Applied Materials (AMAT) 10-K risk factor changes: FY2016 vs FY2015

For the fiscal year ended October [removed: 25, 2015][added: 30, 2016]

Aggregate market value of the voting stock held by non-affiliates of the registrant as of [removed: April 26, 2015,] [added: May 1, 2016,] based upon the closing sale price reported by the NASDAQ Global Select Market on that date: [removed: $26,764,127,442][added: $22,248,434,583]

Number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of December [removed: 3, 2015: 1,149,133,389][added: 8, 2016: 1,076,570,134]

Portions of Part III will be provided in accordance with Instruction G(3) to Form 10-K no later than February [removed: 22, 2016.][added: 27, 2017.]

This Annual Report on Form 10-K of Applied Materials, Inc. and its subsidiaries (Applied or the Company), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve [added: a number of] risks and uncertainties.

Examples of forward-looking statements include those regarding Applied’s future financial or operating results, cash flows and cash deployment strategies, declaration of dividends, share repurchases, business strategies and priorities, costs and cost controls, products, competitive positions, [removed: management's] [added: management’s] plans and objectives for future operations, research and development, strategic acquisitions and investments, growth opportunities, restructuring activities, backlog, working capital, liquidity, investment portfolio and policies, taxes, supply chain, manufacturing, properties, legal proceedings and claims, customer demand and spending, end-use demand, market and industry trends and outlooks, general economic [removed: conditions,] [added: conditions] and other statements that are not historical facts, as well as their underlying assumptions.

FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER [removed: 25, 2015][added: 30, 2016]

| Item 1: | [removed: [Business](#s1BECAA42E6D15C9F995CAD9649EAF483)] [added: [Business](#s963EDF893CE85C38ABC5CE0B856DC4AF)] | [removed: [4](#s1BECAA42E6D15C9F995CAD9649EAF483)] [added: [4](#s963EDF893CE85C38ABC5CE0B856DC4AF)] |

| Item 1A: | [Risk [removed: Factors](#sAD36F15646D051AB9EB29955E29165FF)] [added: Factors](#s8EE2B1192F235DC3BFE9C674B081AE44)] | [removed: [14](#sAD36F15646D051AB9EB29955E29165FF)] [added: [14](#s8EE2B1192F235DC3BFE9C674B081AE44)] |

| Item 1B: | [Unresolved Staff [removed: Comments](#s1ECF47E2408B5100B0DBA7E13A3C3D8E)] [added: Comments](#s03056C5935285C7F832689E61696FBAC)] | [removed: [24](#s1ECF47E2408B5100B0DBA7E13A3C3D8E)] [added: [23](#s03056C5935285C7F832689E61696FBAC)] |

| Item 2: | [removed: [Properties](#sA3BEA9D09012517397EE0A5B5B4832BB)] [added: [Properties](#s956EF92425165B9F936E0A36537A78ED)] | [removed: [25](#sA3BEA9D09012517397EE0A5B5B4832BB)] [added: [24](#s956EF92425165B9F936E0A36537A78ED)] |

| Item 3: | [Legal [removed: Proceedings](#s6885E06696C85A169FCCE97D10346840)] [added: Proceedings](#s659C37BDE9A8517C8F8E066A372E0791)] | [removed: [26](#s6885E06696C85A169FCCE97D10346840)] [added: [25](#s659C37BDE9A8517C8F8E066A372E0791)] |

| Item 4: | [Mine Safety [removed: Disclosures](#sE59BFFEA3D935E3086D406128AA6692C)] [added: Disclosures](#s49AA03911E7955FB905B0E59064F12E5)] | [removed: [26](#sE59BFFEA3D935E3086D406128AA6692C)] [added: [25](#s49AA03911E7955FB905B0E59064F12E5)] |

| Item 5: | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s79FC18074787514494F82DEF0932569C)] [added: Securities](#s837F5E64A2FF53B98F167342E1A86E09)] | [removed: [26](#s79FC18074787514494F82DEF0932569C)] [added: [25](#s837F5E64A2FF53B98F167342E1A86E09)] |

| Item 6: | [Selected Financial [removed: Data](#sEF0A5C8D49BF55308E2AD7C773590386)] [added: Data](#sCF0B46FE664655C384C2F03A58172E92)] | [removed: [28](#sEF0A5C8D49BF55308E2AD7C773590386)] [added: [27](#sCF0B46FE664655C384C2F03A58172E92)] |

| Item 7: | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s66B73DADC6055624848F962C4D5BEB96)] [added: Operations](#s8105F4732B3B57A689A0707B5684BC4B)] | [removed: [29](#s66B73DADC6055624848F962C4D5BEB96)] [added: [28](#s8105F4732B3B57A689A0707B5684BC4B)] |

| Item 7A: | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s01CD2706D56F59AC9CE9DE2DC9EDDDAC)] [added: Risk](#s5ABB08CD69E45371A222EE4EDFBDB6BA)] | [removed: [55](#s01CD2706D56F59AC9CE9DE2DC9EDDDAC)] [added: [50](#s5ABB08CD69E45371A222EE4EDFBDB6BA)] |

| Item 8: | [Financial Statements and Supplementary [removed: Data](#s6C0370951EE75494B10B25AD906B6BC3)] [added: Data](#sE82DA80A3BE851D3A034DBC76A481CFA)] | [removed: [55](#s6C0370951EE75494B10B25AD906B6BC3)] [added: [50](#sE82DA80A3BE851D3A034DBC76A481CFA)] |

| Item 9: | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sA508B44DAF215124AF6CC26106756F61)] [added: Disclosure](#s911CA8506BB55FCBBC111DF80CEFCC92)] | [removed: [55](#sA508B44DAF215124AF6CC26106756F61)] [added: [50](#s911CA8506BB55FCBBC111DF80CEFCC92)] |

| Item 9A: | [Controls and [removed: Procedures](#s11D2F02A4782590AAB5BDB86641A373A)] [added: Procedures](#s67D500210CC65B36A9168A3BDA657780)] | [removed: [56](#s11D2F02A4782590AAB5BDB86641A373A)] [added: [51](#s67D500210CC65B36A9168A3BDA657780)] |

| Item 9B: | [Other [removed: Information](#s927EA1FE88D45304B1655E3A8C1CC5EE)] [added: Information](#s2668FACD6B395FFBA2F97AFB5D138E46)] | [removed: [56](#s927EA1FE88D45304B1655E3A8C1CC5EE)] [added: [51](#s2668FACD6B395FFBA2F97AFB5D138E46)] |

| Item 10: | [Directors, Executive Officers and Corporate [removed: Governance](#sF38AAB4E3B6C58EA9561D9FF4B2D1E55)] [added: Governance](#sB7E5F5CB39355A46BE144FD7B7FADD21)] | [removed: [57](#sF38AAB4E3B6C58EA9561D9FF4B2D1E55)] [added: [52](#sB7E5F5CB39355A46BE144FD7B7FADD21)] |

| Item 11: | [Executive [removed: Compensation](#s62D7400CD0905E1A936E4CFB781A1305)] [added: Compensation](#s4D52E68BD3D056C383F6604991B3DF1A)] | [removed: [57](#s62D7400CD0905E1A936E4CFB781A1305)] [added: [52](#s4D52E68BD3D056C383F6604991B3DF1A)] |

| Item 12: | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sADC10C04A59E5031A65BF90DCADFE8C6)] [added: Matters](#s2A47FCF5043A59E6851B9BE718DC3112)] | [removed: [58](#sADC10C04A59E5031A65BF90DCADFE8C6)] [added: [53](#s2A47FCF5043A59E6851B9BE718DC3112)] |

| Item 13: | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s7DCA63578EAD551C9B3580AD2738F264)] [added: Independence](#s052DAAAEE8805772B3F91CF27E4FDB2F)] | [removed: [59](#s7DCA63578EAD551C9B3580AD2738F264)] [added: [54](#s052DAAAEE8805772B3F91CF27E4FDB2F)] |

| Item 14: | [Principal Accounting Fees and [removed: Services](#s19E8944F9CD255DDA9EC060B6038F0E1)] [added: Services](#s976495E1C3635CF483D6D2C3FC5CDF80)] | [removed: [59](#s19E8944F9CD255DDA9EC060B6038F0E1)] [added: [54](#s976495E1C3635CF483D6D2C3FC5CDF80)] |

| Item 15: | [Exhibits, Financial Statement [removed: Schedules](#sDDB07B3F810D5616BF634AE870CD6C3F)] [added: Schedules](#sBD452435A6575FA19C2903B4524F9027)] | [removed: [60](#sDDB07B3F810D5616BF634AE870CD6C3F)] [added: [55](#sBD452435A6575FA19C2903B4524F9027)] |

A global company with a broad set of capabilities in materials engineering, Applied provides manufacturing equipment, services and software to the global semiconductor, [removed: display, solar photovoltaic (PV)] [added: display] and related industries.

Applied’s customers include manufacturers of semiconductor chips, liquid crystal and other displays, [removed: solar PV cells,] and other electronic devices.

Applied operates in [removed: four] [added: three] reportable segments: [added: Semiconductor Systems (previously] Silicon [removed: Systems,] [added: Systems),] Applied Global Services, [removed: Display,] and [removed: Energy] [added: Display] and [removed: Environmental Solutions.][added: Adjacent Markets (previously Display).]

A summary of financial information for each reportable segment is found in Note [removed: 16] [added: 14] of Notes to Consolidated Financial Statements.

| | [removed: 2015] [added: 2016] | | | | | | [removed: 2014] [added: 2015] | | | | | | [removed: 2013] [added: 2014] | | | | |

| [removed: Silicon] [added: Semiconductor] Systems | $ | [removed: 6,135] [added: 6,873] | | | 64% | | $ | [removed: 5,978] [added: 6,135] | | | [removed: 66%] [added: 64%] | | $ | [removed: 4,775] [added: 5,978] | | | [removed: 64%] [added: 66%] |

| Total | $ | [removed: 9,659] [added: 10,825] | | | 100% | | $ | [removed: 9,072] [added: 9,659] | | | 100% | | $ | [removed: 7,509] [added: 9,072] | | | 100% |

Applied’s [removed: Silicon] [added: Semiconductor] Systems segment develops, manufactures and sells a wide range of manufacturing equipment used to fabricate semiconductor chips, also referred to as integrated circuits (ICs).

The [removed: Silicon] [added: Semiconductor] Systems segment includes semiconductor capital equipment for deposition, etch, ion implantation, rapid thermal processing, chemical mechanical planarization, metrology and inspection, and wafer packaging.

Applied offers [removed: patterning] [added: patterning, selective removal] and packaging products and systems that enable the transfer of patterns onto device structures, making it possible to etch masks used for photolithography, and perform deposition, etching, and related processes.

| Metrology and Inspection Metrology and inspection tools are used to locate, measure, and analyze critical defects and features on the wafer during various stages of the fabrication processes. Applied enables customers to characterize and control critical dimension (CD) and defect issues, especially at advanced generation technology nodes. | | SEMVision G6 Defect Analysis [added: PROVision eBeam Inspection] UVision 7 Inspection VeritySEM 5i Metrology Aera4 Mask Inspection |

The Applied Global Services (AGS) segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment and factory automation software for semiconductor, display and [removed: solar] [added: other] products.

Customer demand for products and services is fulfilled through a global distribution system with trained service engineers located in close proximity to customer sites in more than a dozen countries [added: and 82 locations] to support approximately [removed: 33,000] [added: 34,000] installed Applied semiconductor, display and [removed: solar] [added: other] manufacturing systems worldwide.

10-K 1 amat10302016-10k.htm FORM 10-K

| | [Signatures](#s195BC3713CF75C2AB3EDE3A830C0C72E) | [104](#s195BC3713CF75C2AB3EDE3A830C0C72E) |

As of October 30, 2016, Applied operates in three reportable segments: Semiconductor Systems (previously Silicon Systems), Applied Global Services, and Display and Adjacent Markets.

Effective in the third quarter of fiscal 2016, Applied began to account for its flexible coating systems (previously included in its Energy and Environmental Solutions segment) and display upgrade equipment (previously included in its Applied Global Services segment) under its Display and Adjacent Markets segment (previously Display).

As a result of these changes, Applied’s solar business (previously included in the Energy and Environmental Solutions segment) is included in Corporate and Other as it did not meet the threshold for a separate reportable segment.

Results from prior periods have been recast to conform to the current presentation.

| Applied Global Services | 2,589 | | | | 24% | | 2,447 | | | | 25% | | 2,114 | | | | 24% |

| Display and Adjacent Markets | 1,206 | | | | 11% | | 944 | | | | 10% | | 848 | | | | 9% |

| Corporate and Other | 157 | | | | 1% | | 133 | | | | 1% | | 132 | | | | 1% |

Semiconductor Systems

Display and Adjacent Markets

| Defect Review Defects are identified during inspection steps and reviewed by a scanning electron microscope and other analyses to determine defect root cause and composition. | | Electron Beam Review (EBR) |

| Semiconductor Systems | $ | 2,098 | | | 45% | | $ | 1,720 | | | 55% |

| Display and Adjacent Markets | 1,539 | | | | 34% | | 598 | | | | 19% |

| Corporate and Other | 75 | | | | 2% | | 45 | | | | 1% |

| Micron Technology, Inc. | 11% | | * | | * |

| Intel Corporation | 11% | | * | | * |

The growth of data and new innovations such as augmented and virtual reality and smart vehicles are also creating new opportunities for the industry.

The Company has also entered a new business in yield control with its new inline e-beam review (EBR) system.

If Applied does not effectively manage these challenges during periods of changing demand, its business performance and results of operations may be adversely impacted.

If Applied does not appropriately manage its business operations, it could have a significant negative impact on its business performance and financial condition.

Even during periods of economic uncertainty or lower revenues, Applied must continue to invest in research and development and maintain a global business infrastructure to compete effectively and support its customers, which can have a negative impact on its operating margins and earnings.

| • | regulatory or tax policies impacting the timing of customers’ investment in new or expanded fabrication plants; |

If Applied does not accurately forecast, and allocate appropriate resources and investment towards addressing, key technology changes and inflections, successfully develop and commercialize products to meet demand for new technologies, and effectively address industry trends, its business and results of operations may be adversely impacted.

If Applied does not successfully develop and commercialize products to meet demand for new and emerging display technologies, or if industry demand for display manufacturing equipment and technologies slows, Applied’s business and its results of operations may be adversely impacted.

The industries in which Applied operates are highly competitive and subject to rapid technological and market changes.

In order to successfully grow its businesses, Applied must increase its position in its current markets, expand into adjacent and new markets, and optimize operational performance.

To compete successfully, Applied must:

| • | effectively allocate resources between its existing products and markets, the development of new products, and expanding into new and adjacent markets; |

If Applied does not successfully anticipate technology inflections, develop and commercialize new products and technologies, and respond to changes in customer requirements and market trends, its business performance and results of operations may be adversely impacted.

Applied’s customer base is highly concentrated, and has become increasingly concentrated as a result of continued consolidation.

As a result, the actions of even a single customer can expose Applied’s business and results of operations to greater volatility.

The concentration of Applied’s customer base increases its risks related to the financial condition of its customers, and the deterioration in financial condition of a single customer or the failure of a single customer to perform its obligations could have a material adverse effect on Applied’s results of operations and cash flow.

To the extent its customers experience liquidity constraints, Applied may incur additional bad debt expense, which may have a significant impact on its results of operations.

Applied has product development, engineering, manufacturing, sales and other operations in many countries, and some of its business activities are concentrated in certain geographic areas.

As a result of the global nature of its operations, Applied’s business performance and results of operations may be adversely affected by a number of factors, including:

| • | ineffective or inadequate legal protection of intellectual property rights in certain countries; |

| • | supply chain interruptions, and service interruptions from utilities, transportation, data hosting or telecommunications providers; |

In addition, government authorities may impose conditions that require the use of local suppliers or partnerships with local companies, require the license or other transfer of intellectual property, or engage in other efforts to promote local businesses and local competitors, which could have a significant adverse impact on Applied’s business.

| • | diversion of management’s attention and disruption of ongoing businesses; |

10-K 1 amat10252015-10xkdoc.htm 10-K

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Applied Materials, Inc.

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| | [Signatures](#sF9315D57B7645E7F807D6E94185D76DF) | [113](#sF9315D57B7645E7F807D6E94185D76DF) |

| Applied Global Services | 2,531 | | | | 26% | | 2,200 | | | | 24% | | 2,023 | | | | 27% |

| Display | 780 | | | | 8% | | 615 | | | | 7% | | 538 | | | | 7% |

| Energy and Environmental Solutions | 213 | | | | 2% | | 279 | | | | 3% | | 173 | | | | 2% |

Silicon Systems

Display

Energy and Environmental Solutions

The Energy and Environmental Solutions segment includes products for fabricating crystalline-silicon (c-Si) solar PV cells, as well as high throughput roll-to-roll deposition equipment for flexible electronics, packaging and other applications.

The technologies and products offered in the Energy and Environmental Solutions segment include:

| Energy and Environmental Technologies | | Product(s) |

| Solar: | | |

| Cell Manufacturing C-Si cell manufacturing involves multiple steps, one of which is screen printing the solar cell contact structures. Applied’s printers are the industry-leading systems for this process step. Applied’s Fine Line Double Print process enables solar manufacturers to produce cells with less paste, better quality and higher cell efficiencies than conventional single print cells. | | Baccini Systems |

| Roll-to-Roll WEB Coating: | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Silicon Systems | $ | 1,720 | | | 55% | | $ | 1,400 | | | 48% |

| Display | 525 | | | | 16% | | 593 | | | | 20% |

| Energy and Environmental Solutions | 85 | | | | 3% | | 149 | | | | 5% |

Applied's products within the Energy and Environmental Solutions segment compete in several diverse market areas, including the c-Si solar equipment market.

The solar equipment market has been characterized by significant pressure to reduce customers' overall production costs and increase conversion efficiency.

While end-market demand for solar PVs has been robust over the last several years, investment levels in capital equipment remained low in fiscal 2015.

With respect to its c-Si equipment products, Applied competes with a number of other companies, some of which have significant experience with solar applications and some of which are new entrants to the solar equipment market.

The solar industry downturn has affected many of Applied's competitors and customers adversely, with some companies going through extensive financial and organizational restructuring, and in some instances ceasing operations.

Applied must accurately forecast, and allocate appropriate resources and investment towards addressing, key technology changes and inflections in order to enable opportunities for gains.

Applied is exposed to risks as a result of ongoing changes specific to the solar industry.

Investment levels in capital equipment for the global solar industry have experienced considerable volatility.

In recent years, global solar PV production capacity has exceeded end-use demand, causing customers to significantly reduce or delay investments in manufacturing capacity and new technology, or to cease operations.

Recently, Applied implemented cost reduction measures in its solar business, and as a result incurred restructuring charges, asset impairments and inventory-related charges.

The global solar market is characterized by ongoing changes specific to this industry that impact demand for and/or the profitability of Applied’s solar products, including:

| • | the need to continually decrease the cost-per-watt of electricity produced by solar PV products to at or below grid parity in more global regions by, among other things, reducing operating costs and increasing throughputs for solar PV manufacturing, and improving the conversion efficiency of solar PVs; |

| • | the variability and uncertainty of government energy policies and their effect in influencing the rate of growth of the solar PV market, including the availability and amount of incentives for solar power such as tax credits, feed-in tariffs, rebates, renewable portfolio standards that require electricity providers to sell a targeted amount of energy from renewable sources, and goals for solar installations on government facilities; |

| • | the number of solar PV manufacturers and amount of global production capacity for solar PVs, primarily in China; |

| • | the assessment of duties on solar cells and modules imported from China, Taiwan and other countries; |

| • | challenges associated with marketing and selling manufacturing equipment and services to a diverse and diffuse customer base; |