Industry Segment Operations

6 Months Ended

Apr. 28, 2013

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. As defined in the accounting literature, Applied’s chief operating decision-maker are its Chief Executive Officer and its President, who both review 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 April 28, 2013 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 actions 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.

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 includes 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 crystalline-silicon (c-Si) solar photovoltaic cells and modules, as well as high throughput roll-to-roll coating (web) systems for flexible electronics and other applications.

With the acquisition of Varian, Applied acquired ion implantation technology for c-Si solar cell manufacturing, which was recorded under the Silicon Systems Group segment in fiscal 2012. In fiscal 2013, Applied began marketing the solar implant products commercially through its Energy and Environmental Solutions segment. Accordingly, effective in the first quarter of fiscal 2013, Applied accounts for its solar implant products under the Energy and Environmental Solutions segment. The effect of the solar implant products was not material to the operations of either the Silicon Systems Group or Energy and Environmental Solutions segments.

Net sales and operating income (loss) for each reportable segment for the three and six months ended April 28, 2013 and April 29, 2012 were as follows:

	Three Months Ended					Six Months Ended
	Net Sales		Operating Income  (Loss)			Net Sales		Operating Income  (Loss)
	(In millions)
April 28, 2013:
Silicon Systems Group	$	1,291	$	283		$	2,260	$	417
Applied Global Services	517		118			988		207
Display	127		19			214		22
Energy and Environmental Solutions	38		(322		)	84		(376		)
Total Segment	$	1,973	$	98		$	3,546	$	270
April 29, 2012:
Silicon Systems Group	$	1,777	$	504		$	3,121	$	775
Applied Global Services	551		109			1,085		216
Display	134		7			238		12
Energy and Environmental Solutions	79		(63		)	286		(86		)
Total Segment	$	2,541	$	557		$	4,730	$	917

Operating results for the three and six months ended April 28, 2013 included restructuring charges and asset impairments as discussed in detail in Note 10, Restructuring Charges and Asset Impairments.

Reconciliations of total segment operating results to Applied consolidated totals for the three and six months ended April 28, 2013 and April 29, 2012 were as follows:

	Three Months Ended						Six Months Ended
	April 28, 2013			April 29, 2012			April 28, 2013			April 29, 2012
							(In millions)
Total segment operating income	$	98		$	557		$	270		$	917
Corporate and unallocated costs	(162		)	(148		)	(291		)	(329		)
Restructuring charges and asset impairments	(4		)	—			(8		)	—
Income (loss) from operations	$	(68	)	$	409		$	(29	)	$	588

The following companies accounted for at least 10 percent of Applied’s net sales for the six months ended April 28, 2013, which were for products in multiple reportable segments.

	Percentage of Net Sales
Taiwan Semiconductor Manufacturing Company Limited	32	%
Samsung Electronics Co., Ltd.	14	%