filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net revenue | $ | 7,166 | $ | 6,707 | |||||||||||||||||||
| Cost of products sold | 3,670 | 3,503 | |||||||||||||||||||||
| Gross profit | 3,496 | 3,204 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research, development and engineering | 859 | 754 | |||||||||||||||||||||
| Marketing and selling | 206 | 207 | |||||||||||||||||||||
| General and administrative | 256 | 276 | |||||||||||||||||||||
| Total operating expenses | 1,321 | 1,237 | |||||||||||||||||||||
| Income from operations | 2,175 | 1,967 | |||||||||||||||||||||
| Interest expense | 64 | 59 | |||||||||||||||||||||
| Interest and other income (expense), net | 8 | 395 | |||||||||||||||||||||
| Income before income taxes | 2,119 | 2,303 | |||||||||||||||||||||
| Provision for income taxes | 934 | 284 | |||||||||||||||||||||
| Net income | $ | 1,185 | $ | 2,019 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 1.46 | $ | 2.43 | |||||||||||||||||||
| Diluted | $ | 1.45 | $ | 2.41 | |||||||||||||||||||
| Weighted average number of shares: | |||||||||||||||||||||||
| Basic | 814 | 831 | |||||||||||||||||||||
| Diluted | 819 | 837 |
See accompanying Notes to Consolidated Condensed Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net income | $ | 1,185 | $ | 2,019 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in unrealized gain (loss) on available-for-sale investments | (3) | 27 | |||||||||||||||||||||
| Change in unrealized net loss on derivative instruments | 28 | 33 | |||||||||||||||||||||
| Change in defined and postretirement benefit plans | — | (9) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 25 | 51 | |||||||||||||||||||||
| Comprehensive income | $ | 1,210 | $ | 2,070 |
See accompanying Notes to Consolidated Condensed Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
| January 26, 2025 | October 27, 2024 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 6,264 | $ | 8,022 | |||||||
| Short-term investments | 1,949 | 1,449 | |||||||||
| Accounts receivable, net | 5,998 | 5,234 | |||||||||
| Inventories | 5,501 | 5,421 | |||||||||
| Other current assets | 982 | 1,094 | |||||||||
| Total current assets | 20,694 | 21,220 | |||||||||
| Long-term investments | 2,686 | 2,787 | |||||||||
| Property, plant and equipment, net | 3,563 | 3,339 | |||||||||
| Goodwill | 3,768 | 3,732 | |||||||||
| Purchased technology and other intangible assets, net | 237 | 249 | |||||||||
| Deferred income taxes and other assets | 2,390 | 3,082 | |||||||||
| Total assets | $ | 33,338 | $ | 34,409 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 799 | $ | 799 | |||||||
| Accounts payable and accrued expenses | 4,485 | 4,820 | |||||||||
| Contract liabilities | 2,452 | 2,849 | |||||||||
| Total current liabilities | 7,736 | 8,468 | |||||||||
| Long-term debt | 5,461 | 5,460 | |||||||||
| Income taxes payable | 684 | 670 | |||||||||
| Other liabilities | 832 | 810 | |||||||||
| Total liabilities | 14,713 | 15,408 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | 8 | 8 | |||||||||
| Additional paid-in capital | 9,713 | 9,660 | |||||||||
| Retained earnings | 50,511 | 49,651 | |||||||||
| Treasury stock | (41,464) | (40,150) | |||||||||
| Accumulated other comprehensive loss | (143) | (168) | |||||||||
| Total stockholders’ equity | 18,625 | 19,001 | |||||||||
| Total liabilities and stockholders’ equity | $ | 33,338 | $ | 34,409 |
Amounts as of January 26, 2025 are unaudited. Amounts as of October 27, 2024 are derived from the October 27, 2024 audited consolidated financial statements.
See accompanying Notes to Consolidated Condensed Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share amounts)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended January 26, 2025 | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of October 27, 2024 | 818 | $ | 8 | $ | 9,660 | $ | 49,651 | 1,211 | $ | (40,150) | $ | (168) | $ | 19,001 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,185 | — | — | — | 1,185 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | 25 | 25 | |||||||||||||||||||||||||||||||||||||||
| Dividends declared ($0.40 per common share) | — | — | — | (325) | — | — | — | (325) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 195 | — | — | — | — | 195 | |||||||||||||||||||||||||||||||||||||||
| Net issuance under stock plans | 2 | — | (142) | — | — | — | — | (142) | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | (8) | — | — | — | 8 | (1,314) | — | (1,314) | |||||||||||||||||||||||||||||||||||||||
| Balance as of January 26, 2025 | 812 | $ | 8 | $ | 9,713 | $ | 50,511 | 1,219 | $ | (41,464) | $ | (143) | $ | 18,625 |
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended January 28, 2024 | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of October 29, 2023 | 833 | $ | 8 | $ | 9,131 | $ | 43,726 | 1,191 | $ | (36,299) | $ | (217) | $ | 16,349 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,019 | — | — | — | 2,019 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | 51 | 51 | |||||||||||||||||||||||||||||||||||||||
| Dividends declared ($0.32 per common share) | — | — | — | (265) | — | — | — | (265) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 170 | — | — | — | — | 170 | |||||||||||||||||||||||||||||||||||||||
| Net issuance under stock plans | 3 | — | (192) | — | — | — | — | (192) | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | (5) | — | — | — | 5 | (703) | — | (703) | |||||||||||||||||||||||||||||||||||||||
| Balance as of January 28, 2024 | 831 | $ | 8 | $ | 9,109 | $ | 45,480 | 1,196 | $ | (37,002) | $ | (166) | $ | 17,429 |
See accompanying Notes to Consolidated Condensed Financial Statements.
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
**(**In millions)
| Three Months Ended | |||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||
| (Unaudited) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,185 | $ | 2,019 | |||||||
| Adjustments required to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 105 | 91 | |||||||||
| Share-based compensation | 195 | 170 | |||||||||
| Deferred income taxes | 668 | (72) | |||||||||
| Other | 95 | (235) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (764) | 465 | |||||||||
| Inventories | (80) | 79 | |||||||||
| Other current and non-current assets | 115 | 38 | |||||||||
| Accounts payable and accrued expenses | (429) | (539) | |||||||||
| Contract liabilities | (397) | 172 | |||||||||
| Income taxes payable | 200 | 128 | |||||||||
| Other liabilities | 32 | 9 | |||||||||
| Cash provided by operating activities | 925 | 2,325 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (381) | (229) | |||||||||
| Cash paid for acquisitions, net of cash acquired | (28) | — | |||||||||
| Proceeds from sales and maturities of investments | 1,223 | 531 | |||||||||
| Purchases of investments | (1,711) | (749) | |||||||||
| Cash used in investing activities | (897) | (447) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of commercial paper | 200 | 100 | |||||||||
| Repayments of commercial paper | (200) | (100) | |||||||||
| Common stock repurchases | (1,318) | (700) | |||||||||
| Tax withholding payments for vested equity awards | (142) | (192) | |||||||||
| Payments of dividends to stockholders | (326) | (266) | |||||||||
| Repayments of principal on finance leases | — | 1 | |||||||||
| Cash used in financing activities | (1,786) | (1,157) | |||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash equivalents | (1,758) | 721 | |||||||||
| Cash, cash equivalents and restricted cash equivalents — beginning of period | 8,113 | 6,233 | |||||||||
| Cash, cash equivalents and restricted cash equivalents — end of period | $ | 6,355 | $ | 6,954 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash equivalents | |||||||||||
| Cash and cash equivalents | $ | 6,264 | $ | 6,854 | |||||||
| Restricted cash equivalents included in deferred income taxes and other assets | 91 | 100 | |||||||||
| Total cash, cash equivalents and restricted cash equivalents | $ | 6,355 | $ | 6,954 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash payments for income taxes | $ | 70 | $ | 139 | |||||||
| Cash refunds from income taxes | $ | 70 | $ | 2 | |||||||
| Cash payments for interest | $ | 52 | $ | 34 |
See accompanying Notes to Consolidated Condensed Financial Statements.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and Recently Adopted Accounting Standards
Basis of Presentation
In the opinion of our management, the unaudited interim consolidated condensed financial statements of Applied Materials, Inc. and its subsidiaries (we, us, and our) included herein have been prepared on a basis consistent with the October 27, 2024 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth therein. These unaudited interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 27, 2024 (2024 Form 10-K).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Our results of operations for the three months ended January 26, 2025 are not necessarily indicative of future operating results. Our fiscal year ends on the last Sunday in October of each year. Fiscal 2025 and 2024 contain 52 weeks each and the first three months of fiscal 2025 and 2024 each contained 13 weeks.
Recently Adopted Accounting Standards
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. In June 2022, the Financial Accounting Standards Board (FASB) issued an accounting standard update which clarifies how the fair value of equity securities subject to contractual sale restrictions is determined (Topic 820). The amendment clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires certain qualitative and quantitative disclosures related to equity securities subject to contractual sale restrictions. We adopted this authoritative guidance in the first quarter of fiscal 2025. The adoption of this guidance did not have a significant impact on our consolidated condensed financial statements.
Note 2 Earnings Per Share
Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of restricted stock units and employees’ stock purchase plan shares) outstanding during the period. Our net income has not been adjusted for any period presented for purposes of computing basic or diluted earnings per share due to our non-complex capital structure.
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 1,185 | $ | 2,019 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding | 814 | 831 | |||||||||||||||||||||
| Effect of weighted dilutive restricted stock units and employees’ stock purchase plan shares | 5 | 6 | |||||||||||||||||||||
| Denominator for diluted earnings per share | 819 | 837 | |||||||||||||||||||||
| Basic earnings per share | $ | 1.46 | $ | 2.43 | |||||||||||||||||||
| Diluted earnings per share | $ | 1.45 | $ | 2.41 | |||||||||||||||||||
| Potentially weighted dilutive securities | — | — |
Excluded from the calculation of diluted earnings per share are securities attributable to outstanding restricted stock units where the combined exercise price and average unamortized fair value are greater than the average market price of our common stock, and therefore their inclusion would be anti-dilutive.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 3 Cash, Cash Equivalents and Investments
Summary of Cash, Cash Equivalents and Investments
The following tables summarize our cash, cash equivalents and investments by security type:
| January 26, 2025 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Cash | $ | 1,299 | $ | — | $ | — | $ | 1,299 | |||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds* | 2,454 | — | — | 2,454 | |||||||||||||||||||
| Bank certificates of deposit and time deposits | 50 | — | — | 50 | |||||||||||||||||||
| U.S. Treasury and agency securities | 100 | — | — | 100 | |||||||||||||||||||
| Municipal securities | 18 | — | — | 18 | |||||||||||||||||||
| Commercial paper, corporate bonds and medium-term notes | 2,343 | — | — | 2,343 | |||||||||||||||||||
| Total cash equivalents | 4,965 | — | — | 4,965 | |||||||||||||||||||
| Total cash and cash equivalents | $ | 6,264 | $ | — | $ | — | $ | 6,264 | |||||||||||||||
| Short-term and long-term investments: | |||||||||||||||||||||||
| Bank certificates of deposit and time deposits | $ | 12 | $ | — | $ | — | $ | 12 | |||||||||||||||
| U.S. Treasury and agency securities | 1,816 | — | 3 | 1,813 | |||||||||||||||||||
| Non-U.S. government securities** | 6 | — | — | 6 | |||||||||||||||||||
| Municipal securities | 441 | 1 | 2 | 440 | |||||||||||||||||||
| Commercial paper, corporate bonds and medium-term notes | 808 | 3 | 2 | 809 | |||||||||||||||||||
| Asset-backed and mortgage-backed securities | 646 | 2 | 4 | 644 | |||||||||||||||||||
| Total fixed income securities | 3,729 | 6 | 11 | 3,724 | |||||||||||||||||||
| Publicly traded equity securities | 540 | 77 | 4 | 613 | |||||||||||||||||||
| Equity investments in privately held companies | 260 | 64 | 26 | 298 | |||||||||||||||||||
| Total equity investments | 800 | 141 | 30 | 911 | |||||||||||||||||||
| Total short-term and long-term investments | $ | 4,529 | $ | 147 | $ | 41 | $ | 4,635 | |||||||||||||||
| Total cash, cash equivalents and investments | $ | 10,793 | $ | 147 | $ | 41 | $ | 10,899 |
*Excludes $91 million of restricted cash equivalents invested in money market funds related to deferred compensation plans.
**Includes Canadian provincial government debt.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
| October 27, 2024 | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Cash | $ | 1,313 | $ | — | $ | — | $ | 1,313 | |||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds* | 3,421 | — | — | 3,421 | |||||||||||||||||||
| Bank certificates of deposit and time deposits | 90 | — | — | 90 | |||||||||||||||||||
| U.S. Treasury and agency securities | 1,394 | — | — | 1,394 | |||||||||||||||||||
| Municipal securities | 19 | — | — | 19 | |||||||||||||||||||
| Commercial paper, corporate bonds and medium-term notes | 1,785 | — | — | 1,785 | |||||||||||||||||||
| Total cash equivalents | 6,709 | — | — | 6,709 | |||||||||||||||||||
| Total cash and cash equivalents | $ | 8,022 | $ | — | $ | — | $ | 8,022 | |||||||||||||||
| Short-term and long-term investments: | |||||||||||||||||||||||
| Bank certificates of deposit and time deposits | $ | 13 | $ | — | $ | — | $ | 13 | |||||||||||||||
| U.S. Treasury and agency securities | 1,306 | — | 2 | 1,304 | |||||||||||||||||||
| Non-U.S. government securities** | 5 | — | — | 5 | |||||||||||||||||||
| Municipal securities | 441 | 2 | 2 | 441 | |||||||||||||||||||
| Commercial paper, corporate bonds and medium-term notes | 803 | 4 | 2 | 805 | |||||||||||||||||||
| Asset-backed and mortgage-backed securities | 656 | 3 | 5 | 654 | |||||||||||||||||||
| Total fixed income securities | 3,224 | 9 | 11 | 3,222 | |||||||||||||||||||
| Publicly traded equity securities | 543 | 185 | 5 | 723 | |||||||||||||||||||
| Equity investments in privately held companies | 255 | 58 | 22 | 291 | |||||||||||||||||||
| Total equity investments | 798 | 243 | 27 | 1,014 | |||||||||||||||||||
| Total short-term and long-term investments | $ | 4,022 | $ | 252 | $ | 38 | $ | 4,236 | |||||||||||||||
| Total cash, cash equivalents and investments | $ | 12,044 | $ | 252 | $ | 38 | $ | 12,258 |
*Excludes $91 million of restricted cash equivalents invested in money market funds related to deferred compensation plans.
**Includes Canadian provincial government debt.
During the three months ended January 26, 2025 and January 28, 2024, interest income from our cash, cash equivalents and fixed income securities was $116 million and $103 million, respectively.
Maturities of Investments
The following table summarizes the contractual maturities of our investments as of January 26, 2025:
| Cost | Estimated Fair Value | ||||||||||
| (In millions) | |||||||||||
| Due in one year or less | $ | 1,889 | $ | 1,888 | |||||||
| Due after one through five years | 1,191 | 1,189 | |||||||||
| Due after five years | 3 | 3 | |||||||||
| No single maturity date* | 1,446 | 1,555 | |||||||||
| Total | $ | 4,529 | $ | 4,635 |
*Securities with no single maturity date include publicly traded and privately held equity securities and asset-backed and mortgage-backed securities.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Gains and Losses on Investments
During the three months ended January 26, 2025 and January 28, 2024 gross realized gains and losses on our fixed income portfolio were not material.
As of January 26, 2025 and October 27, 2024, gross unrealized losses related to our fixed income portfolio were not material. We regularly review our fixed income portfolio to identify and evaluate investments that have indications of possible impairment from credit losses or other factors. Factors considered in determining whether an unrealized loss is considered to be a credit loss include: the significance of the decline in value compared to the cost basis; the financial condition; credit quality and near-term prospects of the investee; and whether it is more likely than not that we will be required to sell the security prior to recovery. Credit losses related to available-for-sale debt securities are recorded as an allowance for credit losses through interest and other income (expense), net. Any additional changes in fair value that are not related to credit losses are recognized in accumulated other comprehensive income (loss) (AOCI). During the three months ended January 26, 2025 and January 28, 2024, we did not recognize material credit losses and the ending allowance for credit losses was not material to our fixed income portfolio.
The components of gain (loss) on equity investments for the three months ended January 26, 2025 and January 28, 2024 were as follows:
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Publicly traded equity securities | |||||||||||||||||||||||
| Unrealized gain | $ | 3 | $ | 287 | |||||||||||||||||||
| Unrealized loss | (111) | (2) | |||||||||||||||||||||
| Realized gain on sales and dividends | 3 | — | |||||||||||||||||||||
| Realized loss on sales or impairment | — | (1) | |||||||||||||||||||||
| Equity investments in privately held companies | |||||||||||||||||||||||
| Unrealized gain | 7 | 1 | |||||||||||||||||||||
| Unrealized loss | (5) | (6) | |||||||||||||||||||||
| Realized gain on sales and dividends | 6 | 2 | |||||||||||||||||||||
| Total gain (loss) on equity investments, net | $ | (97) | $ | 281 |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 4 Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
The following table presents our fair value hierarchy for our financial assets (excluding cash balances) measured at fair value on a recurring basis:
| January 26, 2025 | October 27, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt security investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds* | $ | 2,545 | $ | — | $ | 2,545 | $ | 3,512 | $ | — | $ | 3,512 | |||||||||||||||||||||||||||||||||||
| Bank certificates of deposit and time deposits | — | 62 | 62 | — | 103 | 103 | |||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and agency securities | 1,905 | 8 | 1,913 | 2,684 | 14 | 2,698 | |||||||||||||||||||||||||||||||||||||||||
| Non-U.S. government securities | — | 6 | 6 | — | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||
| Municipal securities | — | 458 | 458 | — | 460 | 460 | |||||||||||||||||||||||||||||||||||||||||
| Commercial paper, corporate bonds and medium-term notes | — | 3,152 | 3,152 | — | 2,590 | 2,590 | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed and mortgage-backed securities | — | 644 | 644 | — | 654 | 654 | |||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt security investments | $ | 4,450 | $ | 4,330 | $ | 8,780 | $ | 6,196 | $ | 3,826 | $ | 10,022 | |||||||||||||||||||||||||||||||||||
| Equity investments with readily determinable values | |||||||||||||||||||||||||||||||||||||||||||||||
| Publicly traded equity securities | $ | 613 | $ | — | $ | 613 | $ | 723 | $ | — | $ | 723 | |||||||||||||||||||||||||||||||||||
| Total equity investments with readily determinable values | $ | 613 | $ | — | $ | 613 | $ | 723 | $ | — | $ | 723 | |||||||||||||||||||||||||||||||||||
| Total | $ | 5,063 | $ | 4,330 | $ | 9,393 | $ | 6,919 | $ | 3,826 | $ | 10,745 | |||||||||||||||||||||||||||||||||||
*Amounts as of January 26, 2025 and October 27, 2024 include $91 million and $91 million, respectively, invested in money market funds related to deferred compensation plans. Due to restrictions on the distribution of these funds, they are classified as restricted cash equivalents and are included in deferred income taxes and other assets in the Consolidated Condensed Balance Sheets.
As of January 26, 2025 and October 27, 2024, available-for-sale, short-term and long-term investments not recognized at fair value based upon observable inputs or quoted prices were not material.
We did not have any financial assets measured at fair value on a recurring basis within Level 3 fair value measurements as of January 26, 2025 or October 27, 2024.
Assets and Liabilities without Readily Determinable Values Measured on a Non-recurring Basis
Our equity investments without readily determinable values consist of equity investments in privately held companies. We elected the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes on a prospective basis for certain equity investments without readily determinable fair values and are required to account for any subsequent observable changes in fair value within the statements of operations. These investments are classified as Level 3 within the fair value hierarchy and periodically assessed for impairment when an event or circumstance indicates that a decline in value may have occurred. Impairment losses on equity investments in privately held companies are included in interest and other income (expense), net in the Consolidated Condensed Statement of Operations and were not material during the three months ended January 26, 2025 and January 28, 2024.
Other
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash equivalents, accounts receivable, commercial paper notes, and accounts payable and accrued expenses, approximate fair value due to their short maturities. As of January 26, 2025, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $5.0 billion. As of October 27, 2024, the aggregate principal amount of long-term senior unsecured notes was $5.5 billion and the estimated fair value was $5.1 billion. The estimated fair value of long-term senior unsecured notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. See Note 9 of the Notes to the Consolidated Condensed Financial Statements for further detail of existing debt.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 5 Derivative Instruments and Hedging Activities
Derivative Financial Instruments
We conduct business in a number of foreign countries, with certain transactions denominated in local currencies, such as the Japanese yen, Israeli shekel, euro and Taiwanese dollar. We use derivative financial instruments, such as foreign currency forward and option contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur typically within the next 24 months. The purpose of our foreign currency management is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged.
We do not use derivative financial instruments for trading or speculative purposes. Derivative instruments and hedging activities, including foreign exchange and interest rate contracts, are recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment are recognized currently in earnings. All of our derivative financial instruments are recorded at their fair value in other current assets or in accounts payable and accrued expenses.
Hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges and foreign exchange derivatives are typically entered into once per month. Cash flow hedges are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income (AOCI) in stockholders’ equity and is reclassified into earnings when the hedged transaction affects earnings. The majority of the after-tax net income or loss related to foreign exchange derivative instruments included in AOCI as of January 26, 2025 is expected to be reclassified into earnings within 12 months. Changes in fair value caused by changes in time value of option contracts designated as cash flow hedges are excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the financial statement line item to which the hedge relates. If the transaction being hedged is probable not to occur, we recognize the gain or loss on the associated financial instrument in the consolidated condensed statement of operations. The amount recognized due to discontinuance of cash flow hedges that were probable of not occurring by the end of the originally specified time period was not significant for the three months ended January 26, 2025 and January 28, 2024.
Foreign currency forward contracts are generally used to hedge certain foreign currency denominated assets or liabilities. Accordingly, changes in the fair value of these hedges are recorded in earnings to offset the changes in the fair value of the assets or liabilities being hedged.
As of January 26, 2025 and October 27, 2024, the total outstanding notional amounts of foreign exchange contracts were $1.7 billion and $2.0 billion, respectively. The fair values of foreign exchange derivative instruments as of January 26, 2025 and October 27, 2024 were not material.
The gain (loss) on derivatives in cash flow hedging relationships recognized in AOCI for derivatives designated as hedging instruments were not material for the three months ended January 26, 2025 and January 28, 2024.
The effects of derivative instruments, both those designated as cash flow hedges and those that are not designated, on the Consolidated Condensed Statements of Operations were not material for the three months ended January 26, 2025 and January 28, 2024.
Credit Risk Contingent Features
If our credit rating were to fall below investment grade, we would be in violation of credit risk contingent provisions of the derivative instruments discussed above, and certain counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was immaterial as of January 26, 2025.
Entering into derivative contracts with banks exposes us to credit-related losses in the event of the banks’ nonperformance. However, our exposure is not considered significant.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 6 Accounts Receivable, Net
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 $34 million and $169 million of account receivables during the three months ended January 26, 2025 and January 28, 2024, respectively. We did not discount letters of credit issued by customers or discount promissory notes during the three months ended January 26, 2025 and January 28, 2024. Financing charges on the sale of receivables and discounting of letters of credit are included in interest expense in the accompanying Consolidated Condensed Statements of Operations and were not material for all periods presented.
We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. This allowance is based on historical experience, credit evaluations, specific customer collection history and any customer-specific issues we have identified. Changes in circumstances, such as an unexpected material adverse change in a major customer’s ability to meet its financial obligation to us or its payment trends, may require us to further adjust our estimates of the recoverability of amounts due to us. Bad debt expense and any reversals are recorded in marketing and selling expenses in the Consolidated Condensed Statement of Operations.
The balances of allowance for credit losses were not material as of January 26, 2025 and October 27, 2024, and the changes in allowance for credit losses were not material for the three months ended January 26, 2025 and January 28, 2024.
We sell our products principally to manufacturers within the semiconductor and display industries. While we believe that our allowance for credit losses is adequate and represents our best estimate as of January 26, 2025, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to our estimates.
Note 7 Contract Balances and Performance Obligations
Contract Assets and Liabilities
Contract assets primarily result from receivables for goods transferred to customers where payment is conditional upon technical sign off and not just the passage of time. Contract liabilities consist of unsatisfied performance obligations related to advance payments received and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets are generally classified as current and are included in Other Current Assets in the Consolidated Condensed Balance Sheets. Contract liabilities are classified as current or non-current based on the timing of when performance obligations will be satisfied and associated revenue is expected to be recognized.
Contract balances at the end of each reporting period were as follows:
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Contract assets | $ | 287 | $ | 269 | |||||||
| Contract liabilities | $ | 2,452 | $ | 2,849 |
The increase in contract assets during the three months ended January 26, 2025 was primarily due to an increase in unsatisfied performance obligations related to goods transferred to customers where payment was conditional upon technical sign off.
During the three months ended January 26, 2025, we recognized revenue of approximately $1.3 billion related to contract liabilities at October 27, 2024. Contract liabilities decreased during the three months ended January 26, 2025 due to revenue recognized related to contract liabilities at October 27, 2024, partially offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of January 26, 2025.
There were no credit losses recognized on our accounts receivables and contract assets during both the three months ended January 26, 2025 and January 28, 2024.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Performance Obligations
As of January 26, 2025, the amount of remaining unsatisfied performance obligations on contracts, primarily consisting of written purchase orders received from customers, with an original estimated duration of one year or more was approximately $3.0 billion, of which approximately 60% is expected to be recognized within 12 months and the remainder is expected to be recognized within the following 24 months thereafter.
We have elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
Note 8 Balance Sheet Detail
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Inventories | |||||||||||
| Customer service spares | $ | 1,772 | $ | 1,742 | |||||||
| Raw materials | 1,750 | 1,680 | |||||||||
| Work-in-process | 935 | 879 | |||||||||
| Finished goods | |||||||||||
| Deferred cost of sales | 307 | 217 | |||||||||
| Evaluation inventory | 443 | 459 | |||||||||
| Manufactured on-hand inventory | 294 | 444 | |||||||||
| Total finished goods | 1,044 | 1,120 | |||||||||
| Total inventories | $ | 5,501 | $ | 5,421 |
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Other Current Assets | |||||||||||
| Prepaid income taxes and income taxes receivable | $ | 54 | $ | 120 | |||||||
| Prepaid expenses and other | 928 | 974 | |||||||||
| $ | 982 | $ | 1,094 |
| Useful Life | January 26, 2025 | October 27, 2024 | |||||||||||||||
| (In years) | (In millions) | ||||||||||||||||
| Property, Plant and Equipment, Net | |||||||||||||||||
| Land and improvements | $ | 493 | $ | 492 | |||||||||||||
| Buildings and improvements | 3-30 | 2,406 | 2,359 | ||||||||||||||
| Demonstration and manufacturing equipment | 5-8 | 2,632 | 2,578 | ||||||||||||||
| Furniture, fixtures and other equipment | 3-5 | 796 | 782 | ||||||||||||||
| Construction in progress | 1,083 | 898 | |||||||||||||||
| Gross property, plant and equipment | 7,410 | 7,109 | |||||||||||||||
| Accumulated depreciation | (3,847) | (3,770) | |||||||||||||||
| $ | 3,563 | $ | 3,339 |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred Income Taxes and Other Assets | |||||||||||
| Non-current deferred income taxes | $ | 1,719 | $ | 2,393 | |||||||
| Operating lease right-of-use assets | 359 | 375 | |||||||||
| Income tax receivables and other assets | 312 | 314 | |||||||||
| $ | 2,390 | $ | 3,082 |
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Accounts Payable and Accrued Expenses | |||||||||||
| Accounts payable | $ | 1,737 | $ | 1,570 | |||||||
| Compensation and employee benefits | 636 | 1,188 | |||||||||
| Warranty | 362 | 364 | |||||||||
| Dividends payable | 325 | 327 | |||||||||
| Income taxes payable | 635 | 535 | |||||||||
| Operating lease liabilities, current | 81 | 87 | |||||||||
| Other | 709 | 749 | |||||||||
| $ | 4,485 | $ | 4,820 |
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Other Liabilities | |||||||||||
| Defined and postretirement benefit plans | $ | 141 | $ | 142 | |||||||
| Operating lease liabilities, non-current | 247 | 259 | |||||||||
| Other | 444 | 409 | |||||||||
| $ | 832 | $ | 810 |
Government Assistance
Capital expenditure related incentives reduced gross property, plant and equipment, net by $566 million as of January 26, 2025. Contra-depreciation expense was not material during the three months ended January 26, 2025. Operating incentives recognized as a reduction to research, development and engineering expense were $11 million in the three months ended January 26, 2025. Capital expenditure related incentives reduced our income taxes payable by $257 million as of January 26, 2025, of which $248 million is in accounts payable and accrued expenses and $9 million is deferred income taxes and other assets, in our Consolidated Condensed Balance Sheets.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 9 Borrowing Facilities and Debt
Revolving Credit Facilities
In February 2020, we entered into a five-year $1.5 billion committed unsecured 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. The Revolving Credit Agreement is scheduled to expire in February 2026, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement provides for borrowings 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.
No amounts were outstanding under the Revolving Credit Agreement as of January 26, 2025 and October 27, 2024.
In addition, we have revolving credit facilities with Japanese banks pursuant to which we may borrow up to approximately $51 million in aggregate at any time. 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. As of January 26, 2025 and October 27, 2024, no amounts were outstanding under these revolving credit facilities.
Short-term Commercial Paper
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. The proceeds from the issuances of commercial paper are used for general corporate purposes. As of January 26, 2025, we had commercial paper notes outstanding with an aggregate principal amount of $100 million, which were recorded as short-term debt with a weighted-average interest rate of 4.32% and maturities of 91 days, and as of October 27, 2024, we had $100 million of commercial paper notes outstanding and recorded as short-term debt with a weighted-average interest rate of 5.06% and maturities of 63 days.
Senior Unsecured Notes
Debt outstanding as of January 26, 2025 and October 27, 2024 was as follows:
| Principal Amount | |||||||||||||||||||||||
| January 26, 2025 | October 27, 2024 | Effective Interest Rate | Interest Pay Dates | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Current portion of long-term debt: | |||||||||||||||||||||||
| 3.900% Senior Notes Due 2025 | $ | 700 | $ | 700 | 3.944% | April 1, October 1 | |||||||||||||||||
| Total current portion of long-term debt | $ | 700 | $ | 700 | |||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||
| 3.300% Senior Notes Due 2027 | 1,200 | 1,200 | 3.342% | April 1, October 1 | |||||||||||||||||||
| 4.800% Senior Notes Due 2029 | 700 | 700 | 4.844% | June 15, December 15 | |||||||||||||||||||
| 1.750% Senior Notes Due 2030 | 750 | 750 | 1.792% | June 1, December 1 | |||||||||||||||||||
| 5.100% Senior Notes Due 2035 | 500 | 500 | 5.127% | April 1, October 1 | |||||||||||||||||||
| 5.850% Senior Notes Due 2041 | 600 | 600 | 5.879% | June 15, December 15 | |||||||||||||||||||
| 4.350% Senior Notes Due 2047 | 1,000 | 1,000 | 4.361% | April 1, October 1 | |||||||||||||||||||
| 2.750% Senior Notes Due 2050 | 750 | 750 | 2.773% | June 1, December 1 | |||||||||||||||||||
| 5,500 | 5,500 | ||||||||||||||||||||||
| Total unamortized discount | (10) | (10) | |||||||||||||||||||||
| Total unamortized debt issuance costs | (29) | (30) | |||||||||||||||||||||
| Total long-term debt | $ | 5,461 | $ | 5,460 | |||||||||||||||||||
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 10 Stockholders’ Equity, Comprehensive Income and Share-Based Compensation
Accumulated Other Comprehensive Income (Loss)
Changes in the components of accumulated other comprehensive income (loss) (AOCI), net of tax, were as follows:
| Unrealized Gain (Loss) on Investments, Net | Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges | Defined and Postretirement Benefit Plans | Cumulative Translation Adjustments | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Balance as of October 27, 2024 | $ | (7) | $ | (87) | $ | (87) | $ | 13 | $ | (168) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (2) | 21 | — | — | 19 | ||||||||||||||||||||||||
| Amounts reclassified out of AOCI | (1) | 7 | — | — | 6 | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (3) | 28 | — | — | 25 | ||||||||||||||||||||||||
| Balance as of January 26, 2025 | $ | (10) | $ | (59) | $ | (87) | $ | 13 | $ | (143) |
| Unrealized Gain (Loss) on Investments, Net | Unrealized Gain (Loss) on Derivative Instruments Qualifying as Cash Flow Hedges | Defined and Postretirement Benefit Plans | Cumulative Translation Adjustments | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Balance as of October 29, 2023 | $ | (50) | $ | (118) | $ | (62) | $ | 13 | $ | (217) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 20 | 31 | — | — | 51 | ||||||||||||||||||||||||
| Amounts reclassified out of AOCI | 7 | 2 | (9) | — | — | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 27 | 33 | (9) | — | 51 | ||||||||||||||||||||||||
| Balance as of January 28, 2024 | $ | (23) | $ | (85) | $ | (71) | $ | 13 | $ | (166) |
The tax effects on net income of amounts reclassified from AOCI for the three months ended January 26, 2025 and January 28, 2024 were not material.
Stock Repurchase Program
In March 2023, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previously existing authorization. As of January 26, 2025, approximately $7.6 billion remained available for future stock repurchases under the repurchase program.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The following table summarizes our stock repurchases, including and excluding excise tax, for the three months ended January 26, 2025 and January 28, 2024:
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (in millions, except per share amount) | |||||||||||||||||||||||
| Shares of common stock repurchased | 8 | 5 | |||||||||||||||||||||
| Cost of stock repurchased (including excise tax)* | $ | 1,314 | $ | 703 | |||||||||||||||||||
| Average price paid per share (including excise tax)* | $ | 176.32 | $ | 153.20 | |||||||||||||||||||
| Cost of stock repurchased (excluding excise tax) | $ | 1,305 | $ | 700 | |||||||||||||||||||
| Average price paid per share (excluding excise tax) | $ | 174.99 | $ | 152.60 |
(*) Stock repurchase amounts include the 1% surcharge on stock repurchases under the Inflation Reduction Act’s excise tax. This excise tax is recorded in equity and reduces the amount available under the repurchase program, as applicable.
We record treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If we reissue treasury stock at an amount below our acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.
Dividends
In December 2024, our Board of Directors declared a quarterly cash dividend payable in March 2025, in the amount of $0.40 per share. Dividends paid during the three months ended January 26, 2025 and January 28, 2024 totaled $326 million and $266 million, respectively. 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.
Share-Based Compensation
We have a stockholder-approved equity plan, the Employee Stock Incentive Plan (ESIP), which permits grants to employees of share-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units and performance units. In addition, the plan provides for the automatic grant of restricted stock units to non-employee directors and permits the grant of share-based awards to non-employee directors and consultants. Share-based awards made under the plan may be subject to accelerated vesting under certain circumstances, including in the event of a change in control. In addition, we have an Omnibus Employees’ Stock Purchase Plan (ESPP), which enables eligible employees to purchase our common stock.
During the three months ended January 26, 2025 and January 28, 2024, we recognized share-based compensation expense related to equity awards and ESPP shares. The effect of share-based compensation on the results of operations was as follows:
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Cost of products sold | $ | 38 | $ | 32 | |||||||||||||||||||
| Research, development and engineering | 67 | 56 | |||||||||||||||||||||
| Marketing and selling | 20 | 18 | |||||||||||||||||||||
| General and administrative | 70 | 64 | |||||||||||||||||||||
| Total share-based compensation | $ | 195 | $ | 170 |
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The cost associated with share-based awards is typically recognized over the awards’ service period for the entire award on a straight-line basis, adjusting for estimated forfeitures. However, in the case of share-based awards granted to certain members of senior management that allow for partial accelerated vesting in the event of a qualifying retirement based on age and years of service, the compensation expense is recognized once the individual meets the conditions for a qualifying retirement. We calculate estimated forfeiture rate on an annual basis, based on historical forfeiture activities. The cost associated with performance-based equity awards, which include performance and/or market goals, is recognized for each tranche over the service period. The cost of the portion of performance-based equity awards subject to performance goals is recognized based on an assessment of the likelihood that the applicable performance goals will be achieved, and the cost of the portion of performance-based equity awards subject to market goals is recognized based on the assumption of 100% achievement of the goal.
As of January 26, 2025, we had $1.3 billion in total unrecognized compensation expense, net of estimated forfeitures, related to grants of share-based awards under the ESIP and shares issued under the ESPP, which will be recognized over a weighted average period of 2.9 years. As of January 26, 2025, there were 17 million shares available for grant of share-based awards under the ESIP, and an additional 10 million shares available for issuance under the ESPP.
Restricted Stock Units, Restricted Stock, Performance Share Units and Performance Units
A summary of the changes in restricted stock units, restricted stock, performance share units and performance units outstanding under our equity compensation plans during the three months ended January 26, 2025 is presented below:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Outstanding as of October 27, 2024 | 10 | $ | 129.31 | ||||||||||||||||||||
| Granted | 4 | $ | 167.08 | ||||||||||||||||||||
| Vested | (3) | $ | 127.54 | ||||||||||||||||||||
| Canceled | — | $ | 132.40 | ||||||||||||||||||||
| Outstanding as of January 26, 2025 | 11 | $ | 142.86 |
As of January 26, 2025, 0.8 million additional performance-based awards could be earned based upon achievement of certain levels of specified performance and/or market goals.
A summary of the weighted-average grant date fair value per share of the granted restricted stock units, restricted stock, performance share units and performance units and total fair value vested awards for indicated periods is presented below:
| Three Months Ended | |||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||
| (In millions, except per share amounts) | |||||||||||
| Weighted average grant date fair value per share of awards granted | $ | 167.08 | $ | 145.08 | |||||||
| Total fair value of vested awards | $ | 366 | $ | 376 |
During the first quarter of fiscal 2025, certain members of senior management were granted both awards subject solely to time-based vesting requirements and awards that are subject to the achievement of certain levels of specific performance and market goals, in addition to time-based vesting requirements (Performance-Based Awards). These Performance-Based Awards are subject to the achievement of targeted levels of non-GAAP economic profit and targeted levels of total shareholder return (TSR) relative to the TSR of the companies in the Standard & Poor’s 500 Index. Each of these two metrics will be weighted 50% and will be measured over a three-year period.
The number of Performance-Based Awards that may vest in full after three years ranges from 0% to 200% of the target amount. The awards become eligible to vest only if the goals are achieved and will vest only if the grantee remains employed by us through each applicable vesting date, subject to a qualifying retirement based on age and years of service. The awards provide for a partial vesting based on actual performance at the conclusion of the three-year performance period in the event of a qualifying retirement.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Omnibus Employees’ Stock Purchase Plan
Under the ESPP, substantially all employees may purchase our common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of our common stock at the beginning or end of each 6-month purchase period, subject to certain limits. Our purchasing cycles begin in March and September of each of fiscal year. There were no purchases under our ESPP during either of the three months ended January 26, 2025 and January 28, 2024. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.
Note 11 Income Taxes
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 first quarter of fiscal 2025 and 2024 were 44.1 percent and 12.3 percent, respectively. The effective tax rate for the first quarter of fiscal 2025 was higher than the same period in the prior fiscal year, primarily due to a remeasurement of deferred tax assets resulting from new tax incentive agreements in Singapore in fiscal 2025.
Note 12 Guarantees, Commitments and Contingencies
Guarantees
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 January 26, 2025, the maximum potential amount of future payments that we could be required to make under these guarantee agreements was approximately $307 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 January 26, 2025, we have provided parent guarantees to banks for approximately $292 million to cover these arrangements.
Legal Matters
From time to time, we receive notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions by us in connection with claims made against them. In addition, from time to time, we receive notification from third parties claiming that we may be or are infringing or misusing their intellectual property or other rights. We also are subject to various legal proceedings, government investigations or inquiries, and claims, both asserted and unasserted, that arise in the ordinary course of business. These matters are subject to uncertainties, and we cannot predict the outcome of these matters, or governmental inquiries or proceedings that may occur. Although the outcome of the above-described matters, claims and proceedings cannot be predicted with certainty, we do not believe at this time that any of the above-described matters will have a material effect on our consolidated financial condition or results of operations.
Since 2022, we have received multiple subpoenas from government authorities requesting information relating to certain China customer shipments and export controls compliance, including from the U.S. Department of Justice, the U.S. Commerce Department Bureau of Industry and Security, and the U.S. Securities and Exchange Commission. We also have received subpoenas from the U.S. Department of Justice requesting information related to certain federal award applications and information submitted to the federal government. We are cooperating fully with the U.S. government in these matters. We have continued to receive related subpoenas, as well as requests for information, and may in the future receive additional related subpoenas and requests for information from such or other government authorities. Any such matters are subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of loss or penalties, if any, relating to these matters.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 13 Industry Segment Operations
Our three reportable segments are: Semiconductor Systems, Applied Global Services (AGS), and Display. As defined under the accounting literature, our chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. Segment information is presented based upon our management organization structure as of January 26, 2025 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to our reportable segments.
The Semiconductor Systems reportable segment includes semiconductor capital equipment to enable materials engineering steps including etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, advanced wafer packaging, and ion implantation.
The AGS segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, 200mm and other equipment and factory automation software for semiconductor, display and other products.
The Display segment includes products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), equipment upgrades and other display technologies for TVs, monitors, laptops, personal computers, smart phones, other consumer-oriented devices and solar energy cells.
Each operating segment is separately managed and has separate financial results that are reviewed by our chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating income is determined based upon internal performance measures used by our chief operating decision-maker. The chief operating decision-maker does not evaluate operating segments using total asset information.
We derive the segment results directly from our internal management reporting system. The accounting policies we use to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics including net revenue and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments.
The Corporate and Other category includes revenues and costs of products not included in our reportable segments, as well as certain operating expenses that are not allocated to our reportable segments and are managed separately at the corporate level. These operating expenses include costs related to certain management, finance, legal, human resources, and research, development and engineering functions provided at the corporate level; and unabsorbed information technology and occupancy. In addition, we do not allocate to our reportable segments severance, asset impairment and any associated charges related to restructuring actions, unless these actions pertain to a specific reportable segment. Segment operating income also excludes interest income/expense and other financial charges and income taxes. Management does not consider the unallocated costs in measuring the performance of the reportable segments.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Net revenue and operating income (loss) for each reportable segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| Net Revenue | Operating Income (Loss) | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| January 26, 2025: | |||||||||||||||||||||||
| Semiconductor Systems | $ | 5,356 | $ | 1,986 | |||||||||||||||||||
| Applied Global Services | 1,594 | 447 | |||||||||||||||||||||
| Display | 183 | 14 | |||||||||||||||||||||
| Corporate and Other | 33 | (272) | |||||||||||||||||||||
| Total | $ | 7,166 | $ | 2,175 | |||||||||||||||||||
| January 28, 2024: | |||||||||||||||||||||||
| Semiconductor Systems | $ | 4,909 | $ | 1,744 | |||||||||||||||||||
| Applied Global Services | 1,476 | 417 | |||||||||||||||||||||
| Display | 244 | 25 | |||||||||||||||||||||
| Corporate and Other | 78 | (219) | |||||||||||||||||||||
| Total | $ | 6,707 | $ | 1,967 |
Semiconductor Systems and Display revenues are recognized at a point in time. AGS revenue is recognized at a point in time for tangible goods such as spare parts and equipment, and over time for service agreements. The majority of revenue recognized over time is recognized within 12 months of the contract inception.
Details of goodwill by reportable segment as of January 26, 2025 and October 27, 2024 were as follows:
| January 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Goodwill by reportable segment | |||||||||||
| Semiconductor Systems | $ | 2,496 | $ | 2,460 | |||||||
| Applied Global Services | 1,032 | 1,032 | |||||||||
| Display | 199 | 199 | |||||||||
| Corporate and Other | 41 | 41 | |||||||||
| $ | 3,768 | $ | 3,732 |
From time to time, we acquire companies related to our existing or new markets. During the first quarter of fiscal 2025, goodwill increased primarily due to the preliminary purchase accounting for an acquisition, net of adjustments, which was not material to our results of operations or to our balance sheet.
APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Net revenue by geographic region, determined by the location of customers’ facilities to which products were shipped and services were performed, was as follows:
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| China | $ | 2,243 | 31 | % | $ | 2,997 | 45 | % | (25) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Korea | 1,667 | 23 | % | 1,231 | 18 | % | 35 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Taiwan | 1,183 | 17 | % | 559 | 8 | % | 112 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan | 540 | 8 | % | 565 | 9 | % | (4) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Southeast Asia | 286 | 4 | % | 186 | 3 | % | 54 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 5,919 | 83 | % | 5,538 | 83 | % | 7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | 917 | 13 | % | 759 | 11 | % | 21 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe | 330 | 4 | % | 410 | 6 | % | (20) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 7,166 | 100 | % | $ | 6,707 | 100 | % | 7 | % |
Net revenue for Semiconductor Systems by market for the periods presented were as follows:
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| Foundry, logic and other | 68 | % | 62 | % | |||||||||||||||||||
| Dynamic random-access memory (DRAM) | 28 | % | 34 | % | |||||||||||||||||||
| Flash memory | 4 | % | 4 | % | |||||||||||||||||||
| 100 | % | 100 | % |
The reconciling items included in Corporate and Other were as follows:
| Three Months Ended | |||||||||||||||||||||||
| January 26, 2025 | January 28, 2024 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Unallocated net revenue | $ | 33 | $ | 78 | |||||||||||||||||||
| Unallocated cost of products sold and expenses | (305) | (297) | |||||||||||||||||||||
| Total | $ | (272) | $ | (219) |
The following customers accounted for at least 10 percent of our net revenue for the three months ended January 26, 2025, and sales to these customers included products and services from multiple reportable segments.
| Percentage of Net Revenue | |||||
| Taiwan Semiconductor Manufacturing Company Limited | 15 | % | |||
| Samsung Electronics Co., Ltd. | 17 | % | |||
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