External Use
Applied MaterialsKEYBANC INDUSTRIAL, AUTOMOTIVE
& TRANSPORTATION CONFERENCE
May 31, 2017
| External Use
Safe Harbor
This presentation contains forward-looking statements, including those regarding anticipated growth and trends in our
businesses and markets, industry outlooks, technology inflections, our strategies, our development of new products and
technologies, the anticipated demand for our products, our business and financial performance and outlook, our financial plan
and capital allocation, and other statements that are not historical facts. These statements and their underlying assumptions
are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to
differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our
products; global economic and industry conditions; consumer demand for electronic products; customers’ technology and
capacity requirements; the introduction of new and innovative technologies, and the timing of technology inflections; our
ability to develop, deliver and support new products, expand our markets and increase market share; the concentrated nature
of our customer base; market acceptance of existing and newly developed products; our ability to obtain and protect
intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, and
attract, motivate and retain key employees; the variability of operating expenses and results among products and segments,
and our ability to accurately forecast future results, market conditions, customer requirements and business needs; and other
risks and uncertainties described in our most recent Form 10-Q and other SEC filings. All forward-looking statements are
based on management’s estimates, projections and assumptions as of May 31, 2017, and we assume no obligation to update
them. All information and data that speaks as of a future date are based on management’s estimates, projections and
assumptions, unless otherwise noted.
This presentation also includes non-GAAP adjusted financial measures, along with reconciliations to GAAP measures.
Applied Materials, the Applied Materials logo, and other trademarks so designated as product names are trademarks of
Applied Materials, Inc. Other names and brands are the property of third parties.
2
| External Use3
Bob Halliday, CFO of Applied Materials
INTRODUCTION
Applied Materials | CFO
Varian Semiconductor Equipment | CFO
Ionics Inc. | COO & CFO
Alliant Computer Systems | Corporate Controller
Symbolics Inc. | Corporate Controller
Millipore Corp | Finance Manager
Arthur Anderson & Company | CPA
2011 – Present
2001 – 2011
1990 – 2000
1987 – 1990
1984 – 1987
1980 – 1984
1977 – 1980
Semi Equipment
IndustrialsWater purification equipment
ComputingArtificial Intelligence
IndustrialsMedical equipment
Zoll Medical Devices | Board Member2003 – 2013
| External Use4
AMATlisted on NASDAQ
since 1972
~$14 billion FY17E Revenue
Founded in 1967
Headquartered in
Silicon Valley
~16,600 employees
82 locations
In 17 countries
semiconductor and display equipment companyWorld’s #1
>10,200patents
$1.5 billionFY16 R&D
Leader in technology used to make virtually every new chip and advanced display in the world
| External Use5
Applied Materials
Listed as One of
the World’s Most
Admired Companies
FEBRUARY 2017
Applied Materials’ 2016 gain,
as new-equipment orders
rose by 23% in the fiscal year
DECEMBER 2016
Applied Materials Ranks #18
on Barron’s 500
MAY 2017
Gary Dickerson Named one
of the World's Best CEOs
MARCH 2017
| External Use
FY2016 FCF Margin (2)*
6
Attractive Business
* Data sources for other than AMAT: Thomson First Call as of 5/24/2017. Average of NYSE & Nasdaq-listed companies with >$10B market capitalization based on industry/company list published by the NYU Stern School of Business.
(Number of companies in each category: Machinery – 6; Chemical – 11, Aero Defense – 12, Transportation – 7)
(1) Rev CAGR: 3 year Compound Annual Growth Rate calculated between FY13 Actual Revenue and FY16 Actual Revenue
(2) FCF (Free Cash Flow) Margin formula: (Operating Cash Flow – Capital Expenditure) / Revenue. See slides at the end of the presentation for reconciliation of Applied Materials GAAP to adjusted Non-GAAP measures
(3) ROIC (Return on Invested Capital) formula: Operating income x (1- Effective Tax Rate) / (Average of Long-term Debt + Average of Shareholders Equity), Non-GAAP Operating income & Non-GAAP Effective tax rate used for Applied Materials.
See slides at the end of the presentation for reconciliation of Applied GAAP to adjusted Non-GAAP measures
(4) Forward PE based on stock price and NTM EPS as reported by Thomson First Call as of 5/24/2017
20%
9%
6%
2%3%
AMAT Machinery Chemical Aero Defense Transportation
Rev CAGR (FY13-FY16) (1)*
13%
-6%
-21%
4%
-1%AMAT Aero Defense
Machinery Chemical Transportation
Forward PE (4)*FY2016 ROIC (3)*
20 20 20 19
AMAT Machinery Chemical Aero Defense Transportation
19%
14% 15% 16%18%
AMAT Machinery Chemical Aero Defense Transportation
| External Use7
Applied Materials
Attractive
Markets
1
Investing in
Innovation
2
Increasing
Profitability
and Cash
Returns
3
| External Use8
Applied is at the Foundation of Technology
SEMI EQUIPMENT
SEMI DESIGN &
MANUFACTURING HARDWARE DATA SERVICES
#1
| External Use
www
9
More Semiconductor Demand Drivers
= Growth + Lower Volatility
PC + Internet
Mobile +
Social Media
Emerging
ApplicationsIoT / Smart devices
Big Data
AI / Machine learning
Industry 4.0
* 2000 – 2009 ** 2010 – 2016
2000 2010 2016
Av. WFE = $25.5B*
σ = $8.0B
Av. WFE = $32.4B**
σ = $3.0B
Av. WFE =
σ =
| External Use
Industry 4.0 = IoT, Big Data, AI
10
Increasing
silicon content
required to
Generate,
Transmit,
Understand,
Store and
Display Data
* Source: BCM Advanced Research - Associate member of Intel® Internet of Things Solutions Alliance
| External Use
Applied is at the Foundation of Industry 4.0
11
Generate Transmit Understand
PROCESSING
DisplayStore
STORAGE & DISPLAY
Data
Key
Applied
Products
High-Growth
Semi
Leadership
Semi & ServicesDisplay
| External Use12
Applied Materials FY 2016 Revenue Composition
~40% of business
characterized by
high growth
~60% of business
characterized by
steady growth
$ Billions
’13 – ’16
Rev CAGR
Leadership Semi (1) 5%
Services 9%
Steady Growth 7%
High-Growth Semi (2) 25%
Display & Other 21%
High Growth 24%
Total Applied 13%
(1) Leadership Semi Products: Epitaxy, PVD, Implant, CMP, Thermal, ECD
(2) High-Growth Semi Products: CVD, Etch, Process Control, ALD
Leadership
Semi
ServicesDisplay
& Other
High-growth
Semi
| External Use
$7.8 $7.6 $8.5
$14.3
$17.6
2013 2014 2015 2016 2017 E
13
Display Proliferation Drives Growth
Mobile
TVAR Glasses
VS Goggles
TVResolution4K
Size +1.5’’/yr
SmartphonesLCD OLED
Flex OLED
Display Equipment Market ($B)
* Source: Internal sizing
| External Use14
Applied After-Market Services Business
Growing semi installed base
drives sustainable service business
2013 2014 2015 2016
~30,000
Tools
2017E
2,500
5,000
>6,000
2013 2016 2017E
Tools Under Service Agreement
Service agreements
generate “sticky” returns
| External Use15
Applied Materials
Attractive
Markets
1
Investing in
Innovation
2
Increasing
Profitability
and Cash
Returns
3
| External Use
$1.2B $1.3B $1.4B $1.5B $1.5B
56%
62%
64% 65%66%
FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 E
16
Investment in Innovation Fuels Growth
R&D*
R&D %
of Opex*
Allocated More Spending to R&DR&D % of Opex 56% (FY12) 66% (FY16)
Focused R&D on Most Attractive MarketsSemi + Display + New = 89% of FY16 R&D
Invested in Disruptive Products3X leverage in New Disruptive Products
Increased New Product Success Rateby 66%
* R&D and Opex is Non-GAAP adjusted. For reconciliations of GAAP to adjusted Non-GAAP, see slides at the end of the presentation.
| External Use17
Applied Materials
Attractive
Markets
1
Investing in
Innovation
2
Increasing
Profitability
and Cash
Returns
3
| External Use18
Driving Profitable Growth
(1) For reconciliations of GAAP to adjusted Non-GAAP, see slides at the end of the presentation.
(2) ROIC(Return on Invested Capital) Formula: Non-GAAP Operating income x (1- Non-GAAP Effective tax rate) / (Average of Long-term Debt + Average of Shareholders equity)
EPS (Non-GAAP)(1)Revenue
Operating Margin (Non-GAAP)(1) ROIC (Non-GAAP)(1) (2)
4.86.0 6.1 6.9
2.0
2.1 2.42.6
0.7
0.80.9
1.2
$7.5B
$9.1B $9.7B$10.8B
FY'13 FY'14 FY'15 FY'16 FY17E
SEMI
AGS
DISPLAY
1.9X Growth
0.59
1.07 1.19
1.75
FY'13 FY'14 FY'15 FY'16 FY'17E
+197% Growth
14%
20% 20%22%
FY'13 FY'14 FY'15 FY'16 FY'17E
+8% Points
9%
15% 15%
19%
FY'13 FY'14 FY'15 FY'16
+10% Points
| External Use19
Commitment to Shareholder Returns
$4.4B
1.7M1.7M
1.6M
1.4M1.4M 1.4M 1.3M 1.3M
1.3M1.2M 1.2M 1.2M
1.1M
$0B
$5B
$10B
$15B
$20B
$25B
FY00-FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
SHAREHOLDER
RETURNS AS
% of FCF
Diluted Weighted
Average Shares
Cumulative
Share
Repurchases
Cumulative
Dividends
$16.0B
105 % in last
5 years 89% in last
10 years 96% in last
17 years
| External Use22
Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013
Reported operating income - GAAP basis 2,152$ 1,693$ 1,520$ 432$
188 185 183 201
Acquisition integration and deal costs 2 2 34 38
- (89) (30) 7
- 50 73 17
Impairment of goodwill and intangible assets - - - 278
(3) 49 5 63
Gain on sale of facility - - - (4)
Other significant gains, losses or charges, net8, 9
8 6 (4) -
2,347$ 1,896$ 1,781$ 1,032$
21.7% 19.6% 19.6% 13.7%
1
2
3
4
5
6
7
8
9 Results for fiscal 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination.
Results for fiscal 2013 included $39 million of employee-related costs, net, related to the restructuring program announced on October 3, 2012, and restructuring
and asset impairment charges of $26 million related to the restructuring program announced on May 10, 2012, partially offset by a favorable adjustment of $2 million
related to other restructuring plans.
Results for fiscal 2012 included employee-related costs of $106 million related to the restructuring program announced on October 3, 2012, restructuring and asset
impairment charges of $48 million related to the restructuring program announced on May 10, 2012, and severance charges of $14 million related to the integration
Results for fiscal 2015 primarily included $35 million of inventory charges, $17 million of restructuring charges and asset impairments related to cost reductions in the
solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans.
Results for fiscal 2014 included $5 million of employee-related costs related to the restructuring program announced on October 3, 2012.
These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and
integration planning costs.
Results for the fiscal 2016 primarily included benefit from sales of solar equipment tools for which inventory had been previously reserved related to the cost
reductions in the solar business.
Results for fiscal 2016 included a loss of $8 million due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified
time period.
These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
Non-GAAP adjusted operating income
Non-GAAP adjusted operating margin
Restructuring, inventory charges (reversals) and asset impairments3, 4, 5, 6, 7
Non-GAAP Adjusted Operating Income
Certain items associated with acquisitions1
Loss (gain) on derivatives associated with terminated business combination, net
Certain items associated with terminated business combination2
(In millions, except percentages)
Twelve Months Ended
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
| External Use23
(In millions, except per share amounts)
Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis1
1.54$ 1.12$ 0.87$ 0.21$
Certain items associated with acquisitions 0.16 0.14 0.13 0.14
Acquisition integration and costs - - 0.02 0.02
Gain on derivatives associated with terminated business combination,
net - (0.05) (0.02) -
Certain items associated with terminated business combination - 0.03 0.05 0.01
Impairment of goodwill and intangible assets - - - 0.21
Restructuring, inventory charges and asset impairments - 0.03 - 0.03
Other significant gains, losses or charges, net 0.01 0.01 - -
Impairment of strategic investments, net - - - -
Reinstatement of federal R&D tax credit, resolution of prior years'
income tax filings and other tax items1
0.04 (0.09) 0.02 (0.03)
Non-GAAP adjusted earnings per diluted share 1.75$ 1.19$ 1.07$ 0.59$
Weighted average number of diluted shares 1,116 1,226 1,231 1,219
1
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net
income, resulting in an increase in diluted earnings per share of $0.02. The adjustment was excluded in Applied's non-GAAP adjusted results
and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in
overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.
Twelve Months Ended
| External Use24
Twelve Months
Ended
(In millions, except percentages) Oct 30, 2016
Free Cash Flow
2,466
Capital expenditures (253)
Free Cash Flow 2,213$
Operating Cash Flow as a Percentage of Revenue 22.8%
Free Cash Flow as a Percentage of Revenue 20.4%
Cash provided by operating activities
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF FREE CASH FLOW
| External Use25
(In millions, except percentages) Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013
Provision for income taxes (GAAP basis) (a) 292$ 221$ 376$ 94$
(45) 110 (28) 37
Income tax effect of non-GAAP adjustments 19 17 38 102
Non-GAAP adjusted provision for income taxes (b) 266$ 348$ 386$ 233$
2,013$ 1,598$ 1,448$ 350$
Certain items associated with acquisitions 188 185 183 201
Acquisition integration and deal costs 2 2 34 38
Loss (gain) on derivative associated with announced business combination, net - (89) (30) 7
Certain items associated with announced business combination - 50 73 17
Impairment of goodwill and intangible assets - - - 278
Restructuring, inventory charges (reversals) and asset impairments (3) 49 5 63
Impairment (gain on sale) of strategic investments, net 3 4 (9) 1
Loss on early extinguishment of debt 5 - - -
Other significant gains, losses or charges, net 8 6 (4) (4)
Non-GAAP adjusted income before income taxes (d) 2,216$ 1,805$ 1,700$ 951$
Effective income tax rate (GAAP basis) (a/c) 14.5% 13.8% 26.0% 26.9%
Non-GAAP adjusted effective income tax rate (b/d) 12.0% 19.3% 22.7% 24.5%
Reinstatement of federal R&D tax credit, resolutions of prior years’ income tax filings and
other tax items
Twelve Months Ended
Income before income taxes (GAAP basis) (c)
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
| External Use26
(In millions) Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
RD&E expenses (GAAP basis) 1,540$ 1,451$ 1,428$ 1,320$ 1,237$
Certain items associated with acquisitions1
- - (1) (3) (4)
Acquisition integration costs - (1) (3) (6) (3)
Certain items associated with terminated business combination2
- - (1) - -
Other significant gains, losses or charges, net5
- 2 - - -
Non-GAAP adjusted RD&E expenses 1,540$ 1,452$ 1,423$ 1,311$ 1,230$
Operating expenses (GAAP basis) 2,359$ 2,259$ 2,323$ 2,559$ 2,902$
Certain items associated with acquisitions1
(21) (23) (25) (35) (45)
Acquisition integration and deal costs (2) (2) (33) (35) (81)
Impairment of goodwill and intangible assets - - - (278) (421)
Restructuring charges (reversals) and asset impairments3
1 (14) (5) (63) (168)
Gain (loss) on derivatives associated with terminated business combination, net - 89 30 (7) -
Certain items associated with terminated business combination2
- (50) (73) (17) -
Other significant gains, losses or charges, net4, 5
(8) (8) 4 4 -
Non-GAAP adjusted operating expenses 2,329$ 2,251$ 2,221$ 2,128$ 2,187$
RD&E expense as a percentage of operating expenses 65.3% 64.2% 61.5% 51.6% 42.6%
Non-GAAP adjusted RD&E expenses as a percentage of operating expenses 66.1% 64.5% 64.1% 61.6% 56.2%
4 Results for fiscal 2016 included a loss of $8 million due to discontinuance of cash flow hedges that were probable not to occur by the end of the originally specified time period.
5 Results for fiscal 2015 included immaterial correction of errors related to prior periods, partially offset by costs related to executive termination.
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RD&E AND OPERATING EXPENSES
Twelve Months Ended
1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2 These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
3 Results for fiscal 2012 included employee-related costs of $106 million related to the restructuring program announced on October 3, 2012, restructuring and asset impairment charges of
$48 million related to the estructuring program announced on May 10, 2012, and severance charges of $14 million related to the integration of Varian.