Applied Materials(US:AMAT)2023-08-23 16:00Financial Performance - Net sales for the three months ended July 30, 2023 were $6.425 billion, compared to $6.520 billion for the same period in 2022[6] - Net income for the three months ended July 30, 2023 was $1.560 billion, compared to $1.606 billion for the same period in 2022[6] - Earnings per share (diluted) for the three months ended July 30, 2023 were $1.85, compared to $1.85 for the same period in 2022[6] - Comprehensive income for the three months ended July 30, 2023 was $1.572 billion, compared to $1.622 billion for the same period in 2022[8] - Net income for the nine months ended July 30, 2023, was $4.852 billion, compared to $4.934 billion for the same period in 2022[14][18] - Net sales for the nine months ended July 30, 2023, were $19.794 billion, compared to $19.036 billion for the same period in 2022[58] - Net income decreased to $1.560 billion in Q3 2023, down from $1.606 billion in Q3 2022, and to $4.852 billion for the nine months ended July 30, 2023, down from $4.934 billion in the same period last year[135] - Earnings per diluted share remained flat at $1.85 in Q3 2023 compared to Q3 2022, but increased to $5.73 for the nine months ended July 30, 2023, up from $5.59 in the same period last year[135] - Net sales for the three months ended July 30, 2023 were $6.425 billion, a 1% decrease compared to the same period in 2022[138] - Net sales for the nine months ended July 30, 2023 were $19.794 billion, a 4% increase compared to the same period in 2022[138] Balance Sheet and Cash Flow - Total assets as of July 30, 2023 were $30.410 billion, compared to $26.726 billion as of October 30, 2022[10] - Cash and cash equivalents as of July 30, 2023 were $6.025 billion, compared to $1.995 billion as of October 30, 2022[10] - Accounts receivable, net as of July 30, 2023 were $5.230 billion, compared to $6.068 billion as of October 30, 2022[10] - Total current liabilities as of July 30, 2023 were $8.224 billion, compared to $7.379 billion as of October 30, 2022[10] - Retained earnings as of July 30, 2023 were $41.988 billion, compared to $37.892 billion as of October 30, 2022[10] - Total stockholders' equity as of July 30, 2023 was $15.093 billion, compared to $12.194 billion as of October 30, 2022[10] - Cash provided by operating activities for the nine months ended July 30, 2023, was $7.145 billion, up from $4.542 billion in the same period in 2022[21] - Capital expenditures for the nine months ended July 30, 2023, were $797 million, compared to $564 million in the same period in 2022[21] - Cash used in investing activities for the nine months ended July 30, 2023, was $1.046 billion, compared to $1.167 billion in the same period in 2022[21] - Cash used in financing activities for the nine months ended July 30, 2023, was $2.066 billion, compared to $5.416 billion in the same period in 2022[21] - Cash, cash equivalents, and restricted cash equivalents at the end of the period on July 30, 2023, were $6.133 billion, up from $3.060 billion on July 31, 2022[21] - Total cash, cash equivalents and investments as of July 30, 2023 were $8,712 million, a $4,151 million increase compared to October 30, 2022[169] - Working capital was $10.7 billion as of July 30, 2023, compared to $8.5 billion as of October 30, 2022[173] - Days sales outstanding of accounts receivable increased to 74 days for the three months ended July 30, 2023, up from 69 days in the same period in 2022[173] - Cash used in investing activities during the nine months ended July 30, 2023 was $1.0 billion, including $797 million in capital expenditures and $25 million for acquisitions[174] - Cash used in financing activities during the nine months ended July 30, 2023 was $2.1 billion, primarily for repurchases of common stock ($1.5 billion) and dividends to stockholders ($707 million)[175] Segment Performance - Semiconductor Systems segment net sales for the nine months ended July 30, 2023 were $14.815 billion, with operating income of $5.299 billion[125] - Applied Global Services segment net sales for the nine months ended July 30, 2023 were $4.261 billion, with operating income of $1.226 billion[125] - Display and Adjacent Markets segment net sales for the nine months ended July 30, 2023 were $570 million, with operating income of $66 million[125] - Corporate and Other category reported an operating loss of $908 million for the nine months ended July 30, 2023[125] - Net sales in China decreased by 4% to $1.734 billion in Q3 2023 compared to $1.797 billion in Q3 2022, and by 28% to $4.284 billion for the nine months ended July 30, 2023, compared to $5.917 billion in the same period last year[126] - Net sales in the United States increased by 43% to $1.039 billion in Q3 2023 compared to $725 million in Q3 2022, and by 41% to $3.203 billion for the nine months ended July 30, 2023, compared to $2.274 billion in the same period last year[126] - Foundry, logic, and other applications accounted for 79% of Semiconductor Systems net sales in Q3 2023, up from 66% in Q3 2022, and 80% for the nine months ended July 30, 2023, up from 64% in the same period last year[127] - Flash memory sales decreased to 4% of Semiconductor Systems net sales in Q3 2023, down from 19% in Q3 2022, and to 6% for the nine months ended July 30, 2023, down from 16% in the same period last year[127] - Taiwan Semiconductor Manufacturing Company Limited accounted for 22% of net sales, and Samsung Electronics Co., Ltd. accounted for 17% of net sales for the nine months ended July 30, 2023[130] - Net sales for the Semiconductor Systems segment for the three months ended July 30, 2023 were $4,676 million, a $58 million decrease compared to the same period in the prior year[158] - Operating income for the Semiconductor Systems segment for the three months ended July 30, 2023 was $1,618 million, a $83 million decrease compared to the same period in the prior year[158] - Net sales for the Applied Global Services segment for the three months ended July 30, 2023 were $1,464 million, a $44 million increase compared to the same period in the prior year[163] - Net sales for the Display and Adjacent Markets segment for the three months ended July 30, 2023 were $235 million, a $98 million decrease compared to the same period in the prior year[166] Expenses and Costs - Cost of products sold for the three months ended July 30, 2023, was $3.449 billion, compared to $3.514 billion for the same period in 2022[57] - Research, development, and engineering expenses for the three months ended July 30, 2023, were $767 million, compared to $705 million for the same period in 2022[57] - Cost of products sold for the nine months ended July 30, 2023, was $10.579 billion, compared to $10.144 billion for the same period in 2022[58] - Research, development, and engineering expenses for the nine months ended July 30, 2023, were $2.313 billion, compared to $2.045 billion for the same period in 2022[58] - Research, Development and Engineering (RD&E) expenses increased by $62 million to $767 million for the three months ended July 30, 2023 compared to the same period in 2022[144] - Marketing and selling expenses increased by $13 million to $193 million for the three months ended July 30, 2023 compared to the same period in 2022[146] - General and administrative (G&A) expenses increased by $17 million to $214 million for the three months ended July 30, 2023 compared to the same period in 2022[149] - Interest expense for the three months ended July 30, 2023 was $60 million, a $4 million increase compared to the same period in the prior year[151] - Interest and other income (expense), net for the three months ended July 30, 2023 was $64 million, a $71 million increase compared to the same period in the prior year, driven by higher interest income and lower net loss on equity investments[151] - Provision for income taxes for the three months ended July 30, 2023 was $246 million, a $9 million decrease compared to the same period in the prior year[154] - Effective income tax rate for the three months ended July 30, 2023 was 13.6%, a 0.1 percentage point decrease compared to the same period in the prior year[154] Investments and Financial Instruments - Total short-term and long-term investments as of July 30, 2023 was $2.687 billion, compared to $2.566 billion as of October 30, 2022[33][36] - Total cash, cash equivalents, and investments as of July 30, 2023 was $8.712 billion, compared to $4.561 billion as of October 30, 2022[33][36] - Gross unrealized gains on equity investments as of July 30, 2023 was $129 million, compared to $149 million as of October 30, 2022[33][36] - Gross unrealized losses on equity investments as of July 30, 2023 was $38 million, compared to $30 million as of October 30, 2022[33][36] - Total fixed income securities as of July 30, 2023 was $1.857 billion, compared to $1.795 billion as of October 30, 2022[33][36] - Total equity investments as of July 30, 2023 was $830 million, compared to $771 million as of October 30, 2022[33][36] - Unrealized gain on publicly traded equity securities was $12 million for the three months ended July 30, 2023, compared to $3 million for the same period in 2022[43] - Total gain (loss) on equity investments, net was a loss of $2 million for the three months ended July 30, 2023, compared to a loss of $17 million for the same period in 2022[43] - Impairment losses on equity investments in privately held companies were $119 million during the nine months ended July 30, 2023, compared to no material losses in the same period in 2022[43] - Total available-for-sale debt security investments were $6.593 billion as of July 30, 2023, compared to $2.696 billion as of October 30, 2022[50] - Publicly traded equity securities were valued at $117 million as of July 30, 2023, compared to $122 million as of October 30, 2022[50] - The aggregate principal amount of long-term senior unsecured notes was $5.5 billion as of July 30, 2023, with an estimated fair value of $5.1 billion[52] - The total outstanding notional amounts of foreign exchange contracts were $1.8 billion as of July 30, 2023, compared to $2.1 billion as of October 30, 2022[54] - The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI was $15 million for the three months ended July 30, 2023, compared to $35 million for the same period in 2022[54] - The company's investment portfolio includes $1.9 billion in available-for-sale securities, with a hypothetical 100 basis point increase in interest rates resulting in a $25 million decrease in fair value[182] - A hypothetical 10% adverse change in foreign currency exchange rates would result in a $164 million decrease in the fair value of hedging contracts[183] - The company's senior unsecured notes outstanding as of July 30, 2023 totaled $5.5 billion, with a hypothetical 100 basis point decrease in interest rates increasing the fair value by $466 million[182] Shareholder Returns and Compensation - Dividends declared for the nine months ended July 30, 2023, were $0.90 per common share, totaling $756 million[14] - Share-based compensation for the nine months ended July 30, 2023, was $375 million, up from $314 million in the same period in 2022[14][18] - Common stock repurchases for the nine months ended July 30, 2023, amounted to $1.497 billion, compared to $4.603 billion in the same period in 2022[14][18] - The company repurchased 13 million shares of common stock for $1.497 billion during the nine months ended July 30, 2023, at an average price of $117.35 per share[103] - Dividends paid during the nine months ended July 30, 2023, totaled $707 million, compared to $650 million in the same period last year[104] - Total share-based compensation expense for the nine months ended July 30, 2023, was $375 million, up from $314 million in the same period last year[107] - The company had $13.4 billion remaining for future stock repurchases under its repurchase program as of July 30, 2023[102] - Total unrecognized compensation expense related to share-based awards as of July 30, 2023, was $854 million, with a weighted average recognition period of 2.7 years[107] - Outstanding shares as of July 30, 2023 increased to 12 million from 11 million as of October 30, 2022, with a weighted average fair value of $105.27 per share[109] - 0.8 million additional performance-based awards could be earned based on achievement of specified performance and/or market goals as of July 30, 2023[109] - The company issued a total of 1 million shares under the Employee Stock Purchase Plan (ESPP) in each of the nine months ended July 30, 2023 and July 31, 2022[111] Risks and Challenges - Supply chain constraints persisted in fiscal 2023, with some shortages expected to continue through the remainder of the fiscal year, impacting shipments to customers[136] - Additional U.S. export regulations in 2022 resulted in lower net sales in China for the Semiconductor Systems and Applied Global Services segments in the first nine months of fiscal 2023[137] - The company faces risks from global trade issues, including export regulations and tariffs, particularly affecting sales to China, Taiwan, Korea, and Japan[196] - In October 2022, new U.S. export regulations limited the market for certain products in China, adversely impacting revenues and increasing exposure to foreign competition[196] - The company's customer base is highly concentrated, with significant reliance on customers in China, Taiwan, Korea, and Japan, increasing volatility in results of operations[198] - Supply chain disruptions and shortages of parts and materials have adversely impacted manufacturing operations and the ability to meet customer demand[200] - The company is exposed to risks from uncertain global economic conditions, including inflation, interest rate fluctuations, and potential bank failures[192] - The company maintains an investment portfolio subject to credit, liquidity, market, and interest rate risks, which could be exacerbated by deteriorating financial market conditions[193] - The company faces challenges from geopolitical tensions, trade disputes, and regulatory changes, particularly in China and Korea, which represent significant portions of its business[197] - The company must manage costs and align its cost structure with market conditions during periods of decreasing demand to avoid adverse impacts on gross margins and earnings[191] - The company is required to obtain export licenses for certain products sold to China, which can be difficult, costly, and time-consuming, potentially limiting market access[196] - Cybersecurity incidents affecting suppliers could disrupt the supply chain, leading to delays in obtaining parts and materials, impacting manufacturing operations and customer demand[202] - Global trade issues, including export regulations and tariffs, particularly affecting the supply chain in China, could lead to increased costs and delays[202] - Volatility in the availability and cost of parts, commodities, energy, and shipping due to inflation, interest rates, or market conditions may increase operational costs[202] - A worldwide semiconductor shortage, driven by sharp increases in demand, could impact production and delivery timelines[202] - Limited availability of alternatives to per- and polyfluoroalkyl substances (PFAS) in parts and materials may pose challenges to manufacturing operations[202] - Natural disasters, climate change, or geopolitical events could disrupt manufacturing, research, and engineering operations globally[202] - Supplier failures in quality, cost, or intellectual property protection may force the company to transfer business to alternative suppliers, risking delays and additional costs[202] - Rapid increases in manufacturing capacity to meet demand could strain supply chain operations and negatively impact working capital[202] - Mismatch between actual and forecasted demand may result in excess or obsolete inventory charges[202] - Ongoing changes in the semiconductor and display industries could impact demand and profitability[203] Other Financial Metrics - Accumulated other comprehensive income (loss) as of July 30, 2023, was $(223) million,