Industry Segment Operations

9 Months Ended

Jul. 27, 2014

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 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 Applied’s management organization structure as of July 27, 2014 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 liquid crystal displays (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, as well as high throughput roll-to-roll deposition equipment for flexible electronics and other applications.

Net sales and operating income (loss) for each reportable segment for the three and nine months ended July 27, 2014 and July 28, 2013 were as follows:

	Three Months Ended					Nine Months Ended
	Net Sales		Operating Income  (Loss)			Net Sales		Operating Income  (Loss)
	(In millions)
July 27, 2014:
Silicon Systems Group	$	1,476	$	381		$	4,544	$	1,086
Applied Global Services	567		154			1,608		427
Display	119		25			425		77
Energy and Environmental Solutions	103		24			231		18
Total Segment	$	2,265	$	584		$	6,808	$	1,608
July 28, 2013:
Silicon Systems Group	$	1,272	$	246		$	3,532	$	663
Applied Global Services	497		114			1,485		321
Display	161		33			375		55
Energy and Environmental Solutions	45		(27		)	129		(403		)
Total Segment	$	1,975	$	366		$	5,521	$	636

Operating results for the nine months ended July 27, 2014, and the three and nine months ended July 28, 2013, included restructuring charges and asset impairments as discussed in detail in Note 11, Restructuring Charges and Asset Impairments.

Reconciliations of total segment operating results to Applied consolidated totals for the three and nine months ended July 27, 2014 and July 28, 2013 were as follows:

	Three Months Ended						Nine Months Ended
	July 27, 2014			July 28, 2013			July 27, 2014			July 28, 2013
	(In millions)
Total segment operating income	$	584		$	366		$	1,608		$	636
Corporate and unallocated costs	(193		)	(112		)	(493		)	(403		)
Restructuring charges and asset impairments	—			(4		)	(7		)	(12		)
Income from operations	$	391		$	250		$	1,108		$	221

The following customers accounted for at least 10 percent of Applied’s net sales for the nine months ended July 27, 2014, which were for products in multiple reportable segments.

	Percentage of Net Sales
Taiwan Semiconductor Manufacturing Company Limited	23	%
Samsung Electronics Co., Ltd.	14	%