Applied Materials' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Applied Materials (AMAT)

Q1 2012 Earnings Call

February 16, 2012 4:30 pm ET

Executives

Michael Sullivan - Vice President of Investor Relations

Michael R. Splinter - Chairman, Chief Executive Officer and President

George S. Davis - Chief Financial Officer and Executive Vice President

Analysts

Stephen Chin - UBS Investment Bank, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Christopher J. Muse - Barclays Capital, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Srinivasan Sundararajan - Oppenheimer & Co. Inc., Research Division

Terence R. Whalen - Citigroup Inc, Research Division

Christopher Blansett - JP Morgan Chase & Co, Research Division

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Satya Kumar - Crédit Suisse AG, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Benedict Pang - Caris & Company, Inc., Research Division

Mark Heller - CLSA Asia-Pacific Markets, Research Division

Presentation

Operator

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Welcome to the Applied Materials Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 16, 2012.

Please note that today's call will contain forward-looking statements, which are all statements other than those of historical fact, including statements regarding Applied's performance, industry outlook, opportunities, customer spending, market position, cost control, capital allocation and Q2 of fiscal year 2012 business outlook.

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 today's earnings press release and is in the company's filings with the SEC. Forward-looking statements are based on information as of February 16, 2012, and the company assumes no obligation to update such statements.

Today's call also contains non-GAAP financial measures. Reconciliations of the non-GAAP measures to GAAP measures are contained in today's earnings release or in the financial highlight slides, which are on the Investors page of our website at appliedmaterials.com.

I would now like to turn the call -- conference over to Michael Sullivan, Vice President of Investor Relations. Please go ahead, sir.

Michael Sullivan

Thank you, Rachel, and good afternoon. 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, we'll discuss the results for our first quarter, which ended on January 29. Our earnings release was issued just after 1:00 p.m. Pacific Time and you could find a copy on our website, appliedmaterials.com. Also on the website is our quarterly financial highlights presentation which provides additional details. Mike Splinter will lead off the call with comments about the industry environments as well as our performance and plans. Next, George will discuss our financial performance for the quarter, along with our business outlook.

Before we begin, I have a calendar announcement. Applied invites you to attend our 2012 Investors and Analyst Meeting in New York City on Wednesday, March 28. At the event, you'll have a chance to meet the executive team, get an update on all of our businesses and take a deep look into emerging technologies during our afternoon breakout sessions. The registration site is open now and we hope to see many of you in 6 weeks.

And with that introduction, I'd now like to turn the call over to Mike Splinter.

Michael R. Splinter

Thanks, Mike, and good afternoon to everyone on the call today. On behalf of Applied Materials, I would like to convey our condolences to Steve Appleton's family and our colleagues at Micron. Steve's leadership in the semiconductor industry will be greatly missed.

Now let me comment on Applied Materials' performance and our industry outlook. I'm pleased to report that Applied started 2012 with a strong first quarter, posting revenue and earnings that exceeded the high-end of our ranges. Global demand for mobile electronics is driving strong capital investments by semiconductor customers, resulting in solid order momentum and higher expectations for our second quarter. The rate of technical change continues to accelerate in all of our markets and leading-edge technology investment remains a priority for our customers.

In early November, we completed our acquisition of Varian, and welcomed their talented team into the Applied Materials family. Bringing these 2 leaders together comes at a critical time as the industry accelerates its advanced transistor roadmap. Our combined capabilities in Epi implant and thermal processing enabled new opportunities to provide customers with high-value solutions for the next generations of high performance energy-efficient transistors.

Let me now turn to the economic outlook. Since the start of the year, we have seen improvements in a number of macroeconomic indicators. While the ongoing recession and increased austerity in parts of Europe remain a concern, we believe the global economic environment will support healthy spending by consumers and businesses.

I'll now provide an update for each of our segments. In semiconductor, 2012 is shaping up to be the year of the foundry. The mobility trend is driving growth and in the fourth calendar quarter, smartphone unit sales surpassed PCs for the first time. We expect between 600 million and 700 million smartphones to be sold in 2012, an increase of 35% year-on-year. In addition, we believe the tablet market will grow by more than 60% this year on top of 65 million units sold in 2011.

Smartphones and tablets are driving demand for application processors and as these processors become increasingly sophisticated, we are seeing a significant increase in die sizes. As a result, foundries are aggressively investing as they ramp production at the 3x and 2x nodes.

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