Analyst Conference Summary

Applied Materials

conference date: May 13, 2008 @ 1:30 PM Pacific Time
for quarter ending: April 28, 2008 (2nd quarter fiscal 2008)

Forward-looking statements

Overview: Treading water: up sequentially, down from year earlier.

Basic data (GAAP) :

Revenues were $2.15 billion, up 3% sequentially from $2.09 billion, but down 15% from $3.53 billion year-earlier.

Net income was $303 million, up 16% sequentially from $262 million, but down 26% from $411 million year-earlier.

EPS (earnings per share) were $0.22, up 16% sequentially from $0.19, but down 24% from $0.29 year-earlier.


Orders down 15% to 25% driven by very weak silicon equipment orders and weakening of diplay orders after 2 very strong quarters. Revenues down 10% to 18%, with Flash and DRAM pullback. EPS $0.10 to $0.14.

Conference Highlights:

"We are ramping our display and solar businesses while addressing the challenges of a weaker global chip equipment market." Expect continued downward revenues in chip equipment segment. Wafer fab equipment spending down 25% to 30% in 2008. 50% down in DRAM, NAND flash down more than 15%, foundry and logic each slowing by more than 20%.

We think this is the bottom. Won't see growth in investment until DRAM prices start improving. DRAM industry could consolidate. DDR3 adoption will help. NAND in 2009 to ramp up again. Also waiting for foundries to switch to 65 nm and then 45 nm.

We continue to introduce new equipment models. CMP products were a problem in 2007, but we've improved the products and buyers are taking another look. 2008 should see gains in inspection equipment.

We are in an exciting time for solar. We are challenged to set up multiple factory simultaneously, but are helping our customers ramp factories rapidly. SunFab 5.7 square meter solar panels should be rolling off lines in midyear. Getting excellent results improving efficiency. Doing well with crystaline silicon solar as well as thin-film SunFab line. Costs of solar are dropping and already can compete with some peak energy sources.

Display equipment ramp is unprecedented.

New orders were $2.41 billion, down 3% sequentially and at low end of our target. By region new orders: Korea 22%, Taiwan 22%, Southeast Asia and China 18%, Japan 13%, Europe 13%, North America 12%. Order backlog ended at $4.59 billion, up $.49 billion sequentially as display and solar ramp offset silicon fab slowdown.

Non-GAAP net income was $363 million, or $0.26 per share.

New orders by segment: Silicon $1.06 billion (DRAM was 40% of orders, foundries 22%, flash 13%, logic 25%). Global Services $602 million. Display $493 million. Energy and Environment $257 million ($152 million SunFab).

Revenues by segment: Silicon $1.27 billion. Global Services $599 million. Display $198 million. Energy and Environment $85 million.

Now at $200 million quarterly shipment run rate in solar.

Cost of Sales was $1.18 billion. R&D expense was $287 million, marketing and selling $119 million, general and administrative $122 million, restructuring and impairments $0.5 million. Total operating expenses were $469 million, leaving income from operations of $438 million. $8 million loss on investment, net interest income $26 million, provision for income taxes $152 million.

Cash and equivalents ended at $3.85 billion, up $484 million sequentially. $874 million cash from operations. $300 million to stock repurchases and $81 million cash dividends.

Expect $200 to $300 million share repurchase in Q3.


Cost per watt for customers? Over time the trend will be to tandem junction. We have a target to improve tandem junction efficiency to 10%. In big lines capital efficiency should help cost per watt from $1 another 15% to 25% lower. We are just starting up factories, so numbers are just projections at this point. We are already encouraged by what we are seeing.

If cost per watt goes down, under our service contracts we win. They win, we win, customers win.

Recovery in semiconductor equipment in September? We do expect a recovery after this quarter, but there is a lot of uncertainty. But if memory companies are unprofitable, they won't invest more.

Recognition of solar income? Revenue booked for this quarter are from contracts announced last year.

New mask product? Four customers at present. Going to mask shops so far, just starting to go to fabs.

Solar revenue recognition in 2009? Too early to tell. Right now we have to focus on getting lines up and running for customers.

Q3 bottom for both revenue and orders? Revenue definitely, maybe orders as well.

We had expected flash memory to have a strong second half, now we think it will continue down. We've seen 10 factories push out or lower their capacity builds.

Panels will start selling later in year. Our lines can make quarter, half and full panels. What is produced depends on customer demand.

We've been able to do the solar ramp without having to draw down our cash balances. We expect solar to break even in 2009 if not late 2008.

Are you walking away from some business due to margins (and losing market share)? We exited some businesses and in areas we have been challenged by competitors. We are talking about major change in demand and orders, not market share shifts. We report revenue on shipment and others report on signoff, so we may be an early indicator.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2008 William P. Meyers