Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis is provided in addition to the accompanying consolidated condensed financial statements and notes, and for a full understanding of our results of operations and financial condition should be read in conjunction with the consolidated condensed financial statements and notes included in this Form 10-Q and the financial statements and notes for the fiscal year ended October 30, 2022 contained in our Form 10-K filed on December 16, 2022.

As used herein, the terms “we,” “us,” and “our” refer to Applied Materials, Inc. and its subsidiaries.

This report contains forward-looking statements that involve a number of risks and uncertainties. Examples of forward-looking statements include those regarding our future financial or operating results, customer demand and spending, end-user demand, our and market and industry trends and outlooks, cash flows and cash deployment strategies, declaration of dividends, share repurchases, business strategies and priorities, costs and cost controls, products, competitive positions, management’s plans and objectives for future operations, research and development, acquisitions, investments and divestitures, growth opportunities, restructuring and severance activities, backlog, working capital, liquidity, investment portfolio and policies, taxes, supply chain, manufacturing, properties, legal matters, claims and proceedings, and other statements that are not historical facts, as well as their underlying assumptions. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” and “continue,” the negative of these terms, or other comparable terminology. All forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in Part II, Item 1A, “Risk Factors,” below and elsewhere in this report. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf. Forward-looking statements are based on management’s estimates, projections and expectations as of the date hereof, and we undertake no obligation to revise or update any such statements.

Overview

We provide manufacturing equipment, services and software to the semiconductor, display, and related industries. Our customers include manufacturers of semiconductor wafers and chips, liquid crystal and organic light-emitting diode (OLED) displays, and other electronic devices. These customers may use what they manufacture in their own end products or sell the items to other companies for use in electronic products. Each of our segments is subject to variable industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for chips, display technologies, and other electronic devices, as well as other factors, such as global economic, political and market conditions, the nature and timing of technological advances in fabrication processes and other factors described under “Risk Factors” in Part II, Item 1A.

We operate in three reportable segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. A summary of financial information for each reportable segment is found in Note 15 of Notes to Consolidated Condensed Financial Statements. A discussion of factors that could affect our operations is set forth under “Risk Factors” in Part II, Item 1A, which is incorporated herein by reference. Product development and manufacturing activities occur primarily in the United States, Europe, Israel, and Asia. Our broad range of equipment and service products are highly technical and are sold primarily through a direct sales force.

Our results are driven primarily by customer spending on capital equipment and services to support key technology transitions or to increase production volume in response to worldwide demand for semiconductors and displays. The timing of customer investment in manufacturing equipment is also affected by the timing of next-generation process development and the timing of capacity expansion to meet end-market demand. In light of these conditions, our results can vary significantly year-over-year, as well as quarter-over-quarter.

The following table presents certain significant measurements for the periods indicated:

			Three Months Ended																		Nine Months Ended
			July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions, except per share amounts and percentages)
Net sales			$	6,425											$	6,520											$	(95)					$	19,794					$	19,036					$	758
Gross margin			46.3		%										46.1		%										0.2 points						46.6		%				46.7		%				(0.1) points
Operating income			$	1,802											$	1,924											$	(122)					$	5,683					$	5,794					$	(111)
Operating margin			28.0		%										29.5		%										(1.5) points						28.7		%				30.4		%				(1.7) points
Net income			$	1,560											$	1,606											$	(46)					$	4,852					$	4,934					$	(82)
Earnings per diluted share			$	1.85											$	1.85											$	—					$	5.73					$	5.59					$	0.14

Fiscal 2023 and 2022 each contain 52 weeks and the first nine months of fiscal 2023 and 2022 each contained 39 weeks.

Semiconductor equipment customers continued to make strategic investments in new capacity and new technology transitions during the nine months ended July 30, 2023. Foundry and logic customers’ spending increased in the three and nine months ended July 30, 2023 compared to the same periods in the prior year driven primarily by customer investments in mature manufacturing nodes. Memory customers’ spending in the three and nine months ended July 30, 2023 was lower as compared to the same periods in the prior year due to deferred capacity additions primarily as a result of weakness in demand for consumer electronic products.

Our Applied Global Services net sales in the three and nine months ended July 30, 2023 increased compared to the same periods in the prior year primarily driven by an increase in legacy systems sales, partially offset by a decrease in net sales associated with long-term service agreements and spares due to additional export regulations issued by the United States government in 2022 and lower customer utilization rates. Our Display and Adjacent Markets net sales decreased in the three and nine months ended July 30, 2023 compared to the same periods in the prior year primarily due to lower customer investments in display manufacturing equipment as a result of weakness in demand for consumer electronic products.

We experienced supply chain and logistics constraints in fiscal 2022, and although there have been improvements in supply chain performance in the first nine months of fiscal 2023, we expect some shortages to persist through the remainder of fiscal 2023, and managing these supply chain constraints to increase shipments to customers remains a top priority.

In 2022, the United States government announced additional export regulations for U.S. semiconductor technology sold in China. These export regulations resulted in lower net sales in China for our Semiconductor Systems and Applied Global Services segments for the first nine months of fiscal 2023 compared to the same period in the prior year. For a description of risks associated with global trade, see the risk factor entitled “Business and Industry Risks - Global trade issues and changes in and uncertainties with respect to trade policies and export regulations, including import and export license requirements, trade sanctions, tariffs and international trade disputes, have adversely impacted and could further adversely impact our business and operations, and reduce the competitiveness of our products relative to local and global competitors” in Part II, Item 1A, “Risk Factors.”

Results of Operations

Net Sales

Net sales for the periods indicated were as follows:

			Three Months Ended																														Nine Months Ended
			July 30, 2023																		July 31, 2022																		Change						July 30, 2023												July 31, 2022												Change
			(In millions, except percentages)
Semiconductor Systems			$	4,676					73		%																$	4,734					73		%										(1)		%				$	14,815					75		%				$	13,759					72		%				8		%
Applied Global Services			1,464						23		%																1,420						22		%										3		%				4,261						21		%				4,123						22		%				3		%
Display and Adjacent Markets			235						3		%																333						5		%										(29)		%				570						3		%				1,080						6		%				(47)		%
Corporate and Other			50						1		%																33						—		%										52		%				148						1		%				74						—		%				100		%
Total			$	6,425					100		%																$	6,520					100		%										(1)		%				$	19,794					100		%				$	19,036					100		%				4		%

For the three months ended July 30, 2023 compared to the same period in the prior year, net sales remained relatively flat. For the nine months ended July 30, 2023 compared to the same period in the prior year, net sales increased, primarily due to continued customer investment in semiconductor equipment and improvements in our supply chain performance enabling us to better fulfill demand in the first nine months of fiscal 2023 as compared to the same period in the prior year. This increase in net sales was partially offset by the reduction in customer investment in display manufacturing equipment. The Semiconductor Systems segment continued to represent the largest contributor of net sales.

Net sales by geographic region, determined by the location of customers’ facilities to which products were shipped, were as follows:

			Three Months Ended																														Nine Months Ended
			July 30, 2023																		July 31, 2022																		Change						July 30, 2023												July 31, 2022												Change
			(In millions, except percentages)
China			$	1,734					27		%																$	1,797					27		%										(4)		%				$	4,284					22		%				$	5,917					31		%				(28)		%
Korea			988						15		%																1,224						19		%										(19)		%				3,864						19		%				3,313						18		%				17		%
Taiwan			1,345						21		%																1,537						24		%										(12)		%				4,748						24		%				4,194						22		%				13		%
Japan			478						8		%																438						7		%										9		%				1,394						7		%				1,406						7		%				(1)		%
Southeast Asia			180						3		%																270						4		%										(33)		%				590						3		%				633						3		%				(7)		%
Asia Pacific			4,725						74		%																5,266						81		%										(10)		%				14,880						75		%				15,463						81		%				(4)		%
United States			1,039						16		%																725						11		%										43		%				3,203						16		%				2,274						12		%				41		%
Europe			661						10		%																529						8		%										25		%				1,711						9		%				1,299						7		%				32		%
Total			$	6,425					100		%																$	6,520					100		%										(1)		%				$	19,794					100		%				$	19,036					100		%				4		%

The increases in net sales to customers in Europe for the three and nine months ended July 30, 2023 compared to the same periods in the prior year primarily reflected increased investment by customers in semiconductor equipment and increased customer spending on legacy systems and comprehensive service agreements.

The decrease in net sales to customers in China for the three months ended July 30, 2023 compared to the same period in the prior year primarily reflected decreased investment in long-term service agreements due to the impact of additional export regulations issued by the United States government in 2022 and decreased investment in display manufacturing equipment as a result of weakness in demand for consumer electronic products, partially offset by increased investment by customers in semiconductor equipment.

The decrease in net sales to customers in China for the nine months ended July 30, 2023 compared to the same period in the prior year primarily reflected decreased investment in semiconductor equipment and long-term service agreements due to the impact of additional export regulations issued by the United States government in 2022 and decreased investment in display manufacturing equipment as a result of weakness in demand for consumer electronic products.

The decrease in net sales to customers in Korea for the three months ended July 30, 2023 compared to the same period in the prior year primarily reflected decreased investment by customers in semiconductor equipment and display manufacturing equipment as a result of weakness in demand for consumer electronic products, partially offset by increased customer spending on comprehensive service agreements and spares.

The increase in net sales to customers in Korea for the nine months ended July 30, 2023 compared to the same period in the prior year primarily reflected increased investment by customers in semiconductor equipment and increased customer spending on comprehensive service agreements, spares and legacy systems, partially offset by decreased investment in display manufacturing equipment as a result of weakness in demand for consumer electronic products.

The increase in net sales to customers in Japan for the three months ended July 30, 2023 compared to the same period in the prior year primarily reflected increased investment in display manufacturing equipment, partially offset by decreased investment by customers in semiconductor equipment.

The decrease in net sales to customers in Japan for the nine months ended July 30, 2023 compared to the same period in the prior year primarily reflected decreased investment by customers in semiconductor equipment, partially offset by increased investment in display manufacturing equipment.

The changes in net sales in all other regions in the three and nine months ended July 30, 2023 compared to the same periods in the prior year primarily reflected changes in semiconductor manufacturing equipment spending.

Gross Margin

Gross margins for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
			July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
Gross margin			46.3		%										46.1		%										0.2 points						46.6		%				46.7		%				(0.1) points

Gross margin in the three months ended July 30, 2023 increased compared to the same period in the prior year, primarily driven by favorable changes in product mix and an increase in average selling prices, partially offset by higher inventory charges. Gross margin in the nine months ended July 30, 2023 was approximately flat compared to the same period in the prior year. Gross margin during the three months ended July 30, 2023 and July 31, 2022 included $42 million and $34 million of share-based compensation expense, respectively. Gross margin during the nine months ended July 30, 2023 and July 31, 2022 included $138 million and $112 million of share-based compensation expense, respectively.

Research, Development and Engineering

Research, Development and Engineering (RD&E) expenses for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
			July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions)
Research, development and engineering			$	767											$	705											$	62					$	2,313					$	2,045					$	268

Our future operating results depend to a considerable extent on our ability to maintain a competitive advantage in the equipment and service products we provide. Development cycles range from 12 to 36 months depending on whether the product is an enhancement of an existing product, which typically has a shorter development cycle, or a new product, which typically has a longer development cycle. Most of our existing products resulted from internal development activities and innovations involving new technologies, materials and processes. In certain instances, we acquire technologies, either in existing or new product areas, to complement our existing technology capabilities and to reduce time to market.

We believe that it is critical to continue to make substantial investments in RD&E to assure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have maintained and intend to continue our commitment to investing in RD&E in order to continue to offer new products and technologies.

The increases in RD&E expenses during the three and nine months ended July 30, 2023 compared to the same periods in the prior year were primarily due to additional headcount and higher consumable and equipment costs associated with ongoing product development. In addition, the increases in RD&E expenses during the nine months ended July 30, 2023 compared to the same period in the prior year also included a $30 million impairment of fixed assets. These increases reflect our ongoing investments in product development initiatives, consistent with our growth strategy. We continued to prioritize existing RD&E investments in technical capabilities and critical research and development programs in current and new markets, with a focus on semiconductor technologies. RD&E expenses during the three months ended July 30, 2023 and July 31, 2022 included $42 million and $35 million of share-based compensation expense, respectively. RD&E expense during the nine months ended July 30, 2023 and July 31, 2022 included $137 million and $115 million of share-based compensation expense, respectively.

Marketing and Selling

Marketing and selling expenses for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
			July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions)
Marketing and selling			$	193											$	180											$	13					$	584					$	520					$	64

Marketing and selling expenses for the three and nine months ended July 30, 2023 increased compared to the same periods in prior year primarily due to additional headcount and higher travel related expenses. Marketing and selling expenses during the three months ended July 30, 2023 and July 31, 2022 included $13 million and $11 million of share-based compensation expense, respectively. Marketing and selling expenses during the nine months ended July 30, 2023 and July 31, 2022 included $42 million and $37 million of share-based compensation expense, respectively.

General and Administrative

General and administrative (G&A) expenses for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
			July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions)
General and administrative			$	214											$	197											$	17					$	635					$	537					$	98

G&A expenses in the three and nine months ended July 30, 2023 increased compared to the same periods in the prior year primarily due to additional headcount and higher professional fees. G&A expenses during the three months ended July 30, 2023 and July 31, 2022 included $17 million and $15 million of share-based compensation expense, respectively. G&A expenses during the nine months ended July 30, 2023 and July 31, 2022 included $58 million and $50 million of share-based compensation expense, respectively.

Interest Expense and Interest and Other Income (Expense), net

Interest expense and interest and other income (expense), net for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions)
Interest expense			$	60											$	56											$	4					$	180					$	171					$	9
Interest and other income (expense), net			$	64											$	(7)											$	71					$	41					$	27					$	14

Interest expense incurred was primarily associated with issued senior unsecured notes. Interest expense in the three and nine months ended July 30, 2023 remained relatively flat compared to the same periods in the prior year.

Interest and other income (expense), net in the three months ended July 30, 2023 increased compared to the same period in the prior year, primarily driven by higher interest income given an increase in market rates of interest and lower net loss on equity investments, compared to the same period in the prior year.

Interest and other income (expense), net in the nine months ended July 30, 2023 increased compared to the same period in the prior year, primarily driven by higher interest income given an increase in market rates of interest, partially offset by higher impairment losses on equity investments, compared to the same period in the prior year.

Income Taxes

Provision for income taxes and effective tax rates for the periods indicated were as follows:

			Three Months Ended																		Nine Months Ended
July 30, 2023												July 31, 2022												Change						July 30, 2023						July 31, 2022						Change
			(In millions, except percentages)
Provision for income taxes			$	246											$	255											$	(9)					$	692					$	716					$	(24)
Effective income tax rate			13.6		%										13.7		%										(0.1) points						12.5		%				12.7		%				(0.2) points

Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.

Our effective tax rates for the third quarter of fiscal 2023 and 2022 were 13.6 percent and 13.7 percent, respectively.

Our effective tax rates for the first nine months of fiscal 2023 and 2022 were 12.5 percent and 12.7 percent, respectively. The effective tax rate for the first nine months of fiscal 2023 was lower than the same period in the prior fiscal year primarily due to a reduction of deferred tax assets related to a new tax incentive in Singapore in fiscal 2022, offset in part by larger excess tax benefits from share-based compensation in fiscal 2022.

Beginning in our fiscal 2023, the Tax Cuts and Jobs Act, enacted on December 22, 2017, eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five years for activities performed in the U.S. or fifteen years for activities performed outside of the U.S. This capitalization requirement is expected to increase our effective tax rates, deferred tax assets and cash tax liabilities beginning in fiscal 2023.

Segment Information

We report financial results in three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. A description of the products and services, as well as financial data, for each reportable segment can be found in Note 15 of Notes to Consolidated Condensed Financial Statements.

The Corporate and Other category includes revenues from products, as well as costs of products sold, for fabricating solar photovoltaic cells and modules and certain operating expenses that are not allocated to our reportable segments and are managed separately at the corporate level. These operating expenses include costs for share-based compensation; certain management, finance, legal, human resource, and RD&E functions provided at the corporate level; and unabsorbed information technology and occupancy. In addition, we do not allocate to our reportable segments restructuring, severance and asset impairment charges and any associated adjustments related to restructuring actions, unless these actions pertain to a specific reportable segment.

The results for each reportable segment are discussed below.

Semiconductor Systems Segment

The Semiconductor Systems segment is comprised primarily of capital equipment used to fabricate semiconductor chips. Semiconductor industry spending on capital equipment is driven by demand for electronic products, including smartphones and other mobile devices, servers, personal computers, automotive electronics, storage, and other products, and the nature and timing of technological advances in fabrication processes, and as a result is subject to variable industry conditions. Development efforts are focused on solving customers’ key technical challenges in transistor, interconnect, patterning and packaging performance.

Certain significant measures for the periods indicated were as follows:

			Three Months Ended																								Nine Months Ended
July 30, 2023												July 31, 2022												Change												July 30, 2023						July 31, 2022						Change
			(In millions, except percentages and ratios)
Net sales			$	4,676											$	4,734																	$	(58)					(1)		%				$	14,815					$	13,759					$	1,056					8		%
Operating income			$	1,618											$	1,701																	$	(83)					(5)		%				$	5,299					$	5,120					$	179					3		%
Operating margin			34.6		%										35.9		%																						(1.3) points						35.8		%				37.2		%										(1.4) points

Net sales for Semiconductor Systems by end use application for the periods indicated were as follows:

			Three Months Ended												Nine Months Ended
			July 30, 2023												July 31, 2022						July 30, 2023						July 31, 2022
Foundry, logic and other			79		%										66		%				80		%				64		%
Dynamic random-access memory (DRAM)			17		%										15		%				14		%				20		%
Flash memory			4		%										19		%				6		%				16		%
			100		%										100		%				100		%				100		%

Semiconductor equipment customers continued to make strategic investments in new capacity and new technology transitions during the first nine months of fiscal 2023. Foundry and logic customers’ spending increased in the three and nine months ended July 30, 2023 compared to the same periods in the prior year primarily driven by customer investment in mature manufacturing nodes. Spending by memory customers decreased in the three and nine months ended July 30, 2023 compared to the same periods in the prior year due to deferred capacity additions primarily as a result of weakness in demand for consumer electronic products.

Operating margin for the three months ended July 30, 2023 decreased compared to the same period in the prior year, primarily driven by higher inventory charges, the impact of export regulations and increased RD&E expenses, partially offset by favorable changes in product mix and an increase in average selling prices. Operating margin for the nine months ended July 30, 2023 decreased compared to the same period in the prior year, primarily driven by higher material costs and inventory charges, unfavorable changes in product mix and the impact of export regulations and increased RD&E expenses, partially offset by an increase in average selling prices and lower freight and logistics costs. In the three months ended July 30, 2023, two customers each accounted for at least 10 percent of this segment’s net sales, and together they accounted for approximately 38 percent of this segment’s total net sales.

Applied Global Services Segment

The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, certain remanufactured earlier generation equipment and factory automation software for semiconductor, display and solar products.

Demand for Applied Global Services’ solutions are driven by our large and growing installed base of manufacturing systems, and customers’ needs to shorten ramp times, improve device performance and yield, and optimize factory output and operating costs. Industry conditions that affect Applied Global Services’ sales of spares and services are primarily characterized by changes in semiconductor manufacturers’ wafer starts and utilization rates, growth of the installed base of equipment, growing service intensity of newer tools, and our ability to sell more comprehensive service agreements.

Certain significant measures for the periods indicated were as follows:

			Three Months Ended																								Nine Months Ended
July 30, 2023												July 31, 2022												Change												July 30, 2023						July 31, 2022						Change
			(In millions, except percentages and ratios)
Net sales			$	1,464											$	1,420																	$	44					3		%				$	4,261					$	4,123					$	138					3		%
Operating income			$	429											$	434																	$	(5)					(1)		%				$	1,226					$	1,259					$	(33)					(3)		%
Operating margin			29.3		%										30.6		%																						(1.3) points						28.8		%				30.5		%										(1.7) points

Net sales for the three and nine months ended July 30, 2023 increased compared to the same periods in the prior year primarily due to higher customer spending on legacy systems, partially offset by a decrease in net sales associated with long-term service agreements and spares due to additional export regulations issued by the United States government in 2022 and lower customer utilization rates. Operating margin for the three and nine months ended July 30, 2023 decreased compared to the same periods in the prior year primarily due to the impact of the export regulations, higher inventory charges and unfavorable changes in product mix, partially offset by an increase in average selling prices. In the three months ended July 30, 2023, two customers each accounted for at least 10 percent of this segment’s net sales.

Display and Adjacent Markets Segment

The Display and Adjacent Markets segment encompasses products for manufacturing liquid crystal and OLED displays, and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, other consumer-oriented devices, equipment upgrades and solar energy cells. The segment is focused on expanding its presence through technologically-differentiated equipment for manufacturing large-scale LCD TVs, OLEDs, low temperature polysilicon (LTPS), metal oxide, and touch panel sectors; and development of products that provide customers with improved performance and yields.

Display industry growth depends primarily on consumer demand for increasingly larger and more advanced TVs as well as larger and higher resolution displays for next-generation mobile devices. Uneven spending patterns by customers in the Display and Adjacent Markets segment can cause significant fluctuations quarter-over-quarter, as well as year-over-year.

Certain significant measures for the periods presented were as follows:

			Three Months Ended																								Nine Months Ended
July 30, 2023												July 31, 2022												Change												July 30, 2023						July 31, 2022						Change
			(In millions, except percentages and ratios)
Net sales			$	235											$	333																	$	(98)					(29)		%				$	570					$	1,080					$	(510)					(47)		%
Operating income			$	37											$	69																	$	(32)					(46)		%				$	66					$	226					$	(160)					(71)		%
Operating margin			15.7		%										20.7		%																						(5.0) points						11.6		%				20.9		%										(9.3) points

Net sales for the three and nine months ended July 30, 2023 decreased compared to the same periods in the prior year primarily due to lower customer investments in display manufacturing equipment as a result of weakness in demand for consumer electronic products. Operating margin for the three and nine months ended July 30, 2023 decreased compared to the same periods in the prior year primarily due to lower net sales, partially offset by a reduction in headcount related costs as headcount moved to open positions within Semiconductor Systems and Applied Global Services segments.

Financial Condition, Liquidity and Capital Resources

Our cash, cash equivalents and investments consist of the following:

			July 30, 2023						October 30, 2022
			(In millions)
Cash and cash equivalents			$	6,025					$	1,995
Short-term investments			510						586
Long-term investments			2,177						1,980
Total cash, cash-equivalents and investments			$	8,712					$	4,561

Sources and Uses of Cash

A summary of cash provided by (used in) operating, investing, and financing activities is as follows:

			Nine Months Ended
			July 30, 2023						July 31, 2022
			(In millions)
Cash provided by operating activities			$	7,145					$	4,542
Cash used in investing activities			$	(1,046)					$	(1,167)
Cash used in financing activities			$	(2,066)					$	(5,416)

Operating Activities

Cash from operating activities for the nine months ended July 30, 2023 was $7.1 billion, which reflects net income adjusted for the effect of non-cash charges and changes in working capital components. Significant non-cash charges included depreciation, amortization, and share-based compensation. Cash provided by operating activities increased in the first nine months of fiscal 2023 compared to the same period in the prior year primarily due to lower inventory payments and income taxes and higher cash collections, partially offset by higher payments to vendors.

We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements. We sold $619 million and $821 million of account receivables during the nine months ended July 30, 2023 and July 31, 2022, respectively. We did not discount letters of credit issued by customers or discount promissory notes during the nine months ended July 30, 2023 and July 31, 2022, respectively.

Our working capital was $10.7 billion as of July 30, 2023 and $8.5 billion as of October 30, 2022.

Days sales outstanding of our accounts receivable for the three months ended July 30, 2023 and July 31, 2022 were 74 days and 69 days, respectively. Days sales outstanding varies due to the timing of shipments and payment terms. The increase in days sales outstanding was primarily due to a higher accounts receivable balance as a result of timing of customer payments and lower accounts receivable factoring compared to the same period in the prior year.

Investing Activities

We used $1.0 billion of cash in investing activities during the nine months ended July 30, 2023. Capital expenditures totaled $797 million, net cash paid for acquisitions was $25 million, and purchases of investments, net of proceeds from sales and maturities of investments were $224 million, during the nine months ended July 30, 2023.

Our investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, municipal bonds, corporate bonds and mortgage-backed and asset-backed securities, as well as equity securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures, which may include the sale of certain securities, to manage such risks prudently in accordance with our investment policies.

Financing Activities

We used $2.1 billion of cash in financing activities during the nine months ended July 30, 2023, consisting primarily of cash used for repurchases of common stock of $1.5 billion, dividends to stockholders of $707 million, and tax withholding payments for vested equity awards of $165 million, partially offset by net proceeds from issuances of commercial paper notes of $192 million and common stock issuance of $111 million.

In June 2023, March 2023 and December 2022, our Board of Directors declared quarterly cash dividends, in the amount of $0.32, $0.32 and $0.26 per share, respectively. The dividend declared in June 2023 is payable in September 2023. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders.

In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previously existing $6.0 billion authorization approved in March 2022. As of July 30, 2023, approximately $13.4 billion remained available for future stock repurchases under the repurchase program.

We have credit facilities for unsecured borrowings in various currencies of up to $1.6 billion, of which $1.5 billion is comprised of a committed revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement includes a provision under which we may request an increase in the amount of the facility of up to $500 million for a total commitment of no more than $2.0 billion, subject to the receipt of commitments from one or more lenders for any such increase and other customary conditions. In February 2023, we entered into an agreement with our lenders to extend the termination date of the Revolving Credit Agreement to February 2026. The termination date may be further extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings in United States dollars that bear interest for each advance at one of two rates selected by us, plus an applicable margin, which varies according to our public debt credit ratings. The Revolving Credit Agreement includes financial and other covenants with which we were in compliance as of July 30, 2023.

Remaining credit facilities in the amount of approximately $57 million are with Japanese banks. Our ability to borrow under these facilities is subject to bank approval at the time of the borrowing request, and any advances will be at rates indexed to the banks’ prime reference rate denominated in Japanese yen.

No amounts were outstanding under any of these facilities at both July 30, 2023 and October 30, 2022.

We have a short-term commercial paper program under which we may issue unsecured commercial paper notes of up to a total amount of $1.5 billion. As of July 30, 2023, we had commercial paper notes outstanding with an aggregate principal amount of $200 million and may issue commercial paper notes under this program from time to time in the future. The proceeds from the issuances of the commercial paper program are used for general corporate purposes. The commercial paper program is backstopped by the Revolving Credit Agreement and borrowings under the Revolving Credit Agreement reduce the amount of commercial paper notes we can issue.

We had senior unsecured notes in the aggregate principal amount of $5.5 billion outstanding as of July 30, 2023. See Note 10 of the Notes to the Consolidated Condensed Financial Statements for additional discussion of existing debt. We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements, general corporate purposes and the availability of financing.

In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsidiaries. As of July 30, 2023, the maximum potential amount of future payments that we could be required to make under these guarantee agreements was approximately $422 million. We have not recorded any liability in connection with these guarantee agreements beyond that required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee agreements.

We also have agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. As of July 30, 2023, we have provided parent guarantees to banks for approximately $296 million to cover these arrangements.

Others

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The transition tax expense is payable in installments over eight years, with eight percent due in each of the first five years starting with fiscal 2018. As of July 30, 2023, we had $694 million of total payments remaining, payable in installments in the next four years.

Beginning in fiscal 2023, the Tax Act eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five years for activities performed in the U.S. or fifteen years for activities performed outside of the U.S. This capitalization requirement is expected to increase our effective tax rates, deferred tax assets and cash tax liabilities beginning in fiscal 2023.

On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, for which construction begins before January 1, 2027, and is treated as a government grant.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The minimum tax may impact our financial results starting in fiscal 2024. We will evaluate the effect of the corporate minimum tax as more guidance becomes available. The Inflation Reduction Act also includes an excise tax that imposes a 1% surcharge on stock repurchases. This excise tax was effective January 1, 2023. The excise tax is included in our direct cost of stock repurchases and is recorded in equity. We do not expect the excise tax to have a significant impact on our financial results.

Although cash requirements will fluctuate based on the timing and extent of factors such as those discussed above, our management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy our liquidity requirements for the next 12 months. For further details regarding our operating, investing and financing activities, see the Consolidated Condensed Statements of Cash Flows in this report.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K and as updated as applicable in Note 1 of Notes to Consolidated Condensed Financial Statements in this report describe the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies. There have been no significant changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for fiscal year ended October 30, 2022.