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Applied Materials Announces Record Results

Applied Materials Announces Record Results

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Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its third quarter ended July 31, 2016.

New orders were $3.66 billion, up 6 percent sequentially and up 26 percent year over year. Backlog of $4.95 billion was up 19 percent sequentially and up 60 percent year over year. Net sales of $2.82 billion were up 15 percent sequentially and up 13 percent year over year.

The company recorded gross margin of 42.3 percent, operating margin of 21.1 percent, and net income of $505 million or $0.46 per diluted share. On a non-GAAP adjusted basis, the company reported third quarter gross margin of 43.7 percent, operating margin of 22.8 percent, and net income of $550 million or $0.50 per diluted share.

The company generated $981 million in cash from operations, paid dividends of $108 million and used $196 million to repurchase 9 million shares of common stock at an average price of $21.88.

“With earnings and orders at an all-time high, Applied is performing better than ever and in a great position to sustainably outperform our markets,” said Gary Dickerson, president and CEO. “We are in the early stages of large, multi-year industry inflections that are driving our business today and creating new opportunities for future growth.”

Quarterly Results Summary

Change
Q3 FY2016Q2 FY2016Q3 FY2015Q3 FY2016
vs.
Q2 FY2016
Q3 FY2016
vs.
Q3 FY2015
(In millions, except per share amounts and percentages)
New orders$3,658$3,451$2,8926%26%
Net sales$2,821$2,450$2,49015%13%
Gross margin42.3%41.0%40.9%1.3points1.4points
Operating margin21.1%17.3%15.9%3.8points5.2points
Net income$505$320$32958%53%
Diluted earnings per share (EPS)$0.46$0.29$0.2759%70%
Change
Non-GAAP Adjusted ResultsQ3 FY2016Q2 FY2016Q3 FY2015Q3 FY2016
vs.
Q2 FY2016
Q3 FY2016
vs.
Q3 FY2015
(In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin43.7%42.7%43.9%1.0points(0.2) points
Non-GAAP adjusted operating margin22.8%19.2%20.8%3.6points2.0points
Non-GAAP adjusted net income$550$376$41046%34%
Non-GAAP adjusted diluted EPS$0.50$0.34$0.3347%52%

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.

Business Outlook

In the fourth quarter of fiscal 2016, Applied expects net sales to be up 15 percent to 19 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.61 to $0.69.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 per share and any additional charges related to completed or future acquisitions or other non-operational or unusual items that are unknown at this time, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Third Quarter Reportable Segment Information

Effective in the third quarter of fiscal 2016, Applied has expanded its Display segment to now include roll-to-roll web coating systems (previously in Energy and Environmental Solutions) and display upgrade equipment (previously in Applied Global Services). The Display segment is now named Display and Adjacent Markets. Applied no longer reports Energy and Environmental Solutions as a segment and its solar business is now included in Corporate and Other. The Silicon Systems segment is now named Semiconductor Systems and is otherwise unchanged. Applied Global Services continues to include 200-millimeter semiconductor equipment sales. Segment operating results for previous periods have been recast to conform to the current presentation in the table below and in the supplemental historical information accompanying this release.

Semiconductor SystemsQ3 FY2016Q2 FY2016Q3 FY2015
(In millions, except percentages)
New orders$2,215$1,966$2,007
Foundry57%23%32%
DRAM14%17%18%
Flash15%49%39%
Logic and other14%11%11%
Net sales1,7861,5871,635
Operating income511364411
Operating margin28.6%22.9%25.1%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$556$410$455
Non-GAAP adjusted operating margin31.1%25.8%27.8%
Applied Global ServicesQ3 FY2016Q2 FY2016Q3 FY2015
(In millions, except percentages)
New orders$590$636$543
Net sales657633646
Operating income175165162
Operating margin26.6%26.1%25.1%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$176$165$165
Non-GAAP adjusted operating margin26.8%26.1%25.5%
Display and Adjacent MarketsQ3 FY2016Q2 FY2016Q3 FY2015
(In millions, except percentages)
New orders$803$762$318
Net sales313187185
Operating income633135
Operating margin20.1%16.6%18.9%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income$63$31$36
Non-GAAP adjusted operating margin20.1%16.6%19.5%

Backlog Information

Applied’s backlog increased 19 percent to $4.95 billion and included negative adjustments of $56 million, primarily consisting of order cancellations, partially offset by favorable foreign currency impacts. Backlog composition by reportable segment was as follows:

Semiconductor Systems50%
Applied Global Services15%
Display and Adjacent Markets33%
Corporate and Other2%

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Anand Gupta Editor - EQ Int'l Media Network

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