Applied Materials Q2 2010 Earnings Call Transcript

Applied Materials Q2 2010 Earnings Call Transcript
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Applied Materials (AMAT)

Q2 2010 Earnings Call

May 19, 2010 4:30 pm ET

Executives

Michael Splinter - Chairman, Chief Executive Officer and President

Michael Sullivan - Vice President of Investor Relations

George Davis - Chief Financial Officer and Executive Vice President

Analysts

Darice Liu - Brigantine Advisors

James Covello - Goldman Sachs Group Inc.

Wenge Yang - Oppenheimer

Edwin Mok - Needham & Company, LLC

Christopher Muse - Barclays Capital

Stephen Chin - UBS Investment Bank

Patrick Ho - Stifel, Nicolaus & Co., Inc.

Krish Sankar - BofA Merrill Lynch

Satya Kumar - Crédit Suisse AG

Stephen O'Rourke - Deutsche Bank AG

Raj Seth - Cowen and Company, LLC

Jagadish Iyer - UBS

Timothy Arcuri - Citigroup Inc

Atif Malik - Morgan Stanley

Presentation

Operator

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Thank you for standing by. Please note that today's call will contain forward-looking statements which are all statements other than those of historical fact, including statements regarding industry outlooks, customer spending and Applied's opportunities, strategic position, operational initiatives, cost reduction activities, Semitool acquisition and Q3 and fiscal year 2010 guidance. 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 it's most recent Form 10-Q. Forward-looking statements are based on information as of May 19, 2010 and Applied assumes no obligation to update such statements.

Today's call also contains non-GAAP financial measures, both historical and forecasted. The non-GAAP measures exclude one or more of the following items, as applicable for the period referenced: restructuring and asset impairments, certain acquisition-related costs, investment impairments and/or amounts associated with income tax audits. Reconciliations to the GAAP and non-GAAP measures are contained in today's earnings release and in the financial highlights slides which are available on the Investor page of Applied's website at amat.com.

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

Michael Sullivan

Thank you, Marcelo, 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 our results for our second quarter, which ended on May 2. Our earnings release was issued at 1:05 p.m. Pacific Time, and you can find a copy on Business Wire and on our website at amat.com.

Mike Splinter will be off the call with comments on our business environment, performance and strategies; George will follow with a look at our financial performance for the second quarter, along with our expectations for Q3. We'll then open the call for your questions. With that, I'd like to hand the call over to Mike Splinter.

Michael Splinter

Thanks, Mike, and welcome to today's call. Let me start by saying it feels much better to be talking about this year's second quarter than it did just a year ago, while we were experiencing the bottom of the downturn and the global economic recession.

Our employees have done a terrific job responding to the challenge of the steep ramp over the last three quarters, and our results reflect their commitment to excellence. Our customers are responding to growing demand for consumer electronics in emerging markets. And after a long period of underinvestment by our semiconductor and display customers, we now see a multi-year up cycle in both industries. This improved outlook has given us the confidence to increase our cash dividend and resume our stock buyback program.

We generated strong results in Q2 led by our Silicon Systems Group, which grew sales by over 40%, well above our expectations. The Display business also exceeded our goals for sales and profitability. We saw a quarter-over-quarter sales growth and profit improvement across all of our major businesses except for thin film solar, where we are taking decisive steps to realign the business with a lower market output.

I'll now comment on each of our businesses and the markets they serve. In Silicon, we are again raising our wafer fab equipment spending projection to a new range of $26 billion to $28 billion for the calendar year. This new estimate is $5 billion higher than our forecast just three months ago. We also have increased confidence that we are in a multi-year up cycle that began three quarters ago. We are now tracking 11 new fabs and fab expansions, which alone would support $35 billion to $40 billion of WFE spending over the next six to eight quarters.

Our customers now have higher confidence in the cycle. And their focus is shifted with more than half of overall spending now targeted at capacity additions. We're also seeing spending from a broader base of our foundry and memory customers. We have ongoing strength from foundry and DRAM this quarter. And the supply of advanced memory has remained tight with prices holding firm.

The initial success of the Apple iPad is a good leading indicator that tablet computers are emerging as a major new category and then driver of NAND flash capacity. In fact, we believe that incremental demand for iPads and smartphones will absorb about 60% of the new NAND capacity coming online in 2011.

As we said at our Analyst Meeting, our goal is to gain share in the recovery, and third-party market research released this quarter shows that we are well on track. Applied gain more than two points of WFE share in calendar '09, more than any of the other top 10 suppliers.

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