Attached files
file | filename |
---|---|
8-K - FORM 8-K - APPLIED MATERIALS INC /DE | f54047e8vk.htm |
EX-99.3 - EX-99.3 - APPLIED MATERIALS INC /DE | f54047exv99w3.htm |
EX-99.1 - EX-99.1 - APPLIED MATERIALS INC /DE | f54047exv99w1.htm |
Exhibit 99.2
Safe Harbor Statement
This Webcast contains forward-looking statements, which are all statements other than those of
historical fact, including statements regarding Applieds performance, cost structure, strategic
position, products, strategic initiatives, operational improvements, growth opportunities,
financial forecasts, customer landscape, restructuring plan (including scope, charges and timing),
and anticipated cost savings, as well as industry outlooks. Forward-looking statements, including
their underlying assumptions, are subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by such statements,
including but not limited to: the level of demand for nanomanufacturing technology products, which
is subject to many factors, including uncertain global economic and industry conditions, the
duration and severity of the current downturn, customers ability to acquire affordable capital,
business and consumer spending, demand for electronic products and semiconductors, governmental
renewable energy policies and incentives, and customers utilization rates and new technology and
capacity requirements; variability of operating expenses and results among the companys segments
caused by differing conditions in the served markets; Applieds ability to (i) develop, deliver and
support a broad range of products, expand its markets and develop new markets, (ii) timely
implement and maintain effective cost reduction programs, realize expected benefits, and align its
cost structure with business conditions, (iii) plan and manage its resources and production
capability, including its supply chain, (iv) implement information technology, business process,
outsourcing, business relocation and other initiatives that enhance global operations and
efficiencies, (v) obtain and protect intellectual property rights in key technologies, (vi)
attract, motivate and retain key employees, and (vii) accurately forecast future operating and
financial results, which depends on multiple assumptions related to, without limitation, market
conditions, business needs, hiring and departures of employees, acquisitions or divestitures, and
compliance with U.S. and international labor and employment laws; and other risks described in
Applieds SEC filings. All forward-looking statements are based on managements estimates,
projections and assumptions as of November 11, 2009, and Applied undertakes no obligation to update
any forward-looking statements.
This Webcast also contains non-GAAP financial measures. Reconciliations of the non-GAAP measures
to GAAP measures are provided in todays earnings release and/or in the Financial Highlights
slides, available on the Investor Page at www.appliedmaterials.com.
Final Transcript
Conference Call Transcript
AMAT - Q4 2009 Applied Materials Earnings Conference Call
Event Date/Time: Nov. 11. 2009 / 4:30PM ET
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
1
CORPORATE PARTICIPANTS
Michael Sullivan
Applied Materials - VP IR
Applied Materials - VP IR
Mike Splinter
Applied Materials - Chairman & CEO
Applied Materials - Chairman & CEO
George Davis
Applied Materials - CFO
Applied Materials - CFO
CONFERENCE CALL PARTICIPANTS
Stephen Chin
UBS - Analyst
UBS - Analyst
Jim Covello
Goldman Sachs - Analyst
Goldman Sachs - Analyst
Satya Kumar
Credit Suisse - Analyst
Credit Suisse - Analyst
C.J. Muse
Barclays Capital - Analyst
Barclays Capital - Analyst
Chris Lansic
JPMorgan - Analyst
JPMorgan - Analyst
Atif Malik
Morgan Stanley - Analyst
Morgan Stanley - Analyst
Timothy Arcuri
Citigroup - Analyst
Citigroup - Analyst
Krish Sankar
BofA Merrill Lynch - Analyst
BofA Merrill Lynch - Analyst
Steve ORourke
Deutsche Bank Securities - Analyst
Deutsche Bank Securities - Analyst
Peter Rice
Global Crown - Analyst
Global Crown - Analyst
Patrick Ho
Stifel Nicolaus & Company - Analyst
Stifel Nicolaus & Company - Analyst
Weston Twigg
Pacific Crest Securities - Analyst
Pacific Crest Securities - Analyst
Gary Hsueh
Oppenheimer & Co. - Analyst
Oppenheimer & Co. - Analyst
Mehdi Hosseini
FBR Capital Markets - Analyst
FBR Capital Markets - Analyst
Edwin Mok
Needham & Company - Analyst
Needham & Company - Analyst
Mahesh Sanganeria
RBC Capital Markets - Analyst
RBC Capital Markets - Analyst
Jaridesh Ayer
Arete Research - Analyst
Arete Research - Analyst
Matt Petkun
D.A. Davidson & Co. - Analyst
D.A. Davidson & Co. - Analyst
PRESENTATION
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
2
Operator
Welcome to the Applied Materials Q4 and fiscal 2009 year end conference call. (Operator
Instructions) You will be invited to participate in a question and answer session. As a reminder,
this conference is being recorded today, November 11, 2009. Please note, that todays call will
contain forward-looking statements, which are all statements other than those of historical facts,
including statements regarding Applieds performance, cost structure, strategic position and
initiatives, products, operational improvements, growth opportunities, restructuring plans and Q1
and 2010 targets, as well as industry outlooks. All forward-looking statements are subject to known
and unknown risks and uncertainties that could cause actual results to differ materially from those
expressed or implied by such statements.
Information concerning these risk factors is contained in todays earnings press release and in the
Companys filings with the SEC. Forward-looking statements are based on information as of November
11, 2009 and the Company assumes no obligation to update such statements. Todays call also
contains non-GAAP financial measures. Reconciliations of the non-GAAP measures to GAAP measures are
contained in todays earnings release or in our financial highlight slides, which are on the
investor page of our Website at www.appliedmaterials.com. I would now like to turn the conference
over to Michael Sullivan, Vice President of Investor Relations. Please go ahead, sir.
Michael Sullivan - Applied Materials - VP IR
Thank you, Sarah. And good afternoon, everyone and thank you for participating in todays
call. Our earnings release was issued at 1:05 Pacific Time over Business Wire. You can also find a
copy of the release and a related slide presentation on our investor relations Website on
www.appliedmaterials.com. Joining me today are Mike Splinter, our Chairman and CEO; George Davis,
our Chief Financial Officer; and Joe Sweeney, our General Counsel and Corporate Secretary.
Today, well discuss the results for our fourth quarter and our 2009 fiscal year that ended on
October 25. We will also talk about our strategic actions and our business outlook for the current
quarter and fiscal year. We have a lot of information to share with you today and well do our best
to deliver it quickly and make time for your questions. And with that, Ill hand the call over to
Mike Splinter.
Mike Splinter - Applied Materials - Chairman & CEO
Thanks, Mike. And welcome to todays call. Applied Materials returned to profitability in Q4,
achieving sales and earnings growth that exceeded our expectations. We saw progress across the
Company, with sequential growth in orders, sales and operating profit in every segment. Notably,
our semiconductor business is in the early phase of a recovery, with gross margins exceeding 50% in
the quarter, demonstrating the strength of the business model. SSG is positioned to drive further
profits as WFE expands in 2010. Our operations team responded well to the ramp in demand, enabling
the Company to increase sales by 35% and generate operating cash flow of $241 million.
Reviewing 09 results, Im pleased to say we made excellent progress on our strategic objectives
for the year. Last November, at the onset of the global financial crisis, we moved rapidly to lower
our cost structure with a program that created $460 million in annualized savings. We aggressively
managed working capital, retaining the financial strength to invest for growth. We grew share in
our semiconductor equipment business, led by gains in inspection, epi and PVD. We grew our solar
revenue by 40% year-over-year and took significant steps towards profitability. We made
substantial investments in our future, with more than $900 million in R&D that resulted in new
products across each of our markets. And Applied was recognized as the number one equipment
supplier across semiconductors, LCD displays and now solar PV. Each of our segments represents a
substantial growth opportunity for Applied and our businesses in multiple industries differentiate
us from our competitors, giving us unique opportunities for growth and scale.
I want to thank the entire Applied team for their extraordinary contributions during a very
challenging, yet productive year. They focused on satisfying our customers needs and on meeting
the ambitious goals we set.
Over the past two years, weve witnessed fundamental changes in the industries we serve. Including
customer consolidation and moderating long-term growth rates in WFE. We are focusing this years strategic plan on addressing the
implications of these changes to maximize our growth opportunities and improve our competitiveness
and efficiency. Specifically, we are embedding our worldwide sales force within the business units,
bringing us closer to our customers and making us more efficient. We are streamlining and
consolidating our manufacturing and supply chain operations under one leader to drive best known
methods, scalability and cost improvements throughout our businesses. Were
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
3
increasing our manufacturing and supply chain presence in Asia, to be closer to more of our
customers, reduce cycle times and increase the use of a more efficient supply base.
Were also consolidating our solar business under one executive and aligning our activities with
the evolving global market. Were investing in common business processes and improved transaction
processing capabilities that will make us leaner and faster. And were improving our portfolio
allocation process, while focusing our R&D investments on our opportunities to grow market share.
As recently announced, Ive also taken actions to align my executive team with the opportunities
and challenges ahead.
Ill now comment on each of our businesses. In SSG, we expect to grow revenue by at least 40%
year-over-year. We estimate WFE to reach $18 billion to $20 billion in calendar 2010, up from $12
billion to $13 billion in 09. Our customers have reported higher factory utilization across the
board. DRAM and NAND prices have strengthened, encouraging more of our memory customers to invest
in the next generation of technology. And our foundry customers are investing in capacity
additions, as well as technology transitions. We gained share in 09 with strength in a number of
areas. PVD and Epi benefited from application wins in advanced transistors and interconnect.
We believe we doubled our reticle inspection share in the year. And we recently won a new position
at a major NAND manufacture for in-fab applications. Our reticle inspection solution is now in
production at four large customers, with repeat business at three. Our brightfield inspection has
won positions in advanced memory applications, while expanding into immersion lithography at most
foundries. And we held share in etch. We expect another year of share gains in calendar 2010,
driven by product strength in our leadership areas and growth opportunities in inspection and etch
where the outlook for stronger memory spending is a significant positive for Applied.
Looking at technology trends, were focused on the DRAM conversion to copper, NAND transitioning to
3X using double patterning, advanced transistors in logic and foundry, and emerging capabilities
like wafer-level packaging and 3D memory cells. Were also focused on extending our strong market
positions in PVD, CVD and CMP to the 22-nanometer node. In display, weve seen strong demand for
TVs and LCD monitors over the past several quarters, particularly in China. Leading customers have
returned to profitability and factory utilization remains high. These trends are leading customers
to add capacity. And we expect equipment spending in the industry to be up more than 40% in
calendar 2010, with the bulk of the purchases concentrated at Gen 8.5.
We are now seeing proposals by major customers to build advanced fabs in China. This strategic
shift reflects the growing importance of Chinas domestic market, which saw an 80% year-over-year
rise in LCD TV demand. In 2010, we expect to grow our Pivot PVD position, expanding to more
customers and gaining an estimated 10 points of share. During the quarter, we launched copper
capability on the Pivot system and strategic investment in Gen 10 is moving forward with multiple
systems in production.
In EES, while the solar market weakened substantially during the first half of the fiscal year, our
revenue grew more than 40%, driven by thin film signoffs and strength in crystal and silicon cell
manufacturing. During the fourth quarter, the solar PV marketplace showed signs of improvement, as
module price declines slowed and financing opportunities gradually improved. Germany remains a
bright spot, particularly in the crystalline silicon rooftop market. China and Taiwan are growing
markets for our crystalline silicon equipment, with capacity growth rates significantly above those
of other geographies. In crystalline silicon, our customers want to increase automation and improve
conversion efficiencies. While the crystalline silicon equipment outlook for 2010 is still
uncertain, there are some positive signs of capacity additions in cell equipment, primarily at
Chinese customers.
The drive toward ever lower costs moves the industry to require thinner wafers and thin wafer
handling, which provide growth opportunities for our MaxEdge Wire Saw and Baccini metallization
systems. Our plan is to address these needs and grow our served market share opportunity in cell
equipment from 50% of the CapEx spend, to 80% over the next three years. Steps in this direction
include our double printing capability on the Baccini platform and our acquisition of Advent Solar
last week. Our crystalline silicon installed base now exceeds 2,500 systems, creating a significant
opportunity for service and after-market upgrades.
Our progress in thin film this year culminated in the seventh customer signoff of a SunFab
production line at ENN in China. This was our second tandem junction line. For existing and future
SunFab customers, we have driven economies to scale and with leading suppliers to reduce the cost
of materials by 22%. And this improved process flow has received IEC certification. With steady
gains in panel efficiency and factory productivity across the SunFab network, we are on track to
our 2010 goal of 10% efficiency and $1 per watt cost. In the near term, market conditions are
challenging for many of our thin film customers, as discounted crystalline silicon panels are
impacting pricing and demand for thin film technology.
In calendar 2010, we expect worldwide solar PV installations to be up over 40%,with solar
representing one of Applieds key growth opportunities over the next several years. We recently
opened a solar R&D center in Xian, China, which demonstrates our substantial
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
4
commitment to thin film and crystalline silicon technology and is advantageously located in China,
the solar markets fastest growing geography. Weve become number one in solar PV equipment. And in
less than three years, weve built $1 billion equipment business that has the scale and global
reach of no other competitor. Now, we are on track for EES to deliver break-even or better
operating results during this fiscal year.
In services, our orders and revenue increased, with 300-millimeter starts returning to
pre-recession levels. While 200-millimeter wafer starts are down roughly 25% from last year. We
expect virtually all of our future service growth to come from 300-millimeter starts expansion. Our
spares run rate is up significantly from the trough in Q2, though it is not yet approaching the
previous peak. Operating margins are improving and we are focused on driving further efficiencies
in services delivery as part of our 2010 strategic initiatives. In semiconductor services, the
number of tools under contract grew 7% year-over-year, with notably high growth in Asia. A key to
growth in AGS is expanding our service and spares position in Asia, where over 80% of new wafer
starts will be.
In summary, Applieds goal is to lead the industry and gain share in our core semiconductor
markets, drive growth in display and services and greatly expand our opportunity in energy
solutions. We will also take advantage of our global footprint and scale to deliver outstanding
profitability. After a challenging 2009, we expect sales growth of at least 30% in fiscal 2010 and
a significant benefits from structuring the Company for future success. I will now hand the call
over to George for more details on our results and targets. George.
George Davis - Applied Materials - CFO
Thank you, Mike. And good afternoon, everyone. Applied completed a challenging fiscal year
with a solid fourth quarter, including revenue and earnings well above our targets. We enter our
new fiscal year with momentum in our higher margin businesses, a strong operating model and
improved market share.
First, let me summarize our full year performance in a very difficult 2009. We had orders of $4.1
billion, which were down 55% from 2008, and net sales of $5 billion, which were down 38%. We
reported a GAAP net loss of $305 million or $0.23 per share. We were profitable for the year on a
non-GAAP basis, earning $37 million or $0.03 per share. We took early action on cost reductions and
surpassed our objective of $400 million of structural cost savings by 15%. In addition, we had $340
million in annualized savings from temporary cost measures related to employee salary and variable
compensation. Approximately 70% of those temporary savings were in OpEx, with the remainder in cost
of goods.
We began these temporary cost measures in the latter half of 2008 and approximately 2/3 of those
savings were already in effect by the end of Q4 08.
Beginning in fiscal Q1 2010, we have eliminated shutdowns, other than our normal holiday shutdown,
and will resume accruing for variable compensation. This will result in an increase in Q1 OpEx
versus Q4, as the anticipated savings from our new actions will not fully offset these added costs
until later in the program. We generated $333 million of operating cash flow in 2009 and ended the
year with cash and investments of $3.3 billion.
Looking at our businesses in 2009, SSG and AGS revenue bottomed in our second fiscal quarter and
both segments returned to operating profitability in the second half of the year. Revenue in our
display business declined almost 50% from fiscal 2008 but its flexible business model limited
operating losses to one quarter. Despite the severe business conditions, SSG, AGS and display each
delivered positive operating margin overall in fiscal 2009. In EES, we grew revenue by 41%
year-over-year, led by customer acceptance of six SunFab lines. We invested to extend our
crystalline silicon and thin film solar technologies and to expand our portfolio of new products.
In EES, we expect a move from a loss position of $242 million in 2009, to break even or better on
an operating basis in 2010.
Looking at our Q4 results. orders were 37% higher sequentially, led by EES and display. Net sales
increased 35%, driven by foundry customers in SSG and leading edge capacity expansion in display.
The added revenue came from strong margin flow-through, contributing to earnings of $138 million or
$0.10 per share. Our lower effective tax rate for the quarter of 21% contributed approximately
$0.01 per share compared to Q3. Gross margin improved 8 points to 37%, which is close to the 39%
level achieved in Q4 of last year, despite revenue being 25% lower. Our 8 point sequential margin
expansion was primarily driven by revenue growth in our higher margin businesses.
Turning to the balance sheet, cash and investments of $3.3 billion were up 4% from Q3. Cash from
operations was $241 million or 16% of revenue. Our working capital results were strong, with days
sales outstanding of 62 days and a net inventory reduction of $121 million compared to Q3 levels,
despite a substantial increase in net sales. Our ending backlog was $2.7 billion, down 7% from the
previous quarter end. 41% of the backlog is now related to our EES business, with display and SSG
each at 20% and AGS at 19%.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
5
The low percentage of SSG backlog reflects our shorter cycle times and our ability to respond to
our semiconductor customers short lead time on orders. In fact, our SSG turns business in Q4 was
61% of revenue in that segment. Backlog adjustments totaled $171 million and reflected the
volatility of some of our customers investment plans. Backlog adjustments included $168 million in
cancellations and $3 million of currency and other adjustments.
Next, Ill summarize segment results for the quarter. Our silicon systems business performed very
well. Orders increased 16% over Q3 at $629 million. Foundry customers were 37% of the order book
and have led in that category for three consecutive quarters. SSG revenue increased 32%, again led
by foundry, along with strong demand from logic and memory customers. SSG operating profits were
$158 million, up substantially from Q3 and represented an impressive 24% of sales.
In AGS, orders increased 13% to $335 million and revenue increased 14%, relative to Q3, to $390
million. Operating profit was $64 million or 17% of sales, reflecting an accelerating recovery in
spares sales. Display orders increased 58% to $151 million, as robust end market demand fueled Gen
8.5 capacity investments. Revenue grew to $200 million as we signed off multiple leading edge
systems. Display operating margins benefited from the revenue improvement, reaching $43 million or
21% of revenue.
In EES, orders were $357 million, up significantly from Q3, as a SunFab project in China entered
our 12 month booking window. EES revenue of $280 million was up 25%, driven by the signoff of a
tandem junction SunFab line, which offset a slight decline in crystalline silicon sales. EES posted
an operating loss of $30 million, an improvement of more than 40% from Q3. Over half of the EES
operating loss is attributable to M&A charges and nonsolar R&D. EESs quarterly results will
continue to be volatile based on the timing of factory signoffs.
Next, Ill comment on our financial expectations for the strategic actions Mike announced earlier.
Total savings from these actions are expected to be $450 million over the next 18 months, of which
we expect approximately $250 million to be from OpEx. These actions will also include workforce
reductions of approximately 10% to 12% or 1,300 to 1,500 employees over the same period. The
pre-tax cost for employee severance is expected to be between $100 million and $125 million and we
are forecasting a $0.06 to $0.07 per share charge in the first quarter.
Next, Ill talk about some of the key assumptions behind our expectation for net sales to be up
greater than 30% in fiscal 2010. Our forecast assumes that wafer fab equipment CapEx will be $18
billion to $20 billion for calendar year 2010. Display capital spending for equipment will be up at
least 40% for the year. EES net sales are expected to be plus or minus 10% from 2009 levels. Solar
growth is expected to be impacted by absorption of significant capacity additions in crystalline
silicon over the past two years. Upside to this view would be driven by better than expected
capacity additions in crystalline silicon and from new product penetrations. Finally, we expect
that services will continue to recover, although at a somewhat lower rate than the underlying
equipment businesses.
Now, before I discuss our Q1 guidance, I want to review some housekeeping items that will take
effect in our Q1. First, marketing and sales expenses that were previously reported in corporate
will now be reported in the business segments. This is consistent with embedding our sales teams in
our businesses. Second, we are moving the cost of certain segment related bonus accruals out of
corporate and into the segments for better visibility. Historically, we accrued target variable
compensation in the segments and then took any adjustments in corporate. The third and final change
is that we will no longer include stock option expenses in our reconciliation for non-GAAP results.
Our GAAP results already reflect these costs, so there is no net change. None of these changes will
have a financial impact on the Companys financial results.
Next, Ill review our outlook for fiscal Q1. We see further recovery in our first quarter,
particularly in semiconductor capital equipment. We expect SSG revenue to be up by more than 20%
due to strong investment in wafer fab equipment by foundry and memory customers. AGS is expected to
grow modestly quarter over quarter. Display is still in a ramp mode, although we expect Q1 net
sales to be down relative to a very strong Q4. This is a timing issue, as we had a major shipment
pull into Q4 09. We expect EES revenue to be up by more than 20% due to both factory and bonus
signoff opportunities.
For Q1, we expect net sales, overall, to be up 10% to 25%. We expect earnings to improve to
somewhere in the range of $0.10 and $0.14 per share, before taking into account the impact of
restructuring charges. This improvement reflects the benefit of higher revenue in SSG, AGS and EES,
partially offset by the restoration of base salaries, the phasing in of variable compensation, a
14th week of costs in the quarter and a decline in display revenue relative to Q4. The tax rate is
expected to be approximately 29%, with a $0.01 negative impact relative to last quarter. The impact
of the restructuring charge will be in the range of $0.06 to $0.07 per share, which brings our GAAP
EPS target for Q1 to between $0.04 and $0.08 per share. Now Mike, lets open the call for
questions.
Michael Sullivan - Applied Materials - VP IR
Thanks, George. To help us reach as many of you as we can, please ask just one question and no
more than one brief follow-up. Sarah, lets begin.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
6
QUESTION AND ANSWER
Operator
(Operator Instructions) Your first question comes from the line of Stephen Chin with UBS.
Stephen Chin - UBS - Analyst
Great, thank you. Hi, Mike and George. A question on the linearity for the fiscal 2010 sales.
It looks like fiscal 2010 sales are pretty heavily front-end loaded here, with some conservatism
built into the second half of the year. Is that the right way to think of it? And as a follow-on,
can you share any color on normalized operating margin targets after this restructuring? Thanks.
Mike Splinter - Applied Materials - Chairman & CEO
Ill try to answer your question on linearity, Stephen, and let George answer the question on
targets. On linearity, I think its very hard for us to tell whats going to happen in the second
half of the year at this point. I think were pleased to see what we perceive as strength in the
first half of the year and have it be pretty broad-based, and particularly with upticks from
foundries and DRAM makers. Now how strong it will be in the second half, I really think that
depends on how the market goes in the first half and how strong we think the economy is as we head
into selling season next year.
George Davis - Applied Materials - CFO
Stephen, on the margins, I would say that we still see 2010 as a period of recovery. We,
obviously, are very pleased with the structural changes weve made in our cost structure over the
past two years. We think thats going to serve our business model well. And when we get back into a
normalized environment, we certainly expect to be back at the 20%, 25% plus type margins for the
Company overall.
Michael Sullivan - Applied Materials - VP IR
Stephen, thanks for your questions.
Operator
Your next question comes from the line of Jim Covello of Goldman Sachs and Company.
Jim Covello - Goldman Sachs - Analyst
Great, good afternoon, guys. Thank you so much for taking my question. If I could focus first
on silicon systems group. And of the top 10 customers in SSG, with the guidance that you gave for
the first quarter, how would you characterize the top 10 customers? Are they - are most of them
active now? Are half of them active, are only a few of them active? Again, kind of thinking about
the top 10.
Mike Splinter - Applied Materials - Chairman & CEO
Most of them are active now to some degree. I would say, the top five are certainly very
active and account for a big part, more than - certainly substantially more than 50% of the
revenue in SSG.
Jim Covello - Goldman Sachs - Analyst
And do you think that they can continue to grow or would you expect them to stay at that
higher level and further growth be dependent upon the rest of the top 10 and beyond the top 10
coming in?
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
7
Mike Splinter - Applied Materials - Chairman & CEO
Well, I think really the issue is; When do the memory guys get into a capacity expansion?
Today, its primarily technology transition and thats about all were seeing out of the memory
guys. Just to kind of give you an idea, we estimate something close to 1 million memory wafers are
going to move from one node to the next. That combines DRAM and NAND. While well have maybe 10% of
that number in capacity expansions. So, weve got to see bit growth higher than it is, in both DRAM
and NAND, to really drive some substantial additional capacity expansion.
Michael Sullivan - Applied Materials - VP IR
Thank you, Jim.
Operator
Your next question comes from the line of Satya Kumar from Credit Suisse.
Satya Kumar - Credit Suisse - Analyst
Thanks for taking my question. George, how should we think about the pace of the cost
reduction in fiscal 2010 and why did you not guide EPS also for fiscal 2010?
George Davis - Applied Materials - CFO
Well I think were very confident that earnings will be up strongly, in line with the growth
in revenue. So, we certainly feel good about the earnings outlook for 2010. We think there is a lot
of mix issues that still have to be sorted out over time. Well certainly update our views and help
people sort that through. But in general, I think people can see that over the past year and really
two years, weve taken substantial structural costs out. So, as you model the growth rates, and
were saying significant growth rates in display and SSG over that time period, there will be a lot
of earnings leverage to the upside in 2010.
Satya Kumar - Credit Suisse - Analyst
And maybe Ill follow-up later with you guys. And on EES, the last time you provided guidance
for break-even or better in solar, you had not yet announced the restructuring. Now that you have.
and also the run rate in EES is clearly higher than your $1 billion guidance for fiscal 2010, why
not a better profitability target in the EES?
George Davis - Applied Materials - CFO
We think that this is the right forecast for EES right now. As we said, theres still some
uncertainty in the end markets because of what were seeing in the crystalline silicon area. So, we
think break even or better operating is still the right forecast.
Michael Sullivan - Applied Materials - VP IR
Thanks, Satya.
Operator
Your next question comes from the line of C.J. Muse with Barclays Capital.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
8
C.J. Muse - Barclays Capital - Analyst
Good afternoon. Thank you for taking my question. The first question is just to clarify, in
terms of EES break even or better in fiscal 10, George, youre talking about operating levels. So,
if we want to think about it on a GAAP basis, excluding stock comp and the amortization on the M&A
side, what kind of run rate could we see?
George Davis - Applied Materials - CFO
Yes, good question. When we say operating basis, remember, going forward, that were not going
to include stock option expensing. So, you dont have to adjust for that. Really, were talking
about approximately $50 million of M&A related charges that we expect to see in 2010 that we would
take out.
C.J. Muse - Barclays Capital - Analyst
Great. And then, just if I could clarify also, on the EPS guide of $0.10 to $0.14, does that
include stock-based comp?
George Davis - Applied Materials - CFO
Yes, thats - it includes everything except for the restructuring charges.
C.J. Muse - Barclays Capital - Analyst
Okay. Perfect. And then, the meaty question. On the restructuring side, how should we think
about the base level? Youve talked about OpEx lower over 18 months by about $62 plus million, COGS
by $50 million. Whats the kind of baseline rate we should think of as a starting point and then
see the reductions thereafter?
George Davis - Applied Materials - CFO
I think ongoing OpEx, coming out of FY 09, was about $1.6 billion and you had roughly $50
million or $60 million of what we would call temporary OpEx in there. So, if you adjust for that,
thats a reasonable starting point. Again, we took out, in the plan last year where we took out
about $310 million of what I would call structural OpEx costs. And so, roughly $80 million a
quarter came out of our run rate.
Michael Sullivan - Applied Materials - VP IR
Thanks, C.J.
Operator
Your next question comes from the line of Chris [Lansic] with JPMorgan.
Chris Lansic - JPMorgan - Analyst
Thanks, guys. I wanted to get an idea how of long its going to take for you to start
capitalizing on the purchase of Advent Solar?
Mike Splinter - Applied Materials - Chairman & CEO
Sure. I think it will really be 2011 before we see real meaningful sales from that technology.
We need to finish up the development of the capability and then get it into the marketplace. So, I
think before we see meaningful, Ill put 2011.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
9
Chris Lansic - JPMorgan - Analyst
And then, kind of again on solar, I think, Mike, you indicated you thought volume growth or
installed capacity for solar would be up more than 40% in the next year. I wanted to understand
your view of the German subsidy reduction risk when you put that number out there?
Mike Splinter - Applied Materials - Chairman & CEO
Yes, I think this risk has been overblown. I believe that when you look at what will happen in
Germany next year, I think it will be flat to up. And then, increases in Italy and China and the US
will drive the rest of the upside.
Chris Lansic - JPMorgan - Analyst
All right, thank you.
Michael Sullivan - Applied Materials - VP IR
Thank you, Chris.
Operator
Your next question comes from the line of Atif Malik with Morgan Stanley.
Atif Malik - Morgan Stanley - Analyst
Hi, thanks for taking my question. You guys mentioned that the foundries have been a big
contributor to the silicon strength in the last three quarters. And 37% foundry orders is probably
the highest we have seen for Applied in a long time. Foundries spending at $1 billion to $1.2
billion at CapEx. So, my question is, if foundry strength starts to come down in the first half and
memory capacity orders are not back, could we see a scenario where we can see overall orders start
to come down in the first half?
Mike Splinter - Applied Materials - Chairman & CEO
Our view of whats going to happen with the foundry spending and kind of our maybe a little
bit more color on the overall capital spending, we think foundries for the year, weve made a
projection of $18 billion to $20 billion, we think foundries are going to be between 25% and 35% of
that number. And exactly how its going to be loaded, I really cannot quite say yet. But when we
look at the number of customers that are going to reach the $1 billion range, in 2009, I think
there were three customers that reached $1 billion in CapEx. We think there will be at least eight
in 2010. And we do think, as I said, if there is more bit growth, there can be substantial
investment in capacity. But we have to see that bit growth first.
Michael Sullivan - Applied Materials - VP IR
Okay. And Atif did you have any follow-up.
Atif Malik - Morgan Stanley - Analyst
Thats it.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
10
Michael Sullivan - Applied Materials - VP IR
All right, thank you
Operator
Your next question comes from the line of Timothy Arcuri with Citigroup.
Timothy Arcuri - Citigroup - Analyst
Hi, guys. A couple of things. First of all, George, the $450 million in savings, does that
cannibalize any of your current revenue or is that just straight savings?
George Davis - Applied Materials - CFO
No, were taking cost savings that we think will not interfere with our ability to drive
revenue growth. So, these are really structural changes that will take place over time, as we go
through many of the elements that Mike talked about, which includes moving sales into the
businesses. Consolidating our field resources as our customer base has changed. Global
manufacturing and supply chain consolidation. And movement to more manufacturing and supply
activity in Asia, which has a lot of cycle time and cost benefits. So, all of the things that we
talked about, really we think are a combination of better competitive positioning and also more
efficient, not from reducing or selling off a product that is generating revenue.
Timothy Arcuri - Citigroup - Analyst
Okay. Yes, I was wondering whether just cutting all of those heads would impact your ability
to actually generate revenue. But as a follow-up, the last two quarters youve worked off backlog a
bit. Youve booked a bit less than youve revenued. And Im wondering, if I take sort of the
midpoint of the revenue guidance, roughly $1.8 billion, do you think the same thing is going to
happen in fiscal Q1, ie. youre going to book less than you revenue or will you book more?
George Davis - Applied Materials - CFO
Not guiding to. We do expect orders to be up but were not going to guide orders. But that is
one of the best ways of backing into it that Ive seen. So, its a good question.
Mike Splinter - Applied Materials - Chairman & CEO
Hi, Tim, on the overall restructuring, Id just say that we really try to go through every
aspect of the way we do business. And ask ourselves how were doing it? How we could do it more
efficiently? Are we doing it in the right place? If were not, how do we get to the right place for
doing that? And thats really what the number reflects and what both the headcount and the savings
number reflect.
Timothy Arcuri - Citigroup - Analyst
Okay, Mike, thanks.
Operator
Your next question comes from the line of Krish Sankar with Bank of America - Merrill Lynch.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
11
Krish Sankar - BofA Merrill Lynch - Analyst
Thanks for taking my question, guys. Two questions, actually a question and a follow-up. The
first one, lead times in the SSG business, how are they right now in 4Q and 1Q? And any visibility
beyond the Jan quarter? And my follow-up question is, once the cost reductions are done, how do we
think of the incremental margin for the Company and if possible, segment by segment? Thank you.
Mike Splinter - Applied Materials - Chairman & CEO
Well, I think lead times have shrunk quite a bit. Were putting a bit of stress on our supply
chain right now. Our suppliers are responding. Theyre working very closely with us. But as George
said, 61% of our revenue in Q4 was orders within the quarter. So, you kind of get an idea, were
moving products to customers very, very quickly. And George, do you want to comment on the
incremental flow-through of profits?
George Davis - Applied Materials - CFO
Sure. I think you saw a very high flow-through this quarter. It gives you an idea of how were
already impacting our performance from the actions that weve taken to date. We certainly see an
additional $450 million will have a positive impact. These actions are broad-based, they cut across
the Company. So, it will positively impact every units margins. And at the annual analysts
meeting, well go into more details about how you can see that over time.
Michael Sullivan - Applied Materials - VP IR
Thanks, Krish.
Operator
Your next question comes from the line of Steve ORourke with Deutsche Bank.
Steve ORourke - Deutsche Bank Securities - Analyst
Good afternoon. Thank you for taking my questions. Two questions. Could you say if the
headcount reduction is net of new headcount that youll be adding in Asia? And the second question,
you mentioned that the SunFab lines, I think, came within the bookings, came within the 12-month
time horizon. Are those rebookings? And how do you do you feel confident that they may push out
or not push out further?
George Davis - Applied Materials - CFO
Okay. On the headcount, yes those are net numbers. And then, in terms of the 12 month booking
window, the way we book SunFab lines is we may sign a contract but because the lead times are
longer than our 12 month booking window, we actually wait until we get to within 12 months of what
we believe will be factory signoffs, which is the revenue event. And thats what happened now with
this. So, theres no rebooking at all. Weve just now are within 12 months of what we believe will
be the revenue event.
Michael Sullivan - Applied Materials - VP IR
Thank you, Steven.
Steve ORourke - Deutsche Bank Securities - Analyst
Thank you.
Operator
Your next question comes from the line of Peter [Rice] with Global Crown.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
12
Peter Rice - Global Crown - Analyst
Great. Thank you for taking my question. My first question - congratulations, also, on great
execution. Mike, I was hoping you could comment, across the board, it seems semi equipment
companies are taking a more defensive posture, despite kind of going into a cyclical recovery,
cutting heads, cutting costs. Whats different in this upturn thats allowing the customers to
support this? And as the follow-up, I was hoping you could comment, in the second half of the year,
the recovery has largely been driven by technology spending. And I was hoping you could share your
outlook of when the next phase of new fabs will be built out and what customer segments will be
driving this initial recovery?
Mike Splinter - Applied Materials - Chairman & CEO
Well, Peter, I think the view of the future is different than in other recoveries. This
particular recovery and I would say we certainly havent recovered yet, so it is one that the
environment is quite different. We still have a very fragile global economy. We have a customer
base thats consolidated substantially and I think will continue to consolidate some as we go
through time. So, we have to ensure that our cost structure and our ability to invest for the
future is really intact. And thats a big part of what were doing. And we also have to align the
financials and pro forma for any of our groups to be consistent with the way we see the market.
So, I think thats pretty much the it gets down to really a focus, if we look at AGS and SSG. In
AGS, 25% of the 200-millimeter wafers are gone. Theyre not coming back. And so we have to ensure
that AGS is set up to be profitable and effective at growing share but also be realistic about the
market theyre serving. Same in SSG. So, I think when the new fabs get moving again, I really think
that depends first of all, I dont know that well see new buildings before late in 2010. But
theres plenty of space to fill up for the foreseeable feature in both memory and in foundries, I
believe. So, I think 2010 is going to be a year of filling up existing fabs. But also, I think
were looking for those inflection points, primarily in memory, that are going to key them to say,
Okay, we have confidence to build capacity.
What we think those are is DRAM bit growth greater than 50%. And were hoping, and want to watch
this very carefully, that investments from industry and emergence of Windows 7 and growth in cell
phones really does drive that bit growth in DRAMs. In NAND flash, we have to see bit growth above
100% and maybe even substantially above 100%. And again, that will be smartphones and MP3 players
and the like that drive the flash bit capacity. I dont think that well see SSDs, also but
its not going to be a big mover this year. Maybe in 2011, it will be the next phase of this
buildout.
Michael Sullivan - Applied Materials - VP IR
Peter, thank you for your questions.
Operator
Your next question comes from Patrick Ho from Stifel Nicolaus.
Patrick Ho - Stifel Nicolaus & Company - Analyst
Thanks a lot. I know you didnt give any quantitative guidance to the orders but can you
discuss which customer segment will drive orders or at least on the semi-cap side of things? In the
January quarter, is it going to be memory that takes the lead or will you still see foundries
comprising the largest percentage?
George Davis - Applied Materials - CFO
We think foundries will continue to be strong but its really - we think DRAM is going to be
the big driver in Q1.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
13
Patrick Ho - Stifel Nicolaus & Company - Analyst
Okay, great. And the second question is, in terms of the cash generation now that youre
starting to put together as youre making money again, what do you plan to do with it? Are you
going to sit on the sidelines or are you going to reinitiate stock buyback like you did in the last
up cycle?
George Davis - Applied Materials - CFO
We still believe that share repurchase is the best way of returning excess cash flow. So, we
will begin to share repurchase again as soon as were comfortable that our that things have
stabilized in the economy. We get more than just one or two strong quarters of cash flow. And I
think theres our view of how much cash we would hold is probably a little bit higher than what
we had going into the year 2009. Although, we feel were in a very strong position right now. So,
we want to see a little more continuity in the economic recovery but were still a believer in
share repurchase.
Michael Sullivan - Applied Materials - VP IR
Thank you, Patrick.
Operator
Your next question comes from Weston Twigg with Pacific Crest Securities.
Weston Twigg - Pacific Crest Securities - Analyst
Hi, thanks for taking my question. I just wanted to dig into the EES group a little bit. You
talked about expanding your TAM, mentioned it as one of the key growth opportunities over the next
several years. Yet, you guided revenue flat for 2010 with 2009, plus or minus 10%. So, Im just
wondering, when do you expect the growth to come and what would be the key catalyst to look for?
Mike Splinter - Applied Materials - Chairman & CEO
I think were quite excited about this space in particular. But during those comments, I was
referring to crystalline silicon and were coming out with a number of new products there that
should expand our TAM. What were concerned about right now is wafering and how fast wafering
expansion is going to occur. And thats really what we look for, as wafering orders start to come
in, we know that the cell orders arent far behind because those wafers have to go to a
manufacturing line someplace. So, thats our caution side. If we see that grow, I think were going
to do were going to have a very good year in crystalline silicon.
Weston Twigg - Pacific Crest Securities - Analyst
Okay. And then, with the $50 million in M&A charges, is that for acquisitions youve already
made or should we expect more, perhaps on the crystalline silicon side, in 2010?
George Davis - Applied Materials - CFO
Thats for acquisitions that weve already made.
Weston Twigg - Pacific Crest Securities - Analyst
Okay.
Michael Sullivan - Applied Materials - VP IR
Thanks Wes.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
14
Operator
And your next question comes from Gary Hsueh with Oppenheimer and Company.
Gary Hsueh - Oppenheimer & Co. - Analyst
Great. Within the context of the EES revenue guidance for next fiscal year, plus or minus 10%,
just wondering what your assumptions are for project signoffs, particularly whats the total tally
in terms of project signoffs in fiscal 09? And on average, whats the megawatt size of those
signoffs? And whats embedded in your expectations in terms of the flat plus our minus 10% guidance
for EES as a whole, next year, in terms of project signoffs, the number and the average megawatt
size? Ive got a follow-up as well.
George Davis - Applied Materials - CFO
Well, Ill we certainly have at least three or four more factories to be signed off in that
forecast. We also expect a certain number of bonuses to potentially be paid during that time
period. Im not going to go into the details on the megawatts. But we have again, I would say
some of the well, certainly, the largest factory will be coming in the latter part of the year
that we have.
Gary Hsueh - Oppenheimer & Co. - Analyst
Okay. Great and my follow-up question is just about some of the reorganization thats been
happening. I jumped on the call late but I wanted to understand whether or not theres any
structural reorganization, specific to etch and inspection, that really might help you kind of
re-energize the effort in terms of regrowing the market share, particularly in etch? And to a
lesser extent, in inspection since youve made some headway there already?
George Davis - Applied Materials - CFO
Were not announcing any organizational shifts today in those groups. We, just a couple of
months ago, Randhir Thakur took over as the General Manager of SSG. And hes working very closely
with customers and making sure they understand our technology road map and have renewed confidence
in our direction.
Gary Hsueh - Oppenheimer & Co. - Analyst
Okay. Great. Thank you.
Michael Sullivan - Applied Materials - VP IR
Thanks, Gary.
Operator
Your next question comes from Mehdi Hosseini with FBR.
Mehdi Hosseini - FBR Capital Markets - Analyst
Yes, thanks for taking my question. The first question has to do with EES. Have you done any
studies to figure out, the kind of estimated megawatt of installations that your SunFab customers
could be manufacturing for, especially over the next, say, 12 months? And then, George, in regard
to the January quarter, given such a wide delta in the guidance range, help me understand, what
would it take to hit the low end versus the high end of the revenue guidance range?
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
15
Mike Splinter - Applied Materials - Chairman & CEO
Hi, Mehdi, its Mike. On the megawatt installations, since this is output from customers
factories, its very hard for me to comment. But obviously, the top side is their rated capacity.
And other than that, I cant say a whole lot. Theres been announcements about the rated capacity
of each of those factories.
George Davis - Applied Materials - CFO
I think the range reflects the range that we gave on revenue. And I think if you think about
the low end, so it would be, if for some reason revenue grew at the low end. Remember, we have
about $0.02 to $0.03 of cost in OpEx in Q1 that we didnt have in Q4. And the tax rate impacts us
about $0.01, as well. So, the low end of that range is probably not as a low a performance,
straight up comparison-wise as you might consider.
Mehdi Hosseini - FBR Capital Markets - Analyst
Great. Thank you.
Operator
Your next question comes from Edwin Mok with Needham & Company.
Edwin Mok - Needham & Company - Analyst
Thanks for taking my question. The first question was backlog, you had $116 million of
cancellation. Can you tell us where that cancellation comes from, in terms of which group and how
do we look at that going forward? Is that something that we should expect ongoing? And then, just a
follow-up question regarding your strategic initiative. I was just wondering the guidance of $450
million savings, does that include the potential savings you can get from transitioning the
manufacturing to Singapore? And if not, then, how much would that incrementally be on top of that
$450 million?
George Davis - Applied Materials - CFO
Yes, Ill take your second question first. The $450 million does include benefits associated
with that activity over the next 18 months. And then, in terms of the backlog adjustments, what
were seeing is, I would say, about $90 million of the cancellations were in our SSG group. And
really just reflect the fact that the customers plans have been changing fairly substantially. And
as we talked about, their order patterns are shortening up substantially. So, were now down to
about 20% of our backlog is SSG. So, not a lot of volatility going forward. The rest of it is
between AGS and EES. With EES mostly centered around crystalline silicon customers around the
world. All right.
Edwin Mok - Needham & Company - Analyst
Great. Thats all I have.
George Davis - Applied Materials - CFO
Thank you.
Operator
Your next question comes from Mahesh Sanganeria with RBC Capital Markets.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
16
Mahesh Sanganeria - RBC Capital Markets - Analyst
Thank you. Just another question on OpEx. If you look at the temporary savings you had, $315
million, 70% came from OpEx. So, that pretty much is offset by the $250 million in savings youre
going to get from the restructuring. So, Im just looking at the profile, it looks like the
temporary savings comes back faster and the restructuring will come slower. So, OpEx will increase.
And then towards the end of the year, the impact comes back to starting point. Is that the right
way to think it?
George Davis - Applied Materials - CFO
I think thats a fair way to look at it. And well give you an update every quarter on our
progress, which should help you tune your model over time.
Mahesh Sanganeria - RBC Capital Markets - Analyst
Okay. Just one quick one. So your SG&A went down significantly from $168 million to $155
million. And you think that that was a one-time thing and it goes back to $168 million or a higher
level?
George Davis - Applied Materials - CFO
SG&A, I think youll see some movements again, part of what youll see with part of the
restructuring, SG&A will improve over time as part of the actions that were taking. So, I think
the way to think about it is as revenue increases, youll see more and more flow-through because
the temporary costs will come back at a slower rate after we see further recovery.
Michael Sullivan - Applied Materials - VP IR
Thanks Mahesh. I think we have time for maybe two questions.
Operator
Your next question comes from [Jaridesh Ayer] with Arete Research.
Jaridesh Ayer - Arete Research - Analyst
Thanks for taking my question. Two questions. One, is how should we think about this Advent
Solar acquisition in terms of your incremental revenue opportunities going into say 2011? Because
it looks like its a very disruptive technology. How should we think about that? And the second
question as a follow-up is that weve been hearing that logic and foundry customers are pursuing
this double patterning screen of litho-etch-litho-etch. How does the dynamics change because youve
been pushing the self-aligned double patterning? You can help us understand this dynamic please?
Thanks.
Mike Splinter - Applied Materials - Chairman & CEO
Well, on Advent, first of all, its way too early to make a forecast. We, obviously, very much
like the technology. We do think its a disruptive technology but we have to prove its
manufacturability and cost effectiveness. And thats what were going to be doing over the coming
quarters. As we get closer to introducing that as a capability to the marketplace, well update you
on how we think its going to change the fabrication of solar panels. On the litho-etch-litho-etch
or self-aligned double patterning, I dont think theres a whole lot of difference for us. We still
win in the thin film depositions. And theres going to be a mix of these things and its hard to
exactly tell how its all going to shake out, litho-etch-litho-etch, obviously, better for logic.
And self-aligned maybe better for flash memory. But I think were going to see how this the
adoption rate goes over the next year.
Michael Sullivan - Applied Materials - VP IR
Thank you Jaridesh.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
17
Operator
Your next question comes from Matt Petkun from D.A. Davidson and Company.
Matt Petkun - D.A. Davidson & Co. - Analyst
A couple of questions. First, on the consolidation of the supply chain and manufacturing, I
just want to be clear, do you expect to net increase or decrease your use of outside partners or
could we actually see an increase in your own vertical integration over the next 12 months?
Mike Splinter - Applied Materials - Chairman & CEO
I dont think youll be seeing an increase in our vertical integration. I think what we want
to do is look across our supply chain. We want to ensure that were working with the suppliers that
both have the right technology and can stay with us in this very volatile business. And were going
to be doing an awful lot of that in Asia as Singapore ramps up and for semiconductors and Tainan
ramps up for our large footprint equipment. But certainly, in this kind of a business, were
looking to make ourselves more variable and have more variable costs, not less.
Matt Petkun - D.A. Davidson & Co. - Analyst
Okay. The display business has been strong. Any update on your opportunity in the LED market,
as it relates to backlighting for displays?
Mike Splinter - Applied Materials - Chairman & CEO
Well, were in the latter stages of developing a product for that market. I have had a lot of
discussions with customers on what they want and what they need. Were working very closely with a
number of customers. We have some eval tools out there today. So as we get - we havent introduced
the product yet but we think well participate in this market in a meaningful way.
Matt Petkun - D.A. Davidson & Co. - Analyst
Okay. Thank you.
Michael Sullivan - Applied Materials - VP IR
Thank you very much. And what wed like to do is thank everyone for joining this afternoon on
the call. And because today is a federal holiday, our Form 8-K, covering todays earnings and
restructuring announcements, is scheduled for tomorrow, November 12. A replay of this call will be
available on our Website beginning at 5:00 PM. Pacific Time today and will remain posted until
November 25. Thank you for your continued interest in Applied Materials.
Operator
This concludes todays conference call. You may now disconnect.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
18
DISCLAIMER
Thomson Reuters reserves the right to make changes to documents, content, or
other information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies may
make projections or other forward-looking statements regarding a variety of
items. Such forward-looking statements are based upon current expectations and
involve risks and uncertainties. Actual results may differ materially from
those stated in any forward-looking statement based on a number of important
factors and risks, which are more specifically identified in the companies
most recent SEC filings. Although the companies may indicate and believe that
the assumptions underlying the forward-looking statements are reasonable, any
of the assumptions could prove inaccurate or incorrect and, therefore, there
can be no assurance that the results contemplated in the forward-looking
statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF
THE APPLICABLE COMPANYS CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE
AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR
INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO
WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY
ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON
THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS
ARE ADVISED TO REVIEW THE APPLICABLE COMPANYS CONFERENCE CALL ITSELF AND THE
APPLICABLE COMPANYS SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER
DECISIONS.
© 2009 Thomson Reuters. All Rights Reserved.
THOMSON REUTERS STREETEVENTS | www.streetevents.com
| Contact Us
|
||
© 2009 Thomson Reuters. All rights reserved. Republication or redistribution
of Thomson Reuters content, including by framing or similar means, is prohibited
without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson
Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
19