Applied Materials Projects Extended Capital Investment Cycle Driven by Mobility Trends

Applied Materials forecasts wafer fabrication equipment spending will exceed $30 billion for a record fourth consecutive year in 2013. The semiconductor industry to date has not experienced more than two successive years of spending at that level. During the company’s annual Investor and Analyst Meeting, chairman and CEO Mike Splinter, along with senior leadership, also discussed how growing global demand for mobile devices is driving Applied’s semiconductor and display businesses.

“The Age of Mobility is transforming the semiconductor industry as a growing global consumer base demands increasingly sophisticated devices. This trend is accelerating the adoption of smartphones, tablets and mobile PCs and driving our customers to deliver larger, more complex chips at higher unit volumes and on faster production ramps,” said Splinter. “As a result, we are seeing sustained capital investment with an expected third, and likely fourth, consecutive year of wafer fabrication equipment spending in excess of $30 billion.”

“Applied expects continued strength in our core semiconductor business to result in fiscal year 2012 revenue for the company in the range of $9.1 to $9.5 billion. We expect non-GAAP earnings per share of $0.85 to $0.95, including $0.07 to $0.08 of operating losses from our Energy and Environmental Solutions group,” said George Davis, executive vice president and chief financial officer. “As a result of the sharp capacity-driven downturn in our solar and display equipment markets, these businesses are focused on reducing costs to improve profitability.”

Dr. Randhir Thakur, executive vice president and general manager of the Silicon Systems Group, outlined how mobility end-market unit growth, process complexity and processor die size growth are supporting strong wafer fab equipment spending, primarily led by foundry and NAND memory capacity increases.

“Our customers are seeing an incredible acceleration of technology inflections, coupled with significant increases in chip complexity. These trends present unprecedented opportunities for Applied to partner with our customers at advanced nodes and leverage our unique expertise to solve their highest value problems,” said Thakur. “As a result, we expect record revenues in front end, epitaxy and metal deposition products as well as our recently acquired Varian business.”

Charlie Pappis, group vice president and general manager of Applied Global Services, discussed the business unit’s record revenue year in fiscal year 2011 and its strategies for growth in the service space.

“With more than 32,000 tools now in service in our customers’ factories, Applied has a tremendous service and maintenance opportunity to help customers achieve their cost and performance goals,” said Pappis.

According to Dr. Mark Pinto, executive vice president and general manager of Energy and Environmental Solutions, the business unit had record revenue and operating margin in 2011, gained market share and maintained its ranking as the leading solar photovoltaic equipment company.

“We expect continued strong growth in the solar end-market driven by healthy economics and the broadening adoption of PV outside of Europe,” said Pinto. “This strong demand will balance with supply over time, and we expect capital spending to return to growth in 2013. In the meantime, EES is managing costs in line with market realities and taking actions to reduce our financial breakeven point.”

Tom Edman, group vice president and general manger of the Display Business Group, discussed how the business unit’s product leadership was able to benefit from the growth of the mobile electronics segment. The emerging markets are providing tremendous demand for mobile displays and traditional LCD TVs. Due to the overall display market weakness, Edman said the Display group has been taking actions to lower its breakeven point with a goal of remaining profitable in 2012, while anticipating a strong rebound in display capital equipment investment in fiscal year 2013. “The Display team has been able to capitalize on these trends and is poised for the next wave of large TV and mobility demand,” said Edman.

Joe Flanagan, senior vice president of Worldwide Operations and Supply Chain, detailed how design cost reduction remains a critical element to lowering materials costs. “Over the next three years, we expect to free up $500 million of cash from working capital programs,” Flanagan added.