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Applied Materials, Inc.$47.05($.10)(.21%)

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 Applied Materials Delivers Record Earnings Per Share
   Wednesday, February 15, 2017 4:02:45 PM ET

? Generates record orders of $4.24 billion

? Delivers record EPS of $0.65 and non-GAAP EPS of $0.67

? Expects record revenue and earnings per share in the second quarter of FY2017

Applied Materials, Inc. (AMAT ) today reported results for its first quarter ended January 29, 2017.

First quarter new orders were $4.24 billion, up 86 percent year over year. Net sales of $3.28 billion were up 45 percent year over year.

The company recorded first quarter gross margin of 44.1 percent, up 3.5 points year over year. Operating margin grew 8.9 points year over year to 24.6 percent, and diluted earnings per share (EPS) grew by 160 percent year over year to $0.65. On a non-GAAP adjusted basis, first quarter gross margin increased 3.0 points year over year to 45.4 percent, operating margin grew 8.2 points year over year to 26.0 percent, and diluted EPS grew by 158 percent year over year to $0.67.

The company generated $646 million in cash from operations and returned $238 million to shareholders through stock repurchases and cash dividends.

"We set new records for earnings and orders in our first quarter, and 2017 is shaping up to be an outstanding year for Applied Materials," said Gary Dickerson, President and CEO. "Our inflection-focused innovation strategy is delivering results and we are increasingly confident that we can maintain our trajectory of sustainable growth and raise the ceiling on our performance."

Quarterly Results Summary

                                                                                Change
                                   Q1 FY2017      Q4 FY2016      Q1 FY2016      Q1 FY2017    Q1 FY2017
                                                                                vs.          vs.
                                                                                Q4 FY2016    Q1 FY2016
                                   (In millions, except per share amounts and percentages)
New orders                         $   4,236      $   3,032      $   2,275      40   %       86   %
Net sales                          $   3,278      $   3,297      $   2,257      (1   %)      45   %
Gross margin                       44.1      %    42.4      %    40.6      %    1.7  points  3.5  points
Operating margin                   24.6      %    23.6      %    15.7      %    1.0  points  8.9  points
Net income                         $   703        $   610        $   286        15   %       146  %
Diluted earnings per share         $   0.65       $   0.56       $   0.25       16   %       160  %
Non-GAAP Adjusted Results
Non-GAAP adjusted gross margin     45.4      %    43.7      %    42.4      %    1.7  points  3.0  points
Non-GAAP adjusted operating margin 26.0      %    25.2      %    17.8      %    0.8  points  8.2  points
Non-GAAP adjusted net income       $   732        $   722        $   302        1    %       142  %
Non-GAAP adjusted diluted EPS      $   0.67       $   0.66       $   0.26       2    %       158  %

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 second quarter of fiscal 2017, Applied expects net sales to be in the range of $3.45 billion to $3.60 billion; the midpoint of the range would be an increase of approximately 44 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.72 to $0.80; the midpoint of the range would be an increase of approximately 124 percent, year over year.

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

First Quarter Reportable Segment Information

Semiconductor Systems              Q1 FY2017        Q4 FY2016      Q1 FY2016
                                   (In millions, except percentages)
New orders                         $      2,757     $   1,833      $   1,275
Foundry                            41            %  64        %    38        %
DRAM                               14            %  10        %    29        %
Flash                              37            %  16        %    22        %
Logic and other                    8             %  10        %    11        %
Net sales                          2,150            2,127          1,373
Operating income                   690              667            265
Operating margin                   32.1          %  31.4      %    19.3      %
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income $      736       $   713        $   312
Non-GAAP adjusted operating margin 34.2          %  33.5      %    22.7      %
Applied Global Services            Q1 FY2017        Q4 FY2016    Q1 FY2016
                                   (In millions, except percentages)
New orders                         $      826       $   794      $   755
Net sales                          676              693          606
Operating income                   178              193          149
Operating margin                   26.3          %  27.8    %    24.6    %
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income $      179       $   193      $   149
Non-GAAP adjusted operating margin 26.5          %  27.8    %    24.6    %
Display and Adjacent Markets       Q1 FY2017        Q4 FY2016    Q1 FY2016
                                   (In millions, except percentages)
New orders                         $      632       $   387      $   208
Net sales                          422              452          254
Operating income                   115              103          48
Operating margin                   27.3          %  22.8    %    18.9    %
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income $      115       $   103      $   48
Non-GAAP adjusted operating margin 27.3          %  22.8    %    18.9    %

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted to exclude the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, or investments; gain or loss on sale of strategic investments; income tax items and certain other discrete adjustments. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of our performance and 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 on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures 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 business and financial performance and market share positions, our development of new products and technologies, our business outlook for the second quarter of fiscal 2017, 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-K 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. (AMAT ) is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. 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
(In millions, except per share amounts) January 29,  October 30,  January 31,
                                        2017         2016         2016
Net sales                               $    3,278   $    3,297   $    2,257
Cost of products sold                   1,833        1,898        1,341
Gross profit                            1,445        1,399        916
Operating expenses:
Research, development and engineering   417          394          374
Marketing and selling                   118          114          106
General and administrative              103          114          82
Total operating expenses                638          622          562
Income from operations                  807          777          354
Interest expense                        38           38           42
Interest and other income, net          2            1            2
Income before income taxes              771          740          314
Provision for income taxes              68           130          28
Net income                              $    703     $    610     $    286
Earnings per share:
Basic and diluted                       $    0.65    $    0.56    $    0.25
Weighted average number of shares:
Basic                                   1,078        1,081        1,146
Diluted                                 1,089        1,093        1,154
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)                                         January 29,    October 30,
                                                      2017           2016
ASSETS
Current assets:
Cash and cash equivalents                             $     3,491    $     3,406
Short-term investments                                656            343
Accounts receivable, net                              2,369          2,279
Inventories                                           2,281          2,050
Other current assets                                  297            275
Total current assets                                  9,094          8,353
Long-term investments                                 909            929
Property, plant and equipment, net                    949            937
Goodwill                                              3,316          3,316
Purchased technology and other intangible assets, net 527            575
Deferred income taxes and other assets                449            460
Total assets                                          $     15,244   $     14,570
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, notes payable and accrued expenses  2,139          2,256
Customer deposits and deferred revenue                1,669          1,376
Total current liabilities                             3,808          3,632
Long-term debt                                        3,125          3,125
Other liabilities                                     624            596
Total liabilities                                     7,557          7,353
Total stockholders’ equity                            7,687          7,217
Total liabilities and stockholders’ equity            $     15,244   $     14,570
Balances reflect the effects of the retrospective adoption of the authoritative guidance in the first quarter of fiscal 2017, which required debt issuance costs to be presented as a direct reduction from the carrying amount of the related debt liability. These amounts were originally recorded under Other Assets.
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)                                                                          Three Months Ended
                                                                                       January 29,      October 30,      January 31,
                                                                                       2017             2016             2016
Cash flows from operating activities:
Net income                                                                             $    703         $    610         $    286
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization                                                          97               100              96
Share-based compensation                                                               54               51               54
Excess tax benefits from share-based compensation                                      (44        )     (5         )     (10        )
Deferred income taxes                                                                  25               7                15
Other                                                                                  9                18               10
Net change in operating assets and liabilities                                         (198       )     16               (244       )
Cash provided by operating activities                                                  646              797              207
Cash flows from investing activities:
Capital expenditures                                                                   (64        )     (88        )     (68        )
Cash paid for acquisitions, net of cash acquired                                       --               (11        )     --
Proceeds from sales and maturities of investments                                      286              553              241
Purchases of investments                                                               (589       )     (443       )     (282       )
Cash provided by (used in) investing activities                                        (367       )     11               (109       )
Cash flows from financing activities:
Debt repayments, net of issuance costs                                                 --               --               (1,205     )
Proceeds from common stock issuances and others                                        --               44               2
Common stock repurchases                                                               (130       )     (171       )     (625       )
Excess tax benefits from share-based compensation                                      44               5                10
Payments of dividends to stockholders                                                  (108       )     (108       )     (115       )
Cash used in financing activities                                                      (194       )     (230       )     (1,933     )
Increase (decrease) in cash and cash equivalents                                       85               578              (1,835     )
Cash and cash equivalents -- beginning of period                                       3,406            2,828            4,797
Cash and cash equivalents -- end of period                                             $    3,491       $    3,406       $    2,962
Supplemental cash flow information:
Cash payments for income taxes                                                         $    35          $    13          $    44
Cash refunds from income taxes                                                         $    2           $    9           $    5
Cash payments for interest                                                             $    34          $    41          $    34
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
Corporate and Other
(In millions)                                  Q1 FY2017     Q4 FY2016     Q1 FY2016
New orders                                     $   21        $   18        $   37
Unallocated net sales                          $   30        $   25        $   24
Unallocated cost of products sold and expenses (152     )    (160     )    (78      )
Share-based compensation                       (54      )    (51      )    (54      )
Total                                          $   (176 )    $   (186 )    $   (108 )

Additional Information

                                      Q1 FY2017            Q4 FY2016            Q1 FY2016
New Orders and Net Sales by Geography
(In $ millions)                       New        Net       New        Net       New      Net
                                      Orders     Sales     Orders     Sales     Orders   Sales
United States                         478        317       221        289       369      293
% of Total                            11    %    10    %   7     %    9     %   16  %    13  %
Europe                                221        209       212        256       156      138
% of Total                            5     %    6     %   7     %    8     %   7   %    6   %
Japan                                 445        235       262        364       109      334
% of Total                            11    %    7     %   9     %    11    %   5   %    15  %
Korea                                 1,029      670       432        632       373      273
% of Total                            24    %    20    %   14    %    19    %   17  %    12  %
Taiwan                                1,205      1,103     1,170      1,154     534      637
% of Total                            28    %    34    %   39    %    35    %   23  %    28  %
Southeast Asia                        106        97        84         161       232      87
% of Total                            3     %    3     %   3     %    5     %   10  %    4   %
China                                 752        647       651        441       502      495
% of Total                            18    %    20    %   21    %    13    %   22  %    22  %
Employees (In thousands)
Regular Full Time                                16.0                 15.6      14.6
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
                                                                                                           Three Months Ended
(In millions, except percentages)                                                                          January 29,    October 30,    January 31,
                                                                                                           2017           2016           2016
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis                                                                         $     1,445    $     1,399    $     916
Certain items associated with acquisitions                                                                 42             42             42
Inventory reversals related to restructuring                                                               --             --             (1          )
Non-GAAP adjusted gross profit                                                                             $     1,487    $     1,441    $     957
Non-GAAP adjusted gross margin                                                                             45.4        %  43.7        %  42.4        %
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                                                                     $     807      $     777      $     354
Certain items associated with acquisitions                                                                 47             47             48
Acquisition integration costs                                                                              1              --             --
Inventory reversals related to restructuring, net                                                          --             --             (1          )
Other gains, losses or charges, net                                                                        (3          )  8              --
Non-GAAP adjusted operating income                                                                         $     852      $     832      $     401
Non-GAAP adjusted operating margin                                                                         26.0        %  25.2        %  17.8        %
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis                                                                           $     703      $     610      $     286
Certain items associated with acquisitions                                                                 47             47             48
Acquisition integration costs                                                                              1              --             --
Inventory reversals related to restructuring, net                                                          --             --             (1          )
Impairment (gain on sale) of strategic investments, net                                                    5              6              (2          )
Loss on early extinguishment of debt                                                                       --             --             5
Other gains, losses or charges, net                                                                        (3          )  8              --
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items (16         )  57             (29         )
Income tax effect of non-GAAP adjustments                                                                  (5          )  (6          )  (5          )
Non-GAAP adjusted net income                                                                               $     732      $     722      $     302
1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2 Results for the three months ended January 31, 2016 included a benefit from sales of solar equipment tools for which inventory had been previously reserved.
3 Results for the three months ended October 30, 2016 included a loss of $8 million due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period.
4 These amounts represent non-GAAP adjustments above multiplied by the effective tax rate within the jurisdictions the adjustments affect.
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
                                                                                                           Three Months Ended
(In millions, except per share amounts)                                                                    January 29,    October 30,   January 31,
                                                                                                           2017           2016          2016
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis                                                           $     0.65     $     0.56    $     0.25
Certain items associated with acquisitions                                                                 0.04           0.04          0.04
Other gains, losses or charges, net                                                                        --             0.01          --
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items (0.02       )  0.05          (0.03       )
Non-GAAP adjusted earnings per diluted share                                                               $     0.67     $     0.66    $     0.26
Weighted average number of diluted shares                                                                  1,089          1,093         1,154
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
                                                                Three Months Ended
(In millions, except percentages)                               January 29,    October 30,    January 31,
                                                                2017           2016           2016
Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                          $     690      $     667      $     265
Certain items associated with acquisitions                      46             46             47
Non-GAAP adjusted operating income                              $     736      $     713      $     312
Non-GAAP adjusted operating margin                              34.2        %  33.5        %  22.7        %
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                          $     178      $     193      $     149
Acquisition integration costs                                   1              --             --
Non-GAAP adjusted operating income                              $     179      $     193      $     149
Non-GAAP adjusted operating margin                              26.5        %  27.8        %  24.6        %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                          $     115      $     103      $     48
Certain items associated with acquisitions                      --             --             --
Non-GAAP adjusted operating income                              $     115      $     103      $     48
Non-GAAP adjusted operating margin                              27.3        %  22.8        %  18.9        %
1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.

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