Applied Materials Q4 results exceed expectations

SANTA CLARA, USA: Applied Materials Inc. has reported stronger than expected results for its fourth quarter of fiscal 2010 ended Oct. 31, 2010. Applied generated orders of $3.03 billion, net sales of $2.89 billion, operating profit of $699 million, and net income of $468 million or $0.35 per share. Non-GAAP net income was $476 million or $0.36 per share.

For fiscal year 2010, the company reported orders of $10.25 billion, net sales of $9.55 billion, operating profit of $1.38 billion, and net income of $938 million or $0.70 per share. Non-GAAP net income was $1.18 billion, or $0.88 per share. The fiscal year results included EES inventory-related charges of $330 million that lowered EPS by approximately $0.16. Excluding these charges, non-GAAP EPS would have been $1.03.

"Applied ended a very strong year by delivering results that exceeded our expectations in the fourth quarter," said Mike Splinter, chairman and CEO. "We are seeing strong momentum in our business as we enter 2011, fueled by accelerated innovation and market share gains."

"In 2010, Applied generated $1.7 billion in cash from operations after investing more than $1.1 billion in research and development," added George Davis, chief financial officer. "We also bought back $350 million in shares, increased our dividend by 17 percent, and ended the year with $3.9 billion in cash and investments."

Reportable segment results
Silicon Systems Group (SSG) orders were $1.67 billion in the fourth quarter, up 9 percent from the third quarter led by higher demand for inspection equipment. Net sales increased to $1.48 billion, up 2 percent led by record net sales of chemical mechanical polishing (CMP) systems. Operating income rose to $564 million or 38 percent of net sales. New order composition was: foundry 47 percent, logic and other 24 percent, DRAM 20 percent, and flash 9 percent.

For the year, SSG orders more than tripled to $5.76 billion, net sales more than doubled to $5.30 billion, and operating income rose to $1.89 billion or 36 percent of net sales.

Applied Global Services (AGS) orders were $631 million in the fourth quarter, up 6 percent from the third quarter. Net sales increased to $516 million, up 10 percent from the third quarter, driven by 200mm equipment shipments. Operating income increased to $100 million or 19 percent of net sales.

For the year, AGS orders increased by 85 percent to $2.18 billion, net sales increased by 34 percent to $1.86 billion, and operating income rose to $337 million or 18 percent of net sales.

Display orders declined 27 percent from the third quarter to $175 million reflecting lower demand. Net sales were $281 million, up 30 percent from the third quarter, driven by the fulfillment of orders placed in previous quarters, and operating income increased to $89 million or 32 percent of net sales.

For the year, Display orders more than doubled to $799 million, net sales increased by 79 percent to $899 million, and operating income rose to $267 million or 30 percent of net sales.

Energy and Environmental Solutions (EES) had record orders of $546 million in the fourth quarter, up 55 percent from the third quarter, driven by demand for Baccini cell processing systems and PWS wafering systems. Net sales increased to $606 million, led by record net sales of Baccini and PWS systems, and included the sign-off of two SunFab thin film lines in China. EES had operating income of $86 million or 14 percent of net sales.

For the year, EES orders increased by 58 percent to $1.51 billion, net sales increased by 28 percent to $1.48 billion, and the operating loss increased to $466 million or 31 percent of net sales, primarily due to restructuring, asset impairment and inventory-related charges of $486 million, recognized in the second and third quarters of fiscal 2010.

Additional quarterly financial information
Gross margin was 42.2 percent.
Operating cash flow was $525 million or 18 percent of net sales.
Cash dividend payments totaled $93 million.
The company used $150 million to repurchase 13.3 million shares of its common stock.
Cash, cash equivalents and investments increased to $3.89 billion at quarter end.
The effective tax rate was 33.5 percent.
Backlog increased by $114 million to $3.24 billion.

Additional fiscal year financial information
Operating cash flow for the fiscal year was $1.7 billion or 18 percent of net sales.
Cash dividend payments totaled $349 million.
The company used $350 million to repurchase 28.8 million shares of its common stock.
Business Outlook

For the first quarter of fiscal 2011, Applied expects net sales to be down in the range of 8 percent to 15 percent quarter over quarter. The company expects non-GAAP EPS to be in the range of $0.30 to $0.34, which excludes known charges related to completed acquisitions of approximately $0.01 per share.