Applied Materials Announces Second Quarter Results

• Q2 net sales of  $2.44 billion up 4% year over year led by growth in Applied Global Services and Display
• Q2 non-GAAP adjusted EPS of $0.29 up 4% year over year; GAAP EPS of $0.29 up 38% year over year

SANTA CLARA, Calif., May 14, 2015 - Applied Materials, Inc. (NASDAQ:AMAT), the global leader in precision materials engineering solutions for the semiconductor, display and solar industries, today reported results for its second quarter ended April 26, 2015.

Second quarter orders were $2.52 billion, up 11 percent sequentially and down 4 percent year over year. Net sales were $2.44 billion, up 4 percent sequentially and up 4 percent year over year.

On a non-GAAP adjusted basis, the company reported gross margin of 43.2 percent, operating income of $476 million, and net income of $362 million or $0.29 per diluted share. The company recorded GAAP gross margin of 41.6 percent, operating income of $416 million, and net income of $364 million or $0.29 per diluted share.

"Applied posted our highest quarterly revenue in the past three years and earnings near the top of our guidance range," said Gary Dickerson, president and CEO. "These results demonstrate that Applied is delivering the enabling products and services our customers need as they transition complex new devices into volume production."

Quarterly Results Summary

								Change
GAAP Results		Q2 FY2015		Q1 FY2015		Q2 FY2014		Q2 FY2015 vs. Q1 FY2015		Q2 FY2015 vs. Q2 FY2014
Net sales		$2.44 billion		$2.36 billion		$2.35 billion		4%		4%
Gross profit		$1.02 billion		$959 million		$1.00 billion		6%		1%
Operating income		$416 million		$458 million		$387 million		(9)%		7%
Net income		$364 million		$348 million		$262 million		5%		39%
Diluted earnings per share (EPS)		$0.29		$0.28		$0.21		4%		38%
Non-GAAP Adjusted Results
Non-GAAP adjusted gross profit		$1.06 billion		$1.00 billion		$1.04 billion		6%		1%
Non-GAAP adjusted operating income		$476 million		$447 million		$482 million		6%		(1)%
Non-GAAP adjusted net income		$362 million		$338 million		$348 million		7%		4%
Non-GAAP adjusted diluted EPS		$0.29		$0.27		$0.28		7%		4%

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, goodwill, or investments; gain or loss on sale of strategic investments or facilities; and certain tax items. A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also "Use of Non-GAAP Adjusted Financial Measures" section.

Second Quarter Reportable Segment Results and Comparisons to the Prior Quarter

Silicon Systems Group (SSG) orders were $1.70 billion, up 19 percent, with increases in foundry, flash and DRAM more than offsetting a decline in logic/other. Net sales increased by 8 percent to $1.56 billion. Non-GAAP adjusted operating income increased by 19 percent to $418 million or 26.8 percent of net sales. GAAP operating income increased by 22 percent to $374 million or 24.0 percent of net sales.

SSG new order composition was: foundry 36 percent; DRAM 31 percent; flash 21 percent; and logic/other 12 percent.

Applied Global Services orders of $641 million declined 7 percent primarily due to a seasonal decline in service contract renewals. Net sales of $646 million increased by 11 percent. Operating income increased to $170 million or 26.3 percent of net sales on both a GAAP and non-GAAP basis.

Display orders of $120 million were up 12 percent reflecting an increase in TV equipment orders. Net sales declined 41 percent to $163 million, which was in line with expectations. Operating income decreased to $40 million or 24.5 percent of net sales on both a GAAP and non-GAAP basis.

Energy and Environmental Solutions orders remained flat at $50 million, and net sales increased by 33 percent to $73 million. EES reported a non-GAAP adjusted operating loss of $4 million and a GAAP operating loss of $5 million.

Applied's backlog remained essentially flat at $2.78 billion and included negative adjustments of $69 million, primarily consisting of order cancellations and other adjustments. Backlog composition by segment was:  SSG 53 percent; AGS 29 percent; Display 13 percent; and EES 5 percent.

Business Outlook

For the third quarter of fiscal 2015, Applied expects net sales to be in the range of up 2 percent to up 6 percent from the previous quarter, the midpoint of which would be up 12 percent year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.31 to $0.35, the midpoint of which would be up 18 percent year over year.

This outlook excludes known charges related to completed acquisitions of $0.03 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Adjusted Financial Measures

Management uses non-GAAP adjusted results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied believes these measures enhance investors' ability to review the company's business from the same perspective as the company's management and facilitate comparisons of this period's results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast will be available at www.appliedmaterials.com. A replay will be available on the website beginning at 5:00 p.m. Pacific Time today.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks, technology transitions, our financial performance and market share positions, our business outlook for the third quarter of fiscal 2015, and other statements that are not historical facts. These statements and their underlying assumptions are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our products; global economic and industry conditions; consumer demand for electronic products; the demand for semiconductors; customers' technology and capacity requirements; the introduction of new and innovative technologies, and the timing of technology transitions; our ability to develop, deliver and support new products and technologies; the concentrated nature of our customer base;  our ability to expand our current markets, increase market share and develop new markets; market acceptance of existing and newly developed products; our ability to obtain and protect intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, align our resources and cost structure with business conditions, and attract, motivate and retain key employees; the variability of operating expenses and results among products and segments, and our ability to accurately forecast future results, market conditions, customer requirements and business needs; and other risks and uncertainties described in our SEC filings, including our most recent Forms 10-Q and 8-K. All forward-looking statements are based on management's current estimates, projections and assumptions, and we assume no obligation to update them.

About Applied Materials

Applied Materials, Inc. (Nasdaq:AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Our technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world. Learn more at www.appliedmaterials.com.

Contact:

Kevin Winston (editorial/media) 408.235.4498
Michael Sullivan (financial community) 408.986.7977

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

		Three Months Ended												Six Months Ended
(In millions, except per share amounts)		April 26,  2015				January 25,  2015				April 27,  2014				April 26,  2015				April 27,  2014
Net sales		$	2,442			$	2,359			$	2,353			$	4,801			$	4,543
Cost of products sold		1,426				1,400				1,352				2,826				2,651
Gross profit		1,016				959				1,001				1,975				1,892
Operating expenses:
Research, development and engineering		365				351				355				716				711
Marketing and selling		109				111				107				220				216
General and administrative		140				117				129				257				249
Loss (gain) on derivatives associated with announced business combination		(14		)		(78		)		23				(92		)		(1		)
Total operating expenses		600				501				614				1,101				1,175
Income from operations		416				458				387				874				717
Interest expense		24				23				23				47				48
Interest income and other income (loss), net		(3		)		2				1				(1		)		11
Income before income taxes		389				437				365				826				680
Provision for income taxes		25				89				103				114				165
Net income		$	364			$	348			$	262			$	712			$	515
Earnings per share:
Basic		$	0.30			$	0.28			$	0.22			$	0.58			$	0.43
Diluted		$	0.29			$	0.28			$	0.21			$	0.57			$	0.42
Weighted average number of shares:
Basic		1,230				1,224				1,216				1,227				1,211
Diluted		1,241				1,240				1,229				1,241				1,227

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)		April 26,  2015				January 25,  2015				October 26,  2014
ASSETS
Current assets:
Cash and cash equivalents		$	3,067			$	2,929			$	3,002
Short-term investments		163				158				160
Accounts receivable, net		1,798				1,580				1,670
Inventories		1,713				1,641				1,567
Other current assets		706				625				568
Total current assets		7,447				6,933				6,967
Long-term investments		936				930				935
Property, plant and equipment, net		887				864				861
Goodwill		3,304				3,304				3,304
Purchased technology and other intangible assets, net		860				905				951
Deferred income taxes and other assets		153				137				156
Total assets		$	13,587			$	13,073			$	13,174
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	1,822			$	1,737			$	1,883
Customer deposits and deferred revenue		874				784				940
Total current liabilities		2,696				2,521				2,823
Long-term debt		1,947				1,947				1,947
Other liabilities		593				533				536
Total liabilities		5,236				5,001				5,306
Total stockholders' equity		8,351				8,072				7,868
Total liabilities and stockholders' equity		$	13,587			$	13,073			$	13,174

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)	Three Months Ended												Six Months Ended
	April 26,  2015				January 25,  2015				April 27,  2014				April 26,  2015				April 27,  2014
Cash flows from operating activities:
Net income	$	364			$	348			$	262			$	712			$	515
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization	90				92				94				182				188
Share-based compensation	47				48				42				95				88
Excess tax benefits from share-based compensation	(12		)		(39		)		(7		)		(51		)		(25		)
Other	(8		)		36				12				28				21
Net change in operating assets and liabilities	(183		)		(425		)		34				(608		)		22
Cash provided by operating activities	298				60				437				358				809
Cash flows from investing activities:
Capital expenditures	(64		)		(49		)		(65		)		(113		)		(113		)
Proceeds from sales and maturities of investments	177				140				157				317				521
Purchases of investments	(203		)		(141		)		(161		)		(344		)		(324		)
Cash provided by (used in) investing activities	(90		)		(50		)		(69		)		(140		)		84
Cash flows from financing activities:
Proceeds from common stock issuances and others, net	42				-				56				42				66
Excess tax benefits from share-based compensation	12				39				7				51				25
Payments of dividends to stockholders	(123		)		(122		)		(122		)		(245		)		(242		)
Cash used in financing activities	(69		)		(83		)		(59		)		(152		)		(151		)
Effect of exchange rate changes on cash and cash equivalents	(1		)		-				-				(1		)		-
Increase (decrease) in cash and cash equivalents	138				(73		)		309				65				742
Cash and cash equivalents - beginning of period	2,929				3,002				2,144				3,002				1,711
Cash and cash equivalents - end of period	$	3,067			$	2,929			$	2,453			$	3,067			$	2,453
Supplemental cash flow information:
Cash payments for income taxes	$	118			$	89			$	33			$	207			$	59
Cash refunds from income taxes	$	2			$	3			$	3			$	5			$	12
Cash payments for interest	$	7			$	39			$	7			$	46			$	46

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Reportable Segment Results

		Q2 FY2015												Q1 FY2015												Q2 FY2014
(In millions)		New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)				New Orders				Net Sales				Operating Income (Loss)
SSG		$	1,704			$	1,560			$	374			$	1,426			$	1,446			$	307			$	1,664			$	1,584			$	391
AGS		641				646				170				690				583				153				537				534				148
Display		120				163				40				107				275				72				340				147				26
EES		50				73				(5		)		50				55				(4		)		88				88				5
Corporate		-				-				(163		)		-				-				(70		)		-				-				(183		)
Con- solidated		$	2,515			$	2,442			$	416			$	2,273			$	2,359			$	458			$	2,629			$	2,353			$	387

Corporate Unallocated Expenses

(In millions)		Q2 FY2015				Q1 FY2015				Q2 FY2014
Share-based compensation		47				48				42
Certain items associated with announced business combination		29				20				16
Loss (gain) on derivative associated with announced business combination, net		(14		)		(78		)		23
Other unallocated expenses		101				80				102
Total corporate		$	163			$	70			$	183

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Additional Information

		Q2 FY2015						Q1 FY2015						Q2 FY2014
New Orders and Net Sales by Geography
(In $ millions)		New Orders			Net Sales			New Orders			Net Sales			New Orders			Net Sales
United States		368			632			411			529			521			370
% of Total		15	%		26	%		18	%		22	%		20	%		16	%
Europe		131			150			148			143			199			156
% of Total		5	%		6	%		6	%		6	%		7	%		7	%
Japan		365			257			242			231			203			215
% of Total		15	%		10	%		11	%		10	%		8	%		9	%
Korea		607			449			546			464			378			351
% of Total		24	%		18	%		24	%		20	%		14	%		15	%
Taiwan		589			455			545			519			660			781
% of Total		23	%		19	%		24	%		22	%		25	%		33	%
Southeast Asia		103			87			85			85			72			52
% of Total		4	%		4	%		4	%		4	%		3	%		2	%
China		352			412			296			388			596			428
% of Total		14	%		17	%		13	%		16	%		23	%		18	%
Employees (In thousands)
Regular Full Time		14.3						14.1						13.7

 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

		Three Months Ended												Six Months Ended
(In millions, except percentages)		April 26,  2015				January 25,  2015				April 27,  2014				April 26,  2015				April 27,  2014
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis		$	1,016			$	959			$	1,001			$	1,975			$	1,892
Certain items associated with acquisitions1		39				40				39				79				78
Acquisition integration costs		-				-				1				-				1
Non-GAAP adjusted gross profit		$	1,055			$	999			$	1,041			$	2,054			$	1,971
Non-GAAP adjusted gross margin		43.2		%		42.3		%		44.2		%		42.8		%		43.4		%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	416			$	458			$	387			$	874			$	717
Certain items associated with acquisitions1		45				46				46				91				91
Acquisition integration costs		-				1				10				1				21
Loss (gain) on derivatives associated with announced business combination, net		(14		)		(78		)		23				(92		)		(1		)
Certain items associated with announced business combination2		29				20				16				49				27
Restructuring charges and asset impairments3		-				-				-				-				7
Non-GAAP adjusted operating income		$	476			$	447			$	482			$	923			$	862
Non-GAAP adjusted operating margin		19.5		%		18.9		%		20.5		%		19.2		%		19.0		%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis4		$	364			$	348			$	262			$	712			$	515
Certain items associated with acquisitions1		45				46				46				91				91
Acquisition integration costs		-				1				10				1				21
Loss (gain) on derivatives associated with announced business combination, net		(14		)		(78		)		23				(92		)		(1		)
Certain items associated with announced business combination2		29				20				16				49				27
Restructuring charges and asset impairments3		-				-				-				-				7
Impairment (gain on sale) of strategic investments, net		6				1				2				7				(3		)
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items4		(54		)		(17		)		12				(71		)		(3		)
Income tax effect of non-GAAP adjustments		(14		)		17				(23		)		3				(27		)
Non-GAAP adjusted net income		$	362			$	338			$	348			$	700			$	627

1	These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2	These items are incremental charges related to the announced business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
3	Results for the six months ended April 27, 2014 included a $7 million of employee-related costs related to the restructuring program announced on October 3, 2012.
4	Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

		Three Months Ended												Six Months Ended
(In millions except per share amounts)		April 26,  2015				January 25,  2015				April 27,  2014				April 26,  2015				April 27,  2014
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis1		$	0.29			$	0.28			$	0.21			$	0.57			$	0.42
Certain items associated with acquisitions		0.03				0.03				0.03				0.07				0.06
Acquisition integration costs		-				-				0.01				-				0.01
Certain items associated with announced business combination		0.02				0.01				0.01				0.03				0.02
Loss (gain) on derivative associated with announced business combination, net		(0.01		)		(0.04		)		0.01				(0.05		)		-
Reinstatement of federal R&D tax credit, resolution of prior years' income tax filings and other tax items1		(0.04		)		(0.01		)		0.01				(0.06		)		-
Non-GAAP adjusted earnings per diluted share		$	0.29			$	0.27			$	0.28			$	0.56			$	0.51
Weighted average number of diluted shares		1,241				1,240				1,229				1,241				1,227

1

Amounts for the three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

		Three Months Ended												Six Months Ended
(In millions, except percentages)		April 26,  2015				January 25,  2015				April 27,  2014				April 26,  2015				April 27,  2014
SSG Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	374			$	307			$	391			$	681			$	705
Certain items associated with acquisitions1		44				43				42				87				84
Acquisition integration costs		-				-				-				-				1
Non-GAAP adjusted operating income		$	418			$	350			$	433			$	768			$	790
Non-GAAP adjusted operating margin		26.8		%		24.2		%		27.3		%		25.5		%		25.7		%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	170			$	153			$	148			$	323			$	273
Certain items associated with acquisitions1		-				1				2				1				3
Non-GAAP adjusted operating income		$	170			$	154			$	150			$	324			$	276
Non-GAAP adjusted operating margin		26.3		%		26.4		%		28.1		%		26.4		%		26.5		%
Display Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis		$	40			$	72			$	26			$	112			$	52
Certain items associated with acquisitions1		-				1				-				1				1
Non-GAAP adjusted operating income		$	40			$	73			$	26			$	113			$	53
Non-GAAP adjusted operating margin		24.5		%		26.5		%		17.7		%		25.8		%		17.3		%
EES Non-GAAP Adjusted Operating Income (Loss)
Reported operating income (loss) - GAAP basis		$	(5	)		$	(4	)		$	5			$	(9	)		$	(6	)
Certain items associated with acquisitions1		1				1				2				2				3
Non-GAAP adjusted operating income (loss)		$	(4	)		$	(3	)		$	7			$	(7	)		$	(3	)
Non-GAAP adjusted operating margin		(5.5		)%		(5.5		)%		8.0		%		(5.5		)%		(2.3		)%

1	These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

APPLIED MATERIALS, INC.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES

	Three Months Ended
(In millions)	April 26, 2015				January 25, 2015
Operating expenses - GAAP basis	$	600			$	501
Gain on derivative associated with announced business combination, net	14				78
Certain items associated with acquisitions	(6		)		(6		)
Acquisition integration costs	-				(1		)
Certain items associated with announced business combination	(29		)		(20		)
Non-GAAP adjusted operating expenses	$	579			$	552

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

	Three Months Ended
(In millions, except percentages)	April 26, 2015
Provision for income taxes - GAAP basis1 (a)	$	25
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items	54
Income tax effect of non-GAAP adjustments1	14
Non-GAAP adjusted provision for income taxes (b)	$	93
Income before income taxes - GAAP basis (c)	$	389
Certain items associated with acquisitions	45
Gain on derivative associated with announced business combination	(14		)
Certain items associated with announced business combination	29
Impairment of strategic investments, net	6
Non-GAAP adjusted income before income taxes (d)	$	455
Effective income tax rate - GAAP basis1 (a/c)	6.4		%
Non-GAAP adjusted effective income tax rate (b/d)	20.4		%

1

Amounts for the three months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million, with a corresponding increase in net income and diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.

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Source: Applied Materials via Globenewswire

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