Analyst Conference Summary

Applied Materials

conference date: August 18, 2010 @ 1:30 PM Pacific Time
for quarter ending: August 1, 2010 (third quarter fiscal 2010)

Forward-looking statements

Overview: Solid revenue growth, but restructuring solar division.

Basic data (GAAP) :

Revenues were $2.52 billion, up 10% sequentially from $2.30 billion and up 123% from $1.13 billion in the year-earlier quarter.

Net income was $123 million, down 53% sequentially from $264 million but up from a loss of $55 million year-earlier.

EPS (earnings per share) were $0.09, down 55% sequentially from $0.20 but up from negative $0.04 year-earlier.


Strong quarter expected. Silicon Systems flat, AGS (services) up 10%, display up 20%. 10 to 20% drop in crystalline solar. Overall net sales flat to up 5%. non-GAAP EPS $0.28 to $0.32.

Conference Highlights:

EPS was $0.03 above the revised range forecast. Expects a strong finish to fiscal year. End markets saw good growth in calendar Q2. Monitoring possible economic softening.

Semiconductor industry spending outlook being maintained. Foundries are investing significantly more than had been expected. NAND pricing fell about 5% this quarter, but supply and demand have been growing in a balanced fashion. DRAM growth may slow, but logic, FLASH and NAND will make up for that. 15 fab expansion projects are being monitored. Believes will gain 2% market share during the year. Silicon Systems segment orders grew 8% in the quarter to $1.54 billion, sales were $1.45 billion.

Etch is leading sales growth with 4 points of market share gain. CMP had a record quarter. Semi tools booked records in the quarter. In effect consolidation of industry.

Services (AGS) grew in line with Fab utilization. Expects 35% y/y growth for fiscal 2010. Orders were $595 million, sales $468 million.

TV unit end sales are up. There was a weeks' worth of excess global inventory, but demand for the year is up 80%. Touch screen growth is taking off. $242 million orders, $216 million sales in quarter. Expects continuing improvements.

Solar industry panel installations are moderating this year, but is seen to increase in 2011. Prices have remained stable. Leading panel makers are sold out through the end of the year. Crystalline silicon equipment spending is projected to double in 2011. Market is becoming less dependent on government support. AMAT's platform is the preferred one in China. $353 million in orders, net sales $387 million, despite no thin-film orders. Single junction Sunfab line revenue was recognized. Inventory charges for thin-film restructuring are in cost of goods sold, the rest of charges are in operating expenses, total is $405 million.

Revenues overall are expected to continue to climb in fiscal q4.

Orders up 8% to $2.7 billion. $3.1 billion backlog, up 5% in quarter.

34.2% GAAP gross margin, down 10 points due to thin film inventory charge.

$0.17 per share non-GAAP net income. Includes $0.12 of inventory charges.

$299 million cash flow. $100 million used for stock buy-backs, $94 million paid in dividends. Cash ended up slightly at $3.63 billion.

Cost of goods sold was $1.66 billion. Gross profit $860.1 million. Operating expenses were $677.5 million comprised of: R&D $290.4 million, general and administrative $146.0 million, marketing $105.8 million, restructuring and impairments $135.3 million. GAAP income from operations $182.7 million, impairment of equity $7.8 million, interest $3 million, tax $54.7 million.


NAND orders? In 2010 we think it will be near 20% of orders, with two major fabs giving orders and then delivering revenues in the next few quarters.

DRAM spending? Slack there is what we already expected. DRAM spending had already been up for a while.

Silicon backlog? It is mainly DRAM and foundry in the order book so far.

Manufacturing transition in Asia? There are 2 major initiatives, over 90% of large area tools are already shipping out of Taiwan, but there is still room for margin improvements. We are in early days of ramp for Singapore facility. By 2012 we would expect 50% of shipments to be coming out of Singapore. It makes sense because so many of our customers are in Asia. We expect our tax rate to improve noticeably in 2011. Austin will remain an important part of our manufacturing activity.

Bookings? No bookings guidance, but we have a strong outlook across our businesses. Q1 fiscal 2011 is currently looking better than q4.

LCD inventory issue has not, so far, caused order cancellations or delays.

There are lots of exciting projects selling into Asia and emerging economies right now. If there is a consumer pullback you would see it in memory first. So far utilization is quite high, no investment pullbacks yet.

$300 million thin film backlog balance? We will run through that, signing off the factories, in the next two quarters.

Number of foundry customers? All the top foundries are adding capacity at this point.

NAND Flash outlook? We are expecting strong bit growth. It could be somewhat dependent on tablet PC growth. Two big Flash fabs are coming online. We are sure we will gain 2 points of market share in 2010. We are gaining even in our lower share products like inspection and etch.

LED side? We are still working on a product, we don't have a product announcement yet.

28 nm ramp should come in 2012, we have share wins there already. Logic transistors are just going to get a lot more complicated in the next round.

We think logic orders will be up substantially q4 over q3, as there was Q3 over Q2.

The surprising demand for 200 mm tools (as opposed to newer 300 mm) resulted in some supply chain problems. The demand is broad-based with analog, automotive likely to stay on 200 mm. It is not clear if this is a new run rate or just catching up for the lack of investment starting in 2008.

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Copyright 2010 William P. Meyers