Applied Materials, Inc. (

AMAT

)

F4Q2010 Earnings Call Transcript

November 17, 2010 4:30 pm ET

Executives

Michael Sullivan – VP, IR

Mike Splinter – Chairman, President and CEO

George Davis – EVP and CFO

Analysts

CJ Muse – Barclays Capital

Atif Malik – Morgan Stanley

Jim Covello – Goldman Sachs

Satya Kumar – Credit Suisse

Stephen Chin – UBS

Krish Sankar – Bank of America

Peter Kim – Deutsche Bank

Gary Hsueh – Oppenheimer & Company

Patrick Ho – Stifel Nicolaus

Timothy Arcuri – Citi

Edwin Mok – Needham

Mehdi Hosseini – Susquehanna International

Brian Lee – JPMorgan

Mahesh Sanganeria – RBC Capital Markets

Jagadish Iyer – Arete Research

Presentation

Operator

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Good day and welcome to Applied Materials fourth quarter and fiscal year 2010 earnings call. Please note that today's call will contain forward-looking statements, which are all statements other than those of historical facts, including statements regarding Applied's performance, momentum, strategic positions, operational improvements, products, market and industry outlook and Q1 and fiscal 2011 forecast.

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 in the Company's filings with the SEC, including its most recent Form 10-Q. Forward-looking statements are based on information as of November 17, 2010, and Applied assumes no obligation to update such statements.

Today's call also contains non-GAAP financial measures, both historical and forecasted. Reconciliations of the GAAP and non-GAAP measures are contained in today's earnings release or in the financial highlights slides, which are available on the Investor page of Applied's website at appliedmaterials.com.

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

Michael Sullivan

Thank you, Carrey, and good afternoon. Today we'll be discussing Applied's results for the fourth quarter and the 2010 fiscal year, which ended on October 31. Our earnings release was issued at 1.03 Pacific Time, and you can find a copy on Business Wire and on our website at 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.

Mike Splinter will lead off the call with comments about the industry environment as well as our performance and plans. George will follow with his comments on our financial results for the quarter and the year, along with our expectations entering fiscal 2011. We have a lot of ground to cover today, but we'll be sure to leave plenty of time for your questions.

With that, I'd now like to turn the call over to Mike Splinter.

Mike Splinter

Thanks, Mike, and good afternoon to everyone on the call today. I'm pleased to report that Applied ended our fiscal year with an outstanding fourth quarter, and enter 2011 with positive momentum. In the fourth quarter, we grew revenue to $2.9 billion, generated $700 million in operating profit and delivered earnings that exceeded the high end of our target.

Reflecting on the year as a whole, I'm pleased with the progress we've made against our strategic plan. Our goals for 2010 were clear, capitalize on the recovery in our markets, gain share on our core businesses and achieve a new level of operating performance and profitability. We delivered in all three of these areas. We took advantage of the recovery in semiconductor and display equipment with revenue growth and an expected 2 points of share gain in wafer fab equipment spending.

We took aggressive actions to restructure our solar business, which enabled EES to achieve profitability in the fourth quarter. In addition, we made operational improvements throughout the organization that make us more efficient. These changes included opening new operation centers in Singapore and Taiwan; they are already improving customer delivery and gross margins.

Before I comment on the upcoming year, I'd like to thank the entire Applied Materials team for their outstanding achievements during 2010.

While we are mindful of the fragile state of the global economy, we have a positive view of the markets we serve and expect the fundamental drivers of 2010 to remain in place next year. We see demand for consumer electronics remaining strong, led by the emerging markets.

PCs sales are projected to grow 5% to 10%, smartphones are forecasted to approach 400 million units, LCD TVs reaching 215 million units and tablets are expected to grow to 50 million units or greater.

Tablets are also leading the transition to solid state storage, and as a result we expect NAND bit growth to be in the range of 80% to 90% next year. This was projected to support more than $6 billion of equipment spending and NAND investment will likely surpass DRAM for the first time. In semiconductor equipment, we see PCs as the biggest swing factor in our wafer fab equipment forecast for next year.

We also see continued strength in solar, where installations are on track to grow at 20% to 30% in 2011; this growth is being driven by solid project returns even as feed-in tariffs decline. Let me now turn to each of our segments.

In Semiconductor, we expect WFE spending to finish this calendar year in the range of $29 billion to $30 billion, which is above our previous view of $26 billion to $28 billion. We anticipate next year's spending to be in line with 2010 plus or minus 10%.

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