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 27, 2024 contained in our Form 10-K filed on December 13, 2024.

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 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. Our customers’ products are used in a wide variety of products such as personal computing devices, mobile phones, artificial intelligence (AI) and data center servers, automobiles, connected devices, industrial applications and consumer electronics. Each of our segments is subject to variable industry conditions, as demand for 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, and the nature and timing of technological advances in fabrication processes.

Our strategic priorities include developing products that help solve customers’ challenges at technology inflections, growing our service business, and expanding our served market opportunities in the semiconductor and display industries. Our long-term growth strategy requires continued development of new materials engineering capabilities, including products and platforms that enable expansion into new and adjacent markets. Our significant investments in research, development and engineering (RD&E) are intended to enable us to deliver new products and technologies before the emergence of strong demand, allowing customers to incorporate these products into their manufacturing plans during early-stage technology selection. We collaborate closely with our global customers to design systems and processes to meet their technical and production requirements.

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 depend 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. Product development and manufacturing activities occur primarily in the United States, Europe, Israel, and Asia. Our portfolio of equipment and service products are highly technical and are sold primarily through a direct sales force.

We believe that it is critical 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 and continue to invest in RD&E in order to continue to offer new products and technologies.

We operate in three reportable segments: Semiconductor Systems, Applied Global Services® (AGS), and Display. A summary of financial information for each reportable segment is found in Note 13 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.

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 Semiconductor Systems segment is comprised primarily of capital equipment used to fabricate semiconductor chips. Spending by semiconductor customers, which include companies that operate in the foundry, logic, memory, and other semiconductor chip markets, is driven by demand for products such as smartphones, mobile devices, personal computers, servers for artificial intelligence (AI) and data centers, automobiles, clean energy, storage, and other products, and the nature and timing of technological advances in fabrication processes. The growth of data and emerging end-market drivers such as AI, the internet of things, 5G networks, electric and autonomous vehicles and augmented and virtual reality are also creating the next wave of growth for the industry. As a result, products within the Semiconductor Systems segment are subject to significant changes in customer requirements, including transitions to smaller dimensions, increasingly complex chip architectures, new materials and an increasing number of applications. Spending can also depend on customer facility readiness and timeline for installation of capital equipment at customer sites. Development efforts are focused on solving customers’ key technical challenges in patterning, transistor, interconnect, process control, and packaging performance.

The AGS segment provides services, spares and factory automation software to customer fabrication plants globally to help customers optimize performance of our large, global installed base of semiconductor, display and other equipment. The AGS segment also includes 200mm and other equipment, which is shipped to many customers globally that serve the non-leading-edge end markets. Demand for AGS’ service and spares is driven by our large and growing installed base of manufacturing systems, and customers’ needs to shorten ramp times, improve system performance, and optimize factory output and operating costs. Industry conditions that affect AGS’ 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 and growing service intensity of newer tools. Our strategy is to continue to shift the AGS’ service and spares business to a subscription agreement model, improving customer factory performance and optimizing operating costs, and providing us a more predictable revenue stream.

The Display segment encompasses products for manufacturing liquid crystal and OLED displays, and other display technologies for TVs, monitors, laptops, personal computers (PC), 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 and products that provide customers with improved performance and yields. Display segment growth depends primarily on consumer demand for increasingly larger and more advanced TVs and high-resolution displays for mobile devices and information technology (IT) products, including laptops, monitors and tablets, as well as new form factors, including thin, light, curved and flexible displays, and new applications such as augmented and virtual reality. The timing of customer investment in manufacturing equipment is also affected by the timing of next-generation process development and of capacity expansion to meet end-market demand.

The Corporate and Other category includes revenues and costs of product 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 for certain management, finance, legal, human resources, and RD&E functions performed 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.

The United States government has implemented export regulations for U.S. semiconductor technology sold or provided to customers in China, which have limited our ability to provide certain products and services to customers in China, over the past several years. The U.S. government continues to issue new export licensing requirements, and additional updates and other requirements that have had the effect of further limiting our ability to provide certain products and services to customers outside the U.S., including in China. Also, the United States has recently announced changes to its trade policy, including increased tariffs on imports. These actions have caused substantial uncertainty and have resulted in retaliatory measures, including new tariffs on U.S. goods imposed by China and other countries. Some of these actions have been followed by announcements of limited exemptions and temporary pauses. For a description of these risks, see the risk factors 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 and services relative to local and global competitors” and “Business and Industry Risks - We are exposed to risks and uncertainty related to recent changes in trade policies, and increased tariffs and trade disputes” in Part II, Item 1A, “Risk Factors.”

Results of Operations

Fiscal 2025 and 2024 each contain 52 weeks and the first nine months of fiscal 2025 and 2024 each contained 39 weeks.

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

			Three Months Ended																		Nine Months Ended
			July 27, 2025												July 28, 2024												Change						July 27, 2025						July 28, 2024						Change
			(In millions, except per share amounts and percentages)
Net revenue			$	7,302											$	6,778											$	524					$	21,568					$	20,131					$	1,437
Gross margin			48.8		%										47.3		%										1.5 points						48.9		%				47.5		%				1.4 points
Operating income			$	2,233											$	1,942											$	291					$	6,577					$	5,821					$	756
Operating margin			30.6		%										28.7		%										1.9 points						30.5		%				28.9		%				1.6 points
Net income			$	1,779											$	1,705											$	74					$	5,101					$	5,446					$	(345)
Earnings per diluted share			$	2.22											$	2.05											$	0.17					$	6.29					$	6.52					$	(0.23)

Net revenue by segment for the periods presented were as follows:

			Three Months Ended																														Nine Months Ended
			July 27, 2025																		July 28, 2024																		Change						July 27, 2025												July 28, 2024												Change
			(In millions, except percentages)
Semiconductor Systems			$	5,427					74		%																$	4,924					73		%										10		%				$	16,038					75		%				$	14,734					73		%				9		%
Applied Global Services			1,600						22		%																1,580						23		%										1		%				4,760						22		%				4,586						23		%				4		%
Display			263						4		%																251						4		%										5		%				705						3		%				674						3		%				5		%
Corporate and Other			12						—		%																23						—		%										(48)		%				65						—		%				137						1		%				(53)		%
Total			$	7,302					100		%																$	6,778					100		%										8		%				$	21,568					100		%				$	20,131					100		%				7		%

Net revenue for Semiconductor Systems by market for the periods presented were as follows:

			Three Months Ended												Nine Months Ended
			July 27, 2025												July 28, 2024						July 27, 2025						July 28, 2024
Foundry, logic and other			69		%										72		%				67		%				66		%
Dynamic random-access memory (DRAM)			22		%										24		%				26		%				30		%
Flash memory (NAND)			9		%										4		%				7		%				4		%
			100		%										100		%				100		%				100		%

Net revenue in the three and nine months ended July 27, 2025 increased as compared to the same periods in the prior year. Gross margin in the three months ended July 27, 2025 increased compared to the same period in the prior year, primarily driven by higher net revenue, favorable changes in customer and product mix, and an increase in average selling prices. Gross margin in the nine months ended July 27, 2025 increased compared to the same period in the prior year, primarily driven by higher net revenue, favorable changes in customer and product mix, an increase in average selling prices, and lower material and manufacturing costs.

The Semiconductor Systems segment continued to represent the largest contributor of net revenue. Semiconductor Systems net revenue increased for the three and nine months ended July 27, 2025 compared to the same periods in the prior year as customers continued to make strategic investments in new capacity and new technology transitions. Foundry and logic customers’ spending increased for the three and nine months ended July 27, 2025, compared to the same periods in the prior year driven primarily by higher customer investments in leading-edge manufacturing technologies. Memory customers’ spending in the three and nine months ended July 27, 2025 was higher compared to the same periods in the prior year primarily due to increased customer investments in NAND fabrication equipment upgrades. The increase in memory customers’ investments in NAND in the first nine months of fiscal 2025 compared to the same period in the prior year was partially offset by decreased investments in DRAM technology transitions.

Our AGS net revenue in the three and nine months ended July 27, 2025 increased compared to the same periods in the prior year primarily due to an increase in net revenue associated with long-term service agreements and customer spending on spares, partially offset by lower customer spending on 200mm equipment.

Our Display net revenue increased in the three and nine months ended July 27, 2025 compared to the same periods in the prior year primarily due to higher customer investments in display fabrication equipment for TVs and IT products including laptops, monitors and tablets, partially offset by lower customer investments in display fabrication equipment for mobile devices.

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																														Nine Months Ended
			July 27, 2025																		July 28, 2024																		Change						July 27, 2025												July 28, 2024												Change
			(In millions, except percentages)
China			$	2,548					35		%																$	2,153					32		%										18		%				$	6,565					30		%				$	7,981					40		%				(18)		%
Korea			1,160						16		%																1,102						16		%										5		%				4,389						20		%				3,321						16		%				32		%
Taiwan			1,843						25		%																1,148						17		%										61		%				5,023						23		%				2,726						14		%				84		%
Japan			713						10		%																555						8		%										28		%				1,825						9		%				1,573						8		%				16		%
Southeast Asia			195						3		%																428						6		%										(54)		%				616						3		%				827						4		%				(26)		%
Asia Pacific			6,459						89		%																5,386						79		%										20		%				18,418						85		%				16,428						82		%				12		%
United States			683						9		%																1,053						16		%										(35)		%				2,408						11		%				2,665						13		%				(10)		%
Europe			160						2		%																339						5		%										(53)		%				742						4		%				1,038						5		%				(29)		%
Total			$	7,302					100		%																$	6,778					100		%										8		%				$	21,568					100		%				$	20,131					100		%				7		%

Net revenue increased from customers in Korea in the three and nine months ended July 27, 2025 compared to the same periods in the prior year primarily due to investments in semiconductor equipment partially offset by lower customer spending in display fabrication equipment.

Net revenue increased from customers in China in the three months ended July 27, 2025 compared to the same period in the prior year primarily due to higher investments in semiconductor equipment and display fabrication equipment.

Net revenue decreased from customers in China in the nine months ended July 27, 2025 compared to the same period in the prior year primarily due to lower investments in semiconductor equipment, partially offset by higher customer spending on spares and services and display fabrication equipment.

Net revenue decreased from customers in the United States and Southeast Asia in the three and nine months ended July 27, 2025 compared to the same periods in the prior year primarily due to decreased investments in semiconductor equipment and decreases in investments in 200mm equipment.

The changes in net revenue from customers in all other regions in the three and nine months ended July 27, 2025 compared to the same periods in the prior year primarily reflected changes in investment in semiconductor equipment and spending on services.

Operating Expenses

Operating expenses for the periods presented were as follows:

			Three Months Ended																		Nine Months Ended
			July 27, 2025												July 28, 2024												Change						July 27, 2025						July 28, 2024						Change
			(In millions)
Research, development and engineering (RD&E)			$	901											$	836											$	65					$	2,653					$	2,375					$	278
Marketing and selling			$	224											$	205											$	19					$	646					$	621					$	25
General and administrative (G&A)			$	204											$	222											$	(18)					$	667					$	745					$	(78)

RD&E expenses for the three and nine months ended July 27, 2025 increased compared to the same periods in the prior year primarily due to additional headcount to support our ongoing investments in product development initiatives and higher depreciation expenses, consistent with our growth strategy. We continued to prioritize RD&E investments in technical capabilities and critical RD&E programs in current and new markets.

Marketing and selling expenses for the three and nine months ended July 27, 2025 increased compared to the same periods in the prior year primarily due to higher employee related expenses.

G&A expenses in the three and nine months ended July 27, 2025 decreased compared to the same periods in the prior year primarily due to lower spending on professional services.

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

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

			Three Months Ended																		Nine Months Ended
July 27, 2025												July 28, 2024												Change						July 27, 2025						July 28, 2024						Change
			(In millions)
Interest expense			$	66											$	63											$	3					$	198					$	181					$	17
Interest and other income (expense), net			$	396											$	81											$	315					$	625					$	617					$	8

Interest expense incurred was primarily associated with issued senior unsecured notes. Interest expense in the three months ended July 27, 2025 remained relatively flat compared to the same period in the prior year. Interest expense in the nine months ended July 27, 2025 increased as a result of the issuance of senior unsecured notes in June 2024, compared to the same period in the prior year.

Interest and other income (expense), net in the three months ended July 27, 2025 increased compared to the same period in the prior year, primarily driven by higher net gain on equity investments, partially offset by lower interest income driven by lower cash balances and a decrease in market rates. Interest and other income (expense), net in the nine months ended July 27, 2025 increased slightly compared to the same period in the prior year, primarily driven by a gain on asset sale during the second quarter of fiscal 2025, partially offset by lower interest income driven by lower cash balances and a decrease in market rates.

Income Taxes

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

			Three Months Ended																		Nine Months Ended
July 27, 2025												July 28, 2024												Change						July 27, 2025						July 28, 2024						Change
			(In millions, except percentages)
Provision for income taxes			$	784											$	255											$	529					$	1,903					$	811					$	1,092
Effective income tax rate			30.6		%										13.0		%										17.6 points						27.2		%				13.0		%				14.2 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 2025 and 2024 were 30.6 percent and 13.0 percent, respectively. The effective tax rate for the third quarter of fiscal 2025 was higher than the same period in the prior fiscal year, primarily due to the recognition of a $410 million valuation allowance against deferred tax assets related to corporate alternative minimum tax (CAMT) credits. These credits are not expected to be realized as a result of changes in the timing of future tax deductions, following the enactment of the One Big Beautiful Bill Act during the quarter. No prudent and feasible tax-planning strategies are currently available. The amount of the valuation allowance may be adjusted in future quarters if estimates of future taxable income change.

Our effective tax rates for the first nine months of fiscal 2025 and 2024 were 27.2 percent and 13.0 percent, respectively. The effective tax rate for the first nine months 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 and due to the recognition of a valuation allowance related to our CAMT credits, as described above.

Segment Operating Income (Loss)

Operating income (loss) by segment for the periods presented were as follows:

			Three Months Ended																								Nine Months Ended
July 27, 2025												July 28, 2024												Change												July 27, 2025						July 28, 2024						Change
			(In millions, except percentages and ratios)
Operating income (loss)
Semiconductor Systems			$	1,966											$	1,712																	$	254					15		%				$	5,852					$	5,157					$	695					13		%
Applied Global Services			445												467																		(22)						(5)		%				1,338						1,320						18						1		%
Display			62												16																		46						288		%				144						46						98						213		%
Corporate and Other			(240)												(253)																		13						(5)		%				(757)						(702)						(55)						8		%
Total			$	2,233											$	1,942																	$	291											$	6,577					$	5,821					$	756
Operating margin
Semiconductor Systems			36.2		%										34.8		%																1.4 points												36.5		%				35.0		%				1.5 points
Applied Global Services			27.8		%										29.6		%																(1.8) points												28.1		%				28.8		%				(0.7) points
Display			23.6		%										6.4		%																17.2 points												20.4		%				6.8		%				13.6 points

Semiconductor System’s operating margin for the three months ended July 27, 2025 increased compared to the same period in the prior year primarily driven by higher net revenue, favorable changes in customer and product mix, and an increase in average selling prices, partially offset by increased RD&E expenses. Semiconductor System’s operating margin for the nine months ended July 27, 2025 increased compared to the same period in the prior year primarily driven by higher net revenue, favorable changes in customer and product mix, lower material and manufacturing costs, and an increase in average selling prices, partially offset by increased RD&E expenses.

AGS’ operating margin for the three and nine months ended July 27, 2025 decreased compared to the same periods in the prior year primarily due to a decrease in 200mm equipment net revenue, and higher excess and obsolete inventory charges, partially offset by higher net revenue from services and spares.

Display’s operating margin for the three and nine months ended July 27, 2025 increased compared to the same periods in the prior year primarily due to the increase in Display net revenue and favorable product mix.

Recent Accounting Pronouncements

Accounting Standards Not Yet Adopted

Measurement of Credit Losses for Accounts Receivable and Contract Assets. In July 2025, the Financial Accounting Standards Board (FASB) issued an accounting standard update to provide a practical expedient that simplifies the calculation of expected credit losses (Topic 326). The practical expedient allows an entity to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset, therefore, an entity will no longer need to develop reasonable and supportable forecasts of future economic conditions. This authoritative guidance will be effective for us beginning with our interim and annual reporting for fiscal year 2027, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements.

Disaggregation of Income Statements Expenses. In November 2024, the FASB issued an accounting standard update to improve income statement expenses disclosures (Subtopic 220-40). The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement’s expense caption, as applicable. This authoritative guidance can be applied prospectively or retrospectively and will be effective for us in fiscal 2028 for annual periods and in the first quarter of fiscal 2029 for interim periods, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.

Improvements to Income Tax Disclosures. In December 2023, the FASB issued an accounting standard update to improve income tax disclosures (Topic 740). The standard prescribes specific categories for the components of the effective tax rate reconciliation, requires disclosure of income taxes paid by jurisdiction, and modifies other income tax-related disclosures. This authoritative guidance will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.

Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued an accounting standard update to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses (Topic 280). The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (CODM) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and contains other disclosure requirements. This authoritative guidance will be effective for us in fiscal 2025 for annual periods and in the first quarter of fiscal 2026 for interim periods and the adoption is expected to expand the disclosures in our notes to the consolidated financial statements.

Accounting Standards Adopted

For a description of recently adopted accounting standards, including the date of adoption and the effect, if any, on our consolidated financial statements, see Note 1 “Basis of Presentation and Recently Adopted Accounting Standards**,**” of the Notes to Consolidated Condensed Financial Statements.

Financial Condition, Liquidity and Capital Resources

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

			July 27, 2025						October 27, 2024
			(In millions)
Cash and cash equivalents			$	5,384					$	8,022
Short-term investments			1,630						1,449
Long-term investments			4,133						2,787
Total cash, cash-equivalents and investments			$	11,147					$	12,258

Sources and Uses of Cash

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

			Nine Months Ended
			July 27, 2025						July 28, 2024
			(In millions)
Cash provided by operating activities			$	5,130					$	6,102
Cash used in investing activities			$	(2,643)					$	(1,256)
Cash used in financing activities			$	(5,146)					$	(2,701)

Operating Activities

Cash from operating activities for the nine months ended July 27, 2025 was $5.1 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, gain or loss on investments or asset sale, share-based compensation and deferred income taxes. Cash provided by operating activities decreased in the first nine months of fiscal 2025 compared to the same period in the prior year primarily due to lower collections of customer receivable balances, higher payments for income taxes and higher vendor payments.

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 $324 million and $395 million of account receivables during the nine months ended July 27, 2025 and July 28, 2024, respectively. We did not discount letters of credit issued by customers or discount promissory notes during the nine months ended July 27, 2025 and July 28, 2024, respectively.

Our working capital was $11.8 billion as of July 27, 2025 and $12.8 billion as of October 27, 2024.

Days sales outstanding of our accounts receivable at July 27, 2025 and July 28, 2024 were 72 days and 67 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 higher accounts receivable balance as a result of the timing of customer payments, and unfavorable revenue linearity.

Investing Activities

We used $2.6 billion of cash in investing activities during the nine months ended July 27, 2025. Capital expenditures totaled $1.5 billion, purchases of investments, net of proceeds from sales and maturities of investments, were $1.2 billion, net proceeds from asset sale were $33 million, and net cash paid for acquisition was $29 million, during the nine months ended July 27, 2025.

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 $5.1 billion of cash in financing activities during the nine months ended July 27, 2025, consisting primarily of cash used for repurchases of common stock of $4.0 billion, cash dividends paid to stockholders totaling $1.0 billion, and tax withholding payments for vested equity awards of $210 million, partially offset by proceeds received from common stock issuances of $129 million under our employee’ stock purchase plan.

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 2025, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previously existing $10.0 billion authorization from March 2023. As of July 27, 2025, approximately $14.8 billion remained available for future stock repurchases under the repurchase program.

We have credit facilities for unsecured borrowings in various currencies of up to $2.1 billion, of which $2.0 billion is comprised of a committed revolving credit agreement (Revolving Credit Agreement) with a group of banks. The Revolving Credit Agreement is scheduled to expire in February 2030, unless extended as permitted under the Revolving Credit Agreement. The Revolving Credit Agreement includes financial and other covenants with which we were in compliance as of July 27, 2025. No amounts were outstanding under the Revolving Credit Agreement as of July 27, 2025 or under the prior revolving credit agreement as of October 27, 2024. See Note 9, Borrowing Facilities and Debt, of the Notes to the Consolidated Condensed Financial Statements for further discussion related to our Revolving Credit Agreement and other credit facilities.

We have a short-term commercial paper program under which we may from time to time issue unsecured commercial paper notes. In June 2025, we increased the total amount of commercial paper notes we may issue under the program from $1.5 billion to $2.0 billion. The proceeds from the issuances of commercial paper are used for general corporate purposes. As of July 27, 2025, we had commercial paper notes outstanding with an aggregate principal amount of $100 million.

We had senior unsecured notes in the aggregate principal amount of $6.2 billion outstanding as of July 27, 2025. See Note 9 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. We also have agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. See Note 12 of the Notes to the Consolidated Condensed Financial Statements for additional discussion related to our guarantee agreements and 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 27, 2025, we have one remaining payment of $255 million, payable in February of 2026.

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 recognized against property, plant and equipment and a reduction of income taxes payable. We recognize this investment tax credit when there is reasonable assurance that we will qualify for the credit and the benefit will be received. As of July 27, 2025, our current income taxes payable was reduced by $309 million and future income taxes payable will be reduced by $154 million, both of which are due to the investment tax credit.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (OBBBA). The OBBBA includes a broad range of tax reform provisions including extending and modifying certain key Tax Act provisions and expanding certain Chips Act incentives. These changes include full expensing of domestic research costs, immediate expensing of qualifying property and increasing the investment tax credit for certain investments in domestic semiconductor manufacturing from 25% to 35%. Key tax provisions of the OBBBA are designed to accelerate tax deductions but that may have a detrimental impact on our ability to use certain tax credits. The use of certain tax credits may not be economically viable if it requires electing to forgo significant tax deductions. Most of the provisions are effective beginning in fiscal years 2026 or 2027, with immediate expensing of qualifying property being effective in fiscal 2025. We will continue to evaluate the full impact of these legislative changes as more guidance becomes available.

Various countries where we do business have enacted or plan to enact new tax laws to implement the global minimum tax regimes based on the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting Project, and where enacted, the rules began to be effective in fiscal 2025. The impact of the currently enacted legislation is not expected to be material to our fiscal 2025 financial results. We continue to monitor developments and evaluate impacts, if any, of these rules on our results of operations and cash flows. The adoption and effective dates of these rules vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes, in future years.

We have been granted additional conditional reduced tax rates in Singapore that expire beginning in fiscal 2030.

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 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.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. These uncertainties include those discussed in Part II, Item 1A, “Risk Factors.”

Management believes that the following is a critical accounting estimate:

Income Taxes

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The calculation of our provision for income taxes and effective tax rate involves significant judgment in estimating the impact of uncertainties in the application of complex and evolving tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition. We recognize a current tax liability for the estimated amount of income taxes payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets and liabilities are adjusted to reflect the effects of enacted changes in tax rates, laws and status, including changes in tax incentives. We record a valuation allowance against deferred tax assets when it is more likely than not that some portion, or all, of the assets will not be realized. In making this assessment, we weigh all available positive and negative evidence, including expected future taxable income, existing taxable temporary differences, carryback potential and prudent and feasible tax-planning strategies.

The acceleration of tax deductions for U.S. tax purposes, under the One Big Beautiful Bill Act, limits our ability to use our corporate minimum tax credits. As a result, we have recorded a full valuation allowance against this deferred tax asset. We reviewed potential tax-planning strategies to accelerate income recognition within a reasonable time, but none were prudent and feasible. We will continue to evaluate new strategies as additional One Big Beautiful Bill Act guidance is issued.