Applied Materials Announces Results for Third Fiscal Quarter 1998; New Orders of $608 Million, Net Sales of $884 Million
New orders of $608 million for the third fiscal quarter of 1998 decreased significantly from $1.24 billion for the third fiscal quarter of 1997 and from $1.03 billion for the second fiscal quarter of 1998. Geographically, North America new orders for the third fiscal quarter of 1998 were 45 percent of the Company's total new orders, Europe 11 percent, Japan 18 percent, Korea 5 percent, Taiwan 20 percent and Southeast Asia and China 1 percent. Backlog at the end of the third fiscal quarter of 1998 decreased to $1 billion, from $1.41 billion at the end of the second fiscal quarter of 1998.
"The semiconductor industry downturn continued to deepen during our third fiscal quarter because of poor economic conditions in Asia, industry overcapacity, and weaker than expected PC sales, compounded by a movement to lower priced PCs," said James C. Morgan, chairman and chief executive officer. "The sharp decline in new orders and net sales was broad-based, as customers in all regions reacted to further business difficulties by delaying equipment deliveries and investments in capacity and strategic programs. At this time, we are unable to predict how long this cycle will last, and are therefore assessing the appropriate level of infrastructure necessary to support a lower business volume, while assuring our industry leadership position."
Gross margin for the third fiscal quarter of 1998 was 44.6 percent, down from 47.2 percent for the third fiscal quarter of 1997 and down from 47.1 percent for the second fiscal quarter of 1998. Ongoing net income as a percentage of net sales was 8 percent for the third fiscal quarter of 1998, compared to 13.7 percent for the third fiscal quarter of 1997 and 12 percent for the second fiscal quarter of 1998. The Company's results of operations for the third fiscal quarter of 1998 include a pre-tax restructuring charge of $35 million, or $0.06 per diluted share after tax, associated with a voluntary separation plan that was announced on May 26, 1998, together with a consolidation of certain facilities. In addition, the Company changed its effective income tax rate for fiscal 1998 from 35 percent to 34 percent. The effect on ongoing net income of recording this change in the third fiscal quarter of 1998 was a favorable $5.7 million, or $0.02 per diluted share. Results of operations for the third fiscal quarter of 1997 included $80 million of pre-tax non-operating income, or $0.14 per diluted share after tax, from a litigation settlement and a pre-tax bad debt expense of $16.3 million, or $0.03 per diluted share after tax.
"Industry downturns provide an excellent opportunity to work closely with our customers to develop and commercialize leading-edge technologies that position the Company for significant growth," continued Morgan. For example, during the 1996 downturn, the Company developed its Ultima HDP-CVD(tm) (high density plasma - chemical vapor deposition) Centura(R) and Mirra(R) CMP (chemical mechanical polishing) products, which are now market leaders. Today, the Company is continuing its strategy by developing and qualifying a broad range of Total Solutions(tm) for the industry's most challenging device structure requirements.
Applied Materials most recently demonstrated its technology leadership with the introduction of the Producer(tm), a high-throughput system for depositing blanket dielectric films, including low dielectric constant (low k) films for copper interconnects. The Producer has a unique new architecture that supports both 200mm and 300mm wafer production. In addition, the Endura(R) Electra Cu(tm) system has established market leadership in depositing critical barrier and seed layers for copper interconnects. These products further extend the Company's range of technologies and processes that will enable chipmakers to build next-generation interconnect structures for all types of semiconductors.
"Despite the current challenges facing the industry, we remain confident about our long-term growth opportunities. Based on established relationships with our customers, a broad portfolio of advanced products and a strong balance sheet, we believe Applied Materials is well-positioned to emerge from this downturn with greater capabilities to enable our customers' success," concluded Morgan.
This press release contains certain forward-looking statements that 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. In addition to the possible exacerbation of the factors discussed above, such risks and uncertainties include, but are not limited to, the ability of the Company to timely align its cost structure with prevailing market conditions and the successful and timely development of new markets, products, processes and services. The Company assumes no obligation to update the information in this press release.
Applied Materials, Inc. is a Fortune 500 global growth company and the world's largest supplier of wafer fabrication systems and services to the global semiconductor industry. Applied Materials is traded on the Nasdaq National Market under the symbol, "AMAT". Applied Materials' website is http://www.AppliedMaterials.com.
Applied Materials, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
----------------------------------------------------------------------
July 26, July 27, July 26, July 27,
1998 1997 1998 1997
----------------------------------------------------------------------
Net sales $ 884,491 $1,057,241 $3,368,492 $2,793,879
Cost of products sold 490,102 558,345 1,790,373 1,509,310
---------- ---------- ---------- ----------
Gross margin 394,389 498,896 1,578,119 1,284,569
Operating expenses:
Research, development
and engineering 154,044 143,880 518,310 392,345
Marketing and selling 79,896 81,191 250,974 222,427
General and administrative 69,667 60,569 212,180 179,794
Restructuring 35,000 -- 35,000 --
Bad debt expense -- 16,318 -- 16,318
Acquired in-process
research and development -- -- 32,227 59,500
---------- ---------- --------- ---------
Income from operations 55,782 196,938 529,428 414,185
Income from litigation
settlement -- 80,000 80,000 80,000
Interest expense 11,282 4,851 35,031 15,586
Interest income 18,868 15,038 58,377 43,193
---------- --------- --------- --------
Income from consolidated
companies before taxes 63,368 287,125 632,774 521,792
Provision for income taxes 15,851 100,494 215,143 203,453
---------- ---------- --------- ---------
Income from consolidated
companies 47,517 186,631 417,631 318,339
Equity in net income/
(loss) of joint venture -- -- -- --
---------- ---------- ---------- ----------
Net income $ 47,517 $ 186,631 $ 417,631 $ 318,339
---------- ---------- ---------- ----------
Earnings per share:(a)
Basic $ 0.13 $ 0.51 $ 1.14 $ 0.88
Diluted $ 0.13 $ 0.49 $ 1.10 $ 0.85
Weighted average number
of shares:(a)
Basic 366,942 364,012 366,584 362,662
Diluted 378,072 379,218 378,808 375,540
(a) Amounts for the three and nine months ended July 27, 1997 have
been retroactively restated to reflect a two-for-one stock split
in the form of a 100 percent stock dividend, effective October
13, 1997.
Applied Materials, Inc.
Consolidated Condensed Balance Sheets(b)
----------------------------------------------------------------------
July 26, Oct. 26,
(In thousands) 1998 1997
----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 387,057 $ 448,043
Short-term investments 1,215,710 1,094,912
Accounts receivable, net 814,883 1,110,885
Inventories 632,513 686,451
Deferred income taxes 324,144 324,568
Other current assets 208,871 105,498
----------- -----------
Total current assets 3,583,178 3,770,357
Property, plant and equipment, net 1,234,151 1,066,053
Other assets 222,427 234,356
----------- -----------
Total assets $ 5,039,756 $ 5,070,766
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 153 $ 55,943
Current portion of long-term debt 6,444 10,563
Accounts payable and accrued expenses 933,434 1,157,808
Income taxes payable 117,314 177,774
----------- -----------
Total current liabilities 1,057,345 1,402,088
Long-term debt 611,812 623,090
Deferred income taxes and
other liabilities 110,396 103,417
----------- -----------
Total liabilities 1,779,553 2,128,595
----------- -----------
Stockholders' equity:
Common stock 3,676 3,672
Additional paid-in capital 769,263 850,902
Retained earnings 2,515,669 2,098,038
Cumulative translation adjustments (28,405) (10,441)
----------- -----------
Total stockholders' equity 3,260,203 2,942,171
----------- -----------
Total liabilities and
stockholders' equity $ 5,039,756 $ 5,070,766
----------- -----------
(b) Amounts as of July 26, 1998 are unaudited. Amounts as of October
26, 1997 are from the October 26, 1997 audited financial
statements.