Analyst Conference Summary

Applied Materials

conference date: February 17, 2010 @ 1:30 PM Pacific Time
for quarter ending: January 31, 2010 (first quarter fiscal 2010)

Forward-looking statements

Overview: Revenues were well up, profits a bit softer due to Semitool acquisition costs, but guidance higher than expected.

Basic data (GAAP) :

Revenues were $1.85 billion, up 21% sequentially from $1.53 billion, and up 39% from $1.33 billion in the year-earlier quarter.

Net income was $82.8 million, down 40% sequentially from $138 million, but up from a loss of $132.9 million year-earlier.

EPS (earnings per share) were $0.06, down 40% sequentially from $0.10, but reversing a loss of $0.10 year-earlier.


Will increase spending to ramp revenues quickly. Sales up over 50% in fiscal 2010 over fiscal 2009. Includes 3 quarters of Semitool.

Fiscal Q2 estimate is 15% to 25% sequential revenue increase. SSG up 25% sequentially. AGS 10% up sequentially. Display to double sequentially. EEG (solar) sales to drop 50%. 15 to 25% overall revenue increase sequentially. $0.17 to $0.22 per share non-GAAP EPS for Q2.

Full fiscal 2010 revenues up over 50% y/y, which is increased guidance.

Conference Highlights:

"Memory prices remain high, encouraging customers to invest in the next generation of technology... Customers are discussing plans for new fabs, which should lead to increased equipment spending in 2011." Expects to gain market share.

Increased orders were driven almost entirely by SSG segment (silicon systems group).

Brightfield system should gain market share in wafer defect inspection market.

Pleased with Semitool acquisition, which will address an $800 million market by 2012. Semitool.

Non-GAAP results: net income $179 million, EPS $0.13. Excludes restructuring, impairments, acquisitions, but includes equity-based compensation expense.

Korea customer confidential information charges were against individuals; at this time AMAT itself has not been charged.

$2.9 billion backlog.

$367 million positive operating cash flow. $80 million spent on dividends. Semitool bought for $323 million in cash. Ended with $3.2 billion cash and investments.

$104 million restructuring charges.

SSG orders were up 80% y/y to $1.13 billion. Revenues $970 million. This challenged the supply chain. Most new orders were to foundry and DRAM customers.

9% sequential growth in applied global services (AGS) segment. Operating margin declined due to refurbished equipment mix. New orders $474 million, revenues $426 million.

Display industry sees strong LCD TV demand, particularly in China, so expects equipment spending to grow 60% over the next year. Gen 10 systems are now proven in production. New orders were $126 million, revenues $132 million. Down sequentially of strong 4th quarter.

EES (energy and environmental solutions) orders of $230 million, revenues $321 million. Solar installations expected up 50% this year. In China solar is a national priority, 5 to 7 gigwatts of capacity to be added this year. But capacity may exceed short term demand. Two new lines of SunFab signed off, bringing total to 9. But dropping prices have pressured customers, so AMAT is helping them to reduce costs.


Silicon sales compared to past peaks? It is hard to tell where the peak is going to be. We don't think the run rate is likely to surpass 2007 levels in 2010, but visibility in the second half is poor.

39% operating profit peak in 2007, but typically we did low to mid thirties. We should be able to achieve that in this environment.

Flash order recovery? At 13% of SSG orders, it is below the normal rate. We expect it to come back in the 2nd half of the year, to close to 20% of spending.

Are cost cuts complete? In April quarter you will see the full flow through of cost reductions. We expect $450 million in cost savings, about $250 million in operating expense. Our focus is managing to the current ramp. We will continue to work on our supply chain and other areas for savings.

Will 2nd half of year be down in semiconductor segment? We think it is flat to plus or minus 10% in second half, more if Flash comes back.

When will SunFab customers become more competitive with crystaline silicon? If capacity comes on the way we think, there will be pricing pressure until demand ramps to match.

Supply chain constraint effects on expenses? Major impact was higher expediting and logistics costs. We are seeing improvements in this quarter, but still have work to do. We are building our capabilities in Singapore to deal with demand in Asia.

Etch business market share? We have more exposure in the metalic etch memory area, but we have been increasing our applications in memory as well, which are dialectric oriented.

PVD share loss with a significant customer? You are talking about copper barrier for memory. Looking at new applications beyond memory, we think we will gain share in the space by the end of the year.

For this year expects $21 to $23 billion overall market for wafer fabrication equipment spend.

Expects 10 to 15% PC market growth in 2010. Capacity additions have to follow pretty quickly.

DRAM order sustainability? Orders are concentrated in a very small number of companies. Sustainability depends on how the cellphone and PC markets go. We don't see enough capacity to sustain a 60% bit growth. We don't see capacity getting ahead of demand for the next few quarters.

Customers adding new fabs, more color on? We are looking at 9 new fabs customers are talking about. Almost all of these are for capacity in 2011, one could be up in late 2010 for Flash. Some are DRAM fabs, some are foundry factories.

Display equipment 30% revenue increase v. 60% order increase? 60% is a calendar year forecast, 30% is our fiscal year?

Money issues that had plagued the industry in 2008 and 2009 are going away, so they can take on debt to buy new equipment.

Semitool with be cash acretive in year 1, GAAP acretive in year 2.

Solar strategy changes? SunFab factory utilization is challenged. But we believe in the fundamental technology, so we are focussed on meeting our commitment to customers. The market they address, utility-scale solar, this market is at its inception. Most of the market currently is rooftop, where our crystaline products are having success.

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Copyright 2010 William P. Meyers