Analyst Conference Summary

Applied Materials

conference date: November 14, 2007 @ 1:30 PM Pacific Time
for quarter ending: October 29, 2007 (4th quarter fiscal 2007)

Forward-looking statements

Overview: Not a very good quarter, with numbers decreasing sequentially and year-over-year.

Basic data:

Revenues were $2.37 billion, down 7.5% sequentially from $2.56 billion and down 6% from $2.52 billion year-earlier.

Net income was $422 million, down 11% sequentially from $474 million, and down 6% from $449 million year-earlier.

EPS (earnings per share) were $0.30, down sequentially from $0.34, but flat against $0.30 year-earlier.


First part of 2008 will be challenging. Customers are cautious. Semiconductor capital expenditures of customers expected down 5 to 15% in 2008. But display environment is recovering, with spend in industry expected to be up 20% in 2008. Solar looks good.

Q1 2008 targets are orders down 5 to 15%. Revenue 13 to 18% down. EPS in line with revenue, so $0.16 to $0.20.

Conference Highlights:

For the full year (fiscal 2007) Revenues were $9.73 billion, up 6% from $9.17 billion in fiscal 2006.Net income was $1.71 billion, up 12% from $1.52 billion. EPS (earnings per share) were $1.20, up 24% from $0.97 billion in fiscal 2006. Improved operating activities were key to the earnings increased. $2.22 billion cash from operations. Entered solar market, which was expensive. Exceeded $600 million in solar contracts

Q4 was down but within guidance and better than industry as a whole.

$2.21 orders in Q4. $3.65 billion backlog at end of quarter.

Q4 gross margin was 45.5%, a decrease of 2 points, mainly due to product mix and the closing of a facility.

Silicon systems segment orders down 17% from Q3 as customers reduced expansion. 67% of orders were for memory equipment. 65nm and smaller is now the bulk of orders. Revenues were $1.5 billion.

Fab solutions did not meet growth expectations, but remain confident. Today's deal announced with Elpida shows we are making progress. Revenues were $572 million.

Display segment orders were up 80% from Q3, net sales were up 7%, as panel makers resume expansion. Revenues were $222 million.

Adjacent technology segment 83% up from Q3. Revenues starting to reach meaningful levels at $98 million.

$693 million in cash from operations, $632 million free cash flow.

Capital spending was $61 million, depreciation and amortization was $81 million.

Cash decreased slightly due to several large cash outlays and $400 million for share repurchases and $83 million for dividends. Cash and equivalents ended at $1.9 billion.

In Q1 2008 we will spend between $400 million and $600 million on share repurchases.

Cost of products sold was $1.29 billion. Gross margin $1.08 billion. Operating expense: R&D $271 million, Marketing and sales $116 million, General and Administrative $134 million, restructuring and asset impairments $1.5 million. Leaving $635 million income from operations. Interest expense was $9 million, income was $37 million. Income tax provision $211 million.

In 2008 we will focus on execution and efficiency and expand in solar. We are gaining market share in solar.


1st half semiconductor orders lower than competitors? We had one major memory order in Q4, which skews the sequential numbers.

Do these numbers mean a market share loss in semiconductors? Again, mainly big order timing. In fiscal Q2 we expect an increase in orders. There is not real share loss in the numbers. Customers are cautious in this year-end period.

Asian thin-film installation? We are on track with that. Bulk of revenue from contracts in place today does not come in until fiscal 2009.

Isn't solar a commodity business? We are aiming to drive down costs by selling many of our SunFab plants.

Crystal v. thin film solar strategy? Crystalline silicon bookings are up to $98 million, partly from acquiring HCT. Focus is on moving technology forward by thinning wafers. But we see thin film line as being the real revenue generator. The 5.7 square meter standard is our main competitive advantage, which is targeted at solar farms.

While customers are saying they will be down 5 to 15% on orders, in fact their factories are full, so we would expect it to be more like 5%.

Fab solutions usually has Q1 as its peak quarter, but we have a more moderate outlook for that segment this year.

Margin pressures from solar business ramp up? Each segment has their own business model. Will invest in all segments and make each as efficient as possible. We have a continuous improvement road map.

Holiday period effect on customers? Yes, especially in items like Flash if sales are good they may have to be less cautious in expansion plans. Computer sales have been good.

Expects to do 3 to 4% better than market in silicon if wafer fabrication is excluded.

The leading edge of technology is moving ahead slower than in the past, so customers can keep their capital expense stabile even as their own sales grow 5 to 10%.

Energy bill? Have been weighing in on that for some time. Confident a meaningful bill will be passed in this $100 per barrel oil environment. U.S. is not much of a market for solar right now.

Any cancellations in quarter? Minor.

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Copyright 2007 William P. Meyers