Analyst Conference Summary

Applied Materials

conference date: February 12, 2008 @ 1:30 PM Pacific Time
for quarter ending: January 27, 2008 (1st quarter fiscal 2008)

Forward-looking statements

Overview: Rough times as customers are cautious about investing in equipment for the future. However, new orders data was promising and guidance was pretty good due to increased demand for solar and display panel equipment.

Basic data:

Revenues were $2.09 billion, down 12% sequentially from $2.37 billion and 8% from $2.28 billion year-earlier.

Net income was $262 million, down 38% sequentially from $422 million and down 35% from $403 million year-earlier.

EPS (earnings per share) were $0.19, down 37% sequentially from $0.30 and down 34% from $0.29 year-earlier.


Q2 orders down 5% to up 5% sequentially. Revenue flat to up 5%. EPS $0.18 to $0.22.

Conference Highlights:

Weak global market for semiconductor equipment.

New orders in the quarter were $2.50 billion, increased 13% sequentially and decreased 2% from year-earlier. Order backlog was $4.10 billion, up sequentially 13% from $3.65 billion. LCD customers are being driven to capacity additions by high consumer demand. But DRAM customers led a decline in silicon equipment demand.

Despite decrease from Q4, we beat our guidance.

Non-GAAP net income wa given as $345 million or $0.25 per share.

Gross margin was 44.8%.

New orders by geography: Taiwan 32%, North America 20%, Korea 14%, Japan 12%, other asia 11%, Europe 11%.

New orders increase was from demand for display products and first Applied SunFab Thin Film Line solar cell orders.

New reportable segments will be Applied Global Services (formerly Fab Solutions) and Energy and Environmental Solutions (formerly Adjacent Technologies).

Silicon segment had sales of $1.24 billion and new orders of $1.08 billion. 34% was DRAM; 26% was Flash.

Applied Global Services had $595 million sales and $610 million new orders. There were lower orders for spares.

Display had $133 million in sales and $555 million in new orders.

Energy and Environmental Solutions had $122 million in sales and $260 million in new orders. First full quarter of orders for precision thin film layering product.

Cost of sales was $1.15 billion, leaving gross margin of $935 million. Operating expenses were $373 million and included: R&D $273 million; sales and marketing $124 million; general and administrative $116 million; restructuring and impairments $49 million. Income from operations was $373 million. Interest income was $30.6 million. Interest expense was $4.5 million. Pre-tax loss on investment was $9.6 million. Provision for income taxes was $127 million.

Cash flow was $390 million. Investing in working capital for solar ramps. Inventory was reduced. $3.36 billion in cash and equivalents. Share repurchases were $600 million for 34 million; $83 million cash dividends.

Has a global cost reduction plan for $150 million per year in savings, affecting 1000 people in Silicon Systems segment.

Technology innovations continue, including in Flash miniturization technology. Lowering cost per watt in solar, where demand is robust and growing.


Customers are trying to pull display equipment orders into the first half of the year, but the run rate probably won't be sustained for the full year.

Moser Bear (?sp)? They were our first thin film customer. We have no specific announcement.

Solar ramp? Depends on our customers. 4 major discussions of larger factories.

Silicon direction in Q2? We think orders will be up modestly, but would not call that momentum at this point.

Thin film solar orders beyond Q2? $160 million booked this quarter. We expect some additional bookings off of last year's contracts in Q2.

Backlog size? No change in dynamics of backlog. We have more longer-lived orders in display and services making up the mix. Quarter and a half out is the normal pattern.

SunFab? Production output is expected by mid-year for Moser Bear factory.

Cost reduction in Silicon? Headcount reductions were most of the cost savings, will roll out through year.

Guidance, what could drive an orders down 5% scenario? Off the peak for display orders, which were incredible in Q1.

Solar had a Gigawatt capacity added in 2007, 6 to 8 in 2010 in entire industry. We have a demo line to show to customers. No customer is shipping SunFab pannels yet, should see that by mid-year.

Excess capacity in Silicon segment? You can see the DRAM maker cutback in demand for equipment. But DRAM use is exploding, so capacity may be absorbed in a few quarters, not in years.

Most of the display ramp in revenue will come towards the end of the year. Lead times run around 9 months. First quarter fical 2009 revenue should be the peak for revenue.

Energy break even point? In 2009 for sure.

Tandem junction line startup? From hear on out should be tandem junction sales. Hope to see output from line by end of fiscal 2008, with first shipment March 2008.

We are in discussions on up to four thin film gigawatt factory contracts, but don't know what the outcome will be.

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Copyright 2008 William P. Meyers