Industry Segment Operations

9 Months Ended

Jul. 29, 2012

Segment Reporting [Abstract]

Industry Segment Operations

Industry Segment Operations

Applied’s four reportable segments are: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. Applied’s chief operating decision-maker has been identified as the 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 Applied’s management organization structure as of July 29, 2012, and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

Each reportable segment is separately managed and has separate financial results that are reviewed by Applied’s 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 Applied’s chief operating decision-maker.

Applied derives the segment results directly from its internal management reporting system. The accounting policies Applied uses 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 orders, net sales and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Applied does not allocate to its reportable segments certain operating expenses that it manages separately at the corporate level, which include costs related to share-based compensation; 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, Applied does not allocate to its reportable segments restructuring and asset impairment charges and any associated adjustments related to restructuring actions, unless these charges or adjustments pertain to a specific reportable segment. Segment operating income 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.

In November 2011, Applied completed its acquisition of Varian. Beginning in the first quarter of fiscal 2012, the acquired business is primarily included in the results for the Silicon Systems Group and Applied Global Services segments, with certain corporate functions included in corporate and unallocated costs.

The Silicon Systems Group segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation.

The Applied Global Services segment includes technically differentiated products and services to improve operating efficiency, reduce operating costs and lessen the environmental impact of semiconductor, display and solar customers’ factories. Applied Global Services’ products consist of spares, services, certain earlier generation products, remanufactured equipment, and products that have reached a particular stage in the product lifecycle. Customer demand for these products and services is fulfilled through a global distribution system with trained service engineers located in close proximity to customer sites.

The Display segment encompasses products for manufacturing LCDs, organic light-emitting diodes (OLEDs), and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices.

The Energy and Environmental Solutions segment includes products for fabricating solar photovoltaic cells and modules, high throughput roll-to-roll coating systems for flexible electronics and web products.

Net sales and operating income (loss) for each reportable segment for the three and nine months ended July 29, 2012 and July 31, 2011 were as follows:

	Three Months Ended					Nine Months Ended
	Net Sales		Operating Income  (loss)			Net Sales		Operating Income  (loss)
	(In millions)
July 29, 2012
Silicon Systems Group	$	1,545	$	427		$	4,666	$	1,202
Applied Global Services	579		122			1,664		338
Display	142		10			380		23
Energy and Environmental Solutions	77		(102		)	363		(188		)
Total Segment	$	2,343	$	457		$	7,073	$	1,375
July 31, 2011
Silicon Systems Group	$	1,398	$	452		$	4,348	$	1,486
Applied Global Services	603		146			1,784		322
Display	223		58			528		116
Energy and Environmental Solutions	563		123			1,676		436
Total Segment	$	2,787	$	779		$	8,336	$	2,360

Operating results for the nine months ended July 31, 2011 included favorable adjustments of $36 million related to a restructuring plan announced in fiscal 2010, which was reported in the Energy and Environmental Solutions segment. Operating results for the three and nine months ended July 29, 2012 included restructuring charges and asset impairments of $35 million related to the restructuring program announced on May 10, 2012, of which $32 million was reported in the Energy and Environmental Solutions segment and the remainder was reported in the Applied Global Services segment. Operating results for the three and nine months ended July 29, 2012 also included severance charges of $9 million in connection with the integration of Varian, of which $8 million was reported in the Applied Global Services segment and the remainder in the Silicon Systems Group segment.

In the second quarter of fiscal 2011, Applied negotiated the divestiture of certain assets held in the Applied Global Services segment and determined identified intangible assets and purchased technology included in assets held for sale to be impaired. Results for the nine months ended July 31, 2011 included impairment charges of $24 million, which were reported in the Applied Global Services segment.

Reconciliations of total segment operating income to Applied’s consolidated operating income for the three and nine months ended July 29, 2012 and July 31, 2011 were as follows:

	Three Months Ended						Nine Months Ended
	July 29, 2012			July 31, 2011			July 29, 2012			July 31, 2011
	(In millions)
Total segment operating income	$	457		$	779		$	1,375		$	2,360
Corporate and unallocated costs	(135		)	(120		)	(465		)	(371		)
Restructuring and asset impairment benefit, net	—			—			—			21
Gain on sale of facilities, net	—			28			—			27
Income from operations	$	322		$	687		$	910		$	2,037

Corporate and unallocated costs for the three and nine months ended July 29, 2012 included deal costs and other acquisition-related costs related to the Varian acquisition of $1 million and $38 million, respectively.

The following companies accounted for at least 10 percent of Applied’s net sales for the nine months ended July 29, 2012, which were for products in multiple reportable segments.

	July 29, 2012
Samsung Electronics Co., Ltd .	23	%
Taiwan Semiconductor Manufacturing Company Limited	17	%