Business Context and Reporting Period
Company: Applied Materials, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: October 27, 1996
Industry: Semiconductor wafer fabrication equipment and related spare parts.
Applied Materials develops, manufactures, and services equipment for semiconductor fabrication, focusing on deposition, etch, and ion implantation processes. The Company operates globally with significant manufacturing and R&D facilities in the U.S., Japan, England, Korea, and Taiwan. In late 1996, the Company announced the acquisition of Opal, Inc. and Orbot Instruments, Ltd., expanding its portfolio into metrology and inspection systems.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and margin figures are incorporated by reference from the 1996 Annual Report (pages 26-30) and are not explicitly detailed in the provided text.
- Backlog: $1.4 billion as of October 27, 1996 (down from $1.5 billion in the prior year).
- Market Capitalization: Aggregate market value of voting stock held by nonaffiliates was approximately $6.49 billion as of December 27, 1996.
- Shares Outstanding: 180,916,829 shares of Common Stock as of December 27, 1996.
- Debt: Loans totaling $73 million secured by property and equipment in Narita, Japan. A $125 million credit agreement with a group of seven banks is referenced in exhibits.
- Allowance for Doubtful Accounts: Ended the year at $4.169 million (in thousands), with additions of $1.548 million charged to income.
- Dividends: The Company has paid no cash dividends to date and has no plans to do so in the near future.
Material Changes and Operational Highlights
- Acquisitions: Agreements were signed on November 24, 1996, to acquire Opal, Inc. (critical dimension scanning electron microscopes) and Orbot Instruments, Ltd. (wafer and reticle inspection systems). These were completed in the first quarter of fiscal 1997.
- Product Launches: Introduced the Vectra IMP chamber for titanium deposition, the Liner TxZ Centura system, and the Precision Implant xR LEAP and xR120 systems. Entered the Chemical Mechanical Polishing (CMP) market with the Mirra system in late 1995.
- Geographic Sales Mix: Sales distribution for fiscal 1996 was approximately 31% North America, 24% Japan, 16% Europe, 15% Asia-Pacific, and 14% Korea.
- Joint Venture: Maintains a 50% ownership in Applied Komatsu Technology, Inc. (AKT), focused on thin film transistor fabrication systems for active-matrix liquid crystal displays.
Outlook, Risks, and Contingencies
Legal Proceedings: The Company is engaged in significant patent litigation, primarily with ASM (Advanced Semiconductor Materials) and Novellus Systems, Inc.
- vs. ASM: The Company has secured permanent injunctions against ASM's manufacture and sale of certain epitaxial reactors in the U.S. following appellate court affirmations. Trials regarding damages and willfulness are scheduled for mid-1997. ASM has also filed counter-suits regarding CVD susceptors.
- vs. Novellus: The Company alleges infringement of its TEOS-based CVD and tungsten CVD patents. Jury trials are scheduled for March 1997 and later in 1997.
- vs. General Signal: General Signal alleges infringement of five patents regarding multi-chamber wafer fabrication equipment. A trial date has been postponed to later in 1997.
Risks:
- Competition: The industry is highly competitive with rapid technological changes. Competitors include other equipment manufacturers and semiconductor manufacturers producing equipment for internal use.
- Global Economic Factors: Demand is subject to capital equipment investment patterns of major semiconductor manufacturers, which can be affected by economic downturns, trade balances, political instability, and currency fluctuations.
- Supply Chain: While multiple sources exist for most components, reliance on sole-source suppliers for key items poses a risk of delivery disruption.
Investor Verification Checklist
- Verify the specific revenue and net income figures for fiscal 1996 in the incorporated 1996 Annual Report (pages 26-30), as they are not listed in the 10-K text provided.
- Monitor the outcomes of the pending patent litigation trials against ASM and Novellus scheduled for 1997, as damages could be material.
- Assess the integration and financial impact of the Opal and Orbot acquisitions in the first quarter of fiscal 1997.
- Review the Company's cash flow statement to confirm liquidity given the $1.4 billion backlog and ongoing R&D investments for 300mm wafer technology.
- Confirm the status of the $73 million loan secured by Japanese property and the utilization of the $125 million credit facility.