Industry Segment Operations

9 Months Ended

Jul. 31, 2016

Segment Reporting [Abstract]

Industry Segment Operations

Industry Segment Operations

Applied’s three reportable segments are: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. As defined under 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 31, 2016 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

Effective in the third quarter of fiscal 2016, Applied began to account for its roll-to-roll web coating systems (previously included in the Energy and Environmental Solutions segment) and display upgrade equipment (previously included in the Applied Global Services segment) under the Display and Adjacent Markets segment (previously Display). As a result of these changes, Applied's solar business (previously in the Energy and Environmental Solutions segment) is included in Corporate and Other as it did not meet the threshold as a separate reportable segment. Results for prior periods have been recast to conform to the current presentation, which reflects the new organizational structure.

The Semiconductor Systems reportable 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 provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, certain remanufactured earlier generation equipment and factory automation software for semiconductor, display and solar products.

The Display and Adjacent Markets segment includes products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), upgrades and roll-to-roll web coating systems and other display technologies for TVs, personal computers, smart phones, and other consumer-oriented devices.

Each operating 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.

The Corporate and Other category includes revenues from products, as well as costs of products sold, for fabricating solar photovoltaic cells and modules, and certain operating expenses that are not allocated to its reportable segments and are managed separately at the corporate level. These operating expenses 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 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.

Net sales and operating income (loss) for each reportable segment were as follows:

	Three Months Ended					Nine Months Ended
	Net Sales		Operating Income  (Loss)			Net Sales		Operating Income  (Loss)
	(In millions)
July 31, 2016:
Semiconductor Systems	$	1,786	$	511		$	4,746	$	1,140
Applied Global Services	657		175			1,896		489
Display and Adjacent Markets	313		63			754		142
Corporate and Other	65		(153		)	132		(396		)
Total	$	2,821	$	596		$	7,528	$	1,375
July 26, 2015:
Semiconductor Systems	$	1,635	$	411		$	4,641	$	1,092
Applied Global Services	646		162			1,836		470
Display and Adjacent Markets	185		35			709		163
Corporate and Other	24		(212		)	105		(455		)
Total	$	2,490	$	396		$	7,291	$	1,270

The reconciling items included in Corporate and Other were as follows:

	Three Months Ended						Nine Months Ended
	July 31, 2016			July 26, 2015			July 31, 2016			July 26, 2015
	(In millions)
Unallocated net sales	$	65		$	24		$	132		$	105
Unallocated cost of products sold and expenses	(170		)	(186		)	(378		)	(458		)
Share-based compensation	(48		)	(46		)	(150		)	(141		)
Certain items associated with terminated business combination	—			(1		)	—			(50		)
Gain (loss) on derivatives associated with terminated business combination	—			(3		)	—			89
Total	$	(153	)	$	(212	)	$	(396	)	$	(455	)

The following customers accounted for at least 10 percent of Applied’s net sales for the nine months ended July 31, 2016, which were for products in multiple reportable segments.

	Percentage of Net Sales
Taiwan Semiconductor Manufacturing Company Limited	13	%
Micron Technology, Inc.	13	%
Samsung Electronics Co., Ltd.	12	%
Intel Corporation	11	%