESULTS
|
Three Months Ended |
(In
millions, except per share amounts) |
January 27, |
|
January 28, |
2019 |
2018 |
Non-GAAP Adjusted
Earnings Per Diluted Share |
|
|
|
Reported earnings per
diluted share - GAAP basis |
$ |
0.80 |
|
|
$ |
0.15 |
|
Certain items
associated with acquisitions |
0.01 |
|
|
0.04 |
|
Loss (gain) on
strategic investments, net |
(0.01 |
) |
|
— |
|
Income tax effect of
share-based compensation |
— |
|
|
(0.04 |
) |
Income tax effect of
changes in applicable U.S. tax laws |
(0.02 |
) |
|
0.94 |
|
Income tax effects
related to amortization of intra-entity intangible asset
transfers |
(0.03 |
) |
|
— |
|
Resolution of prior
years’ income tax filings and other tax items |
0.06 |
|
|
(0.01 |
) |
Non-GAAP adjusted
earnings per diluted share |
$ |
0.81 |
|
|
$ |
1.08 |
|
Weighted average number
of diluted shares |
965 |
|
|
1,071 |
|
|
|
|
|
|
|
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION
OF GAAP TO NON-GAAP ADJUSTED RESULTS
|
Three Months Ended |
(In
millions, except percentages) |
January 27, |
|
January 28, |
2019 |
2018 |
Semiconductor Systems
Non-GAAP Adjusted Operating Income |
|
|
|
Reported operating
income - GAAP basis |
$ |
631 |
|
|
$ |
1,024 |
|
Certain items
associated with acquisitions1 |
11 |
|
|
46 |
|
Non-GAAP adjusted
operating income |
$ |
642 |
|
|
$ |
1,070 |
|
Non-GAAP adjusted
operating margin |
28.3 |
% |
|
37.5 |
% |
AGS Non-GAAP Adjusted
Operating Income |
|
|
|
Reported operating
income - GAAP basis |
$ |
285 |
|
|
$ |
255 |
|
Acquisition integration
costs |
— |
|
|
1 |
|
Non-GAAP adjusted
operating income |
$ |
285 |
|
|
$ |
256 |
|
Non-GAAP adjusted
operating margin |
29.6 |
% |
|
29.1 |
% |
Display and Adjacent
Markets Non-GAAP Adjusted Operating Income |
|
|
|
Reported operating
income - GAAP basis |
$ |
115 |
|
|
$ |
90 |
|
Certain items
associated with acquisitions1 |
3 |
|
|
3 |
|
Non-GAAP adjusted
operating income |
$ |
118 |
|
|
$ |
93 |
|
Non-GAAP adjusted
operating margin |
23.3 |
% |
|
21.0 |
% |
|
|
|
|
|
|
1 These items are incremental charges attributable to completed
acquisitions, consisting of amortization of purchased intangible
assets.
Note: The reconciliation of GAAP and non-GAAP
adjusted segment results above does not include certain revenues,
costs of products sold and operating expenses that are reported
within corporate and other and included in consolidated operating
income.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
ADJUSTED EFFECTIVE INCOME TAX RATE
|
Three Months Ended |
(In millions, except
percentages) |
January 27, 2019 |
|
|
Provision for income
taxes - GAAP basis (a) |
$ |
117 |
|
Income tax effect of
share-based compensation |
5 |
|
Income tax effect of
changes in applicable U.S. tax laws |
24 |
|
Income tax effects
related to amortization of intra-entity intangible asset
transfers |
28 |
|
Resolutions of prior
years’ income tax filings and other tax items |
(59 |
) |
Income tax effect of
non-GAAP adjustments |
(1 |
) |
Non-GAAP adjusted
provision for income taxes (b) |
$ |
114 |
|
|
|
Income before income
taxes - GAAP basis (c) |
$ |
888 |
|
Certain items
associated with acquisitions |
14 |
|
Acquisition integration
and deal costs |
3 |
|
Loss (gain) on
strategic investments, net |
(12 |
) |
Non-GAAP adjusted
income before income taxes (d) |
$ |
893 |
|
|
|
Effective income tax
rate - GAAP basis (a/c) |
13.2 |
% |
|
|
Non-GAAP adjusted
effective income tax rate (b/d) |
12.8 |
% |
|
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