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About Applied Materials, Inc.

Applied Materials is the leading producer of the machines that make computer chips, flat panel TVs, and solar energy devices. The company's equipment handles the complex processes of making chips, from laying down patterns on silicon at the beginning to packaging them for shipment at the end. Its display business produces equipment for manufacturing organic light-emitting diodes (OLEDs) and other display technologies for TVs, personal computers, and smart phones. The services business offers manufacturing consulting and automation software. Based in California, Applied has factories around the world. Asian customers account for about 75% of revenue.

Operations

Applied operates in three segments: Semiconductor Systems, Applied Global Services, and Display.

Semiconductor Systems, 65% of revenue, makes a wide range of manufacturing equipment used to fabricate integrated circuits, including patterning systems, transistor and interconnect products, metrology, inspection and review systems, and packaging technologies. Key products are the Vantage, the Radiance and Centura Systems, VIISta Systems, the Raider and Nokota Platforms, and the Centura RP Epi.

Applied Global Services, about 20% of revenue, provides products that improve equipment and fab performance and productivity, including spares, upgrades, services, and factory automation software for semiconductor, display, and other products.

The Display and Adjacent Markets segment, about 15% of revenue, engineers products for making liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices as well as equipment for flexible substrates.

Geographic Reach

Applied has operations in the US, Asia/Pacific, and Europe. Customers in China account for about 30% of revenue, which puts Applied at risk of being affected by trade tensions between the US and China. Customers in South Korea account for about 20% of revenue and those in the US and Japan each supply about 10% of Applied's revenue.

Products in Semiconductor Systems are manufactured in Santa Clara, California; Austin, Texas; Gloucester, Massachusetts; Kalispell, Montana; Rehovot, Israel; and Singapore. Products in the Display and Adjacent Markets segment are manufactured in Alzenau, Germany and Tainan, Taiwan. Other products are manufactured in Treviso, Italy.

Sales and Marketing

Due to the highly technical nature of its products, Applied's direct sales force does most of the company's marketing and selling worldwide. Applied's biggest customers for chip-making equipment are three of the biggest chipmakers: Samsung Electronics, Taiwan Semiconductor Manufacturing Company, and Intel, each accounting for more than 10% of revenue.

Financial Performance

Applied Materials has manufactured strong revenue gains in the past five years, doubling its top line, driven by rising demand for semiconductors.

Applied's 2018 (ended October) revenue rose 18% to $17.2 billion from 2017, on stronger sales across its businesses. Semiconductor sales were up 15% as customers added production capacity and moved to new technologies, while Display and Adjacent Markets revenue jumped 31% on increased demand for equipment used in making TVs and mobile devices.

Net income slipped to $3.3 billion in 2018 from $3.4 billion the year before because of a hit from the US Tax Cuts and Jobs Act. Income before taxes was about $4.7 billion in 2018.

Applied's coffers held $3.4 billion in cash and equivalents in 2018 compared to $5 billion in 2017. Cash from operations was about $3.8 billion in 2018, while investing activities provided $571 million and financing activities used $5.9 billion.

Strategy

Applied Materials sees growth in semiconductors, driven by the expansion of the internet of things, big data, and artificial intelligence, and technologies such as augmented and virtual reality. In displays, the company forecasts continuing demand for big and small screens. It is investing in research, development, and engineering to help its customers make more chips and with fewer defects. 

Applied Materials revved up its R&D spending in 2018 to more than $2 billion, about $245 million higher than 2017. R&D in the Semiconductor Systems and Display and Adjacent Markets segments address etch, e-beam inspection, and materials engineering. In etch R&D, Applied focuses on supporting the adoption of precision etch technology for the growing use of 3D logic and memory chips.

Applied has teamed with the State of New York to create a center to research the materials, processes, and  technologies to make computer chips in the future. Applied has agreed to spend $600 million in the first seven years of the partnership while New York is to spend $250 million on tools and equipment.

Besides R&D, the company pumped more capital into improving plants and property for new ones. Capital spending rose to $622 million in 2018, an 80% increase from 2017.

Applied has moved into other areas of technology to reduce its exposure to the volatility of the semiconductor business. While it's grown quickly, the Display and Adjacent Market depends on three customers for almost 60% of sales with one customer account for about a third of the segment's sales.

Mergers and Acquisitions

Applied agreed to acquire Kokusai Electronics, which provides high-productivity batch processing systems and services for memory, foundry, and logic customers, for $2.2 billion in 2019. The seller was investment firm KKR. Kokusai's systems complement Applied's portfolio in single-wafer processing systems and could enhance Applied's position with customers in Japan and Asia. With completion of the deal, Kokusai would become part of Applied's Semiconductor Products Group and continue to be based in Tokyo. The transaction was expected to close in 2020.

Company Background

The leading maker of computer chip-making equipment, Applied Materials has helped drive the technology revolution of the past 50 years.  The company was founded in 1967 in Mountain View, California, as a maker of chemical vapor deposition systems for fabricating semiconductors. After years of rapid growth, the company went public in 1972. It has added the manufacturing of equipment for solar technology and displays to its portfolio to help temper the ups and downs of the cyclical semiconductor industry.

Applied Materials, Inc.

3050 BOWERS AVE
Santa Clara, CA 95054-3298
Phone: 1 (408) 727-5555

Stats

Employer Type: Publicly Owned
Stock Symbol: AMAT
Stock Exchange: , NASDAQ
President and CEO: Gary E. Dickerson
SVP and CFO: Daniel Durn
Chairman: Thomas J. Iannotti
Employees (This Location): 800
Employees (All Locations): 21,000

Major Office Locations

Santa Clara, CA

Other Locations

Chandler, AZ
Phoenix, AZ
Fremont, CA
Milpitas, CA
Newport Beach, CA
Roseville, CA
Santa Clara, CA
Sunnyvale, CA
Washington, DC
Boise, ID
Louisville, KY
Andover, MA
Boxborough, MA
Gloucester, MA
Newburyport, MA
Kalispell, MT
Libby, MT
Amherst, NH
Albany, NY
Ballston Spa, NY
Hopewell Junction, NY
Manlius, NY
Beaverton, OR
Hillsboro, OR
Collegeville, PA
Austin, TX
Round Rock, TX
Selma, TX
Salt Lake City, UT
Manassas, VA
Kyoto, Japan
Osaka, Japan
Tainan City, Taiwan
Taoyuan City, Taiwan
Clark Freeport Zone, Philippines
Suwon, South Korea