Applied Materials, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended October 31, 2021. Fiscal 2021 had 53 weeks versus 52 weeks in fiscal 2020; this is an annual filing, and the supplied filing text does not provide a clear standalone fourth-quarter income statement.
Business context
Applied Materials supplies manufacturing equipment, services and software to the semiconductor, display and related industries. Its reportable segments are Semiconductor Systems, Applied Global Services (AGS), and Display and Adjacent Markets. Semiconductor equipment represented the largest part of the business. Approximately 91% of fiscal 2021 net sales were to customers outside the United States.
Financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $23.063 billion | $17.202 billion | +$5.861 billion; 34% |
| Gross margin | 47.3% | 44.7% | +2.6 percentage points |
| Operating income | $6.889 billion | $4.365 billion | +$2.524 billion |
| Operating margin | 29.9% | 25.4% | +4.5 percentage points |
| Net income | $5.888 billion | $3.619 billion | +$2.269 billion |
| Diluted EPS | $6.40 | $3.92 | +$2.48 |
| Cash from operations | $5.442 billion | $3.804 billion | +$1.638 billion |
- Segment sales: Semiconductor Systems $16.286 billion, up 43%; AGS $5.013 billion, up 21%; Display and Adjacent Markets $1.634 billion, up 2%.
- Segment operating margins: Semiconductor Systems 38.8%, AGS 30.1%, and Display and Adjacent Markets 19.2%.
- Liquidity: Cash, cash equivalents and investments totaled $7.514 billion at year-end. Working capital was $9.8 billion. Operating cash flow increased, while accounts receivable rose to $4.953 billion and days sales outstanding increased to 74 from 57.
- Debt: $5.5 billion principal amount of senior unsecured notes was outstanding. The $1.5 billion revolving credit facility was undrawn; no commercial paper was outstanding.
- Capital returns: Fiscal 2021 repurchases totaled $3.750 billion and dividends paid totaled $838 million. Approximately $5.0 billion remained authorized for repurchases at year-end.
Material changes versus FY2020
- Growth was led by semiconductor equipment demand, with higher investments in both advanced and mature foundry/logic nodes and increased memory spending. Semiconductor Systems operating margin rose from 32.7% to 38.8%.
- AGS benefited from higher spending on service agreements and spares. Display sales were nearly flat as increased TV equipment investment was offset by lower mobile-product investment.
- Gross-margin improvement reflected higher sales and favorable customer and product mix, partly offset by higher freight and personnel costs.
- Operating cash flow rose to $5.442 billion. Financing cash use increased to $4.591 billion, primarily reflecting larger share repurchases.
- Fiscal 2021 included $157 million of severance and related charges and a $154 million fee after termination of the Kokusai Electric acquisition agreement. The company reported GAAP diluted EPS of $6.40 and non-GAAP adjusted diluted EPS of $6.84; the latter excludes specified items.
Outlook, commentary and risks
- Management said demand was expected to remain strong into fiscal 2022, while supply shortages were expected to persist. Managing near-term supply constraints was identified as a priority. The filing gives no quantified fiscal 2022 revenue or earnings guidance.
- Backlog was $11.758 billion at October 31, 2021, versus $6.656 billion a year earlier; approximately 21% was not reasonably expected to be filled within 12 months. Backlog may change with customer rescheduling or cancellations and is not necessarily predictive of future sales.
- Key risks include component and logistics constraints, dependence on limited suppliers, cyclical and concentrated customer demand, rapid technology change, and exposure to export controls and trade restrictions, particularly involving China. China represented 33% of sales; Korea 22%; and Taiwan 20%.
- COVID-19-related disruption, inflation in freight and input costs, and the ability to meet customer delivery schedules could affect results. Tax outcomes and the continuation of conditional reduced tax rates also create uncertainty.
- Auditors issued an unqualified opinion on the financial statements and on internal control over financial reporting. Inventory valuation for excess or obsolescence was identified as a critical audit matter.
Important facts for investors to verify
- Whether supply-chain constraints ease and the large backlog converts to timely shipments and revenue.
- Receivables collection and working-capital trends, including the increase in year-end DSO to 74 days.
- Customer and regional concentration, and any changes to U.S. export licensing rules or access to China markets.
- How much of reported growth and margin expansion is repeatable after considering the 53-week fiscal year, product mix, and the severance and acquisition-termination charges.
- Future cash allocation among buybacks, dividends, capital spending and debt obligations; future dividends remain subject to board approval.