Industry Segment Operations

12 Months Ended

Oct. 30, 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 October 30, 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 flexible 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 other products.

The Display and Adjacent Markets segment includes products for manufacturing liquid crystal displays (LCDs), organic light-emitting diodes (OLEDs), upgrades and flexible 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. The chief operating decision-maker does not evaluate operating segments using total asset information.

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.

Information for each reportable segment for and as of the end of each fiscal year were as follows:

	Net Sales		Operating Income  (Loss)			Depreciation/ Amortization		Capital Expenditures		Accounts Receivable			Inventories
	(In millions)
2016:
Semiconductor Systems	$	6,873	$	1,807		$	277	$	114	$	1,524		$	1,188
Applied Global Services	2,589		682			12		14		559			594
Display and Adjacent Markets	1,206		245			5		6		238			215
Corporate and Other	157		(582		)	95		119		(42		)	53
Total	$	10,825	$	2,152		$	389	$	253	$	2,279		$	2,050
2015:
Semiconductor Systems	$	6,135	$	1,410		$	268	$	115	$	1,160		$	1,079
Applied Global Services	2,447		630			10		12		483			555
Display and Adjacent Markets	944		191			6		13		129			176
Corporate and Other	133		(538		)	87		75		(33		)	23
Total	$	9,659	$	1,693		$	371	$	215	$	1,739		$	1,833
2014:
Semiconductor Systems	$	5,978	$	1,391		$	268	$	134	$	1,146		$	955
Applied Global Services	2,114		538			11		7		422			431
Display and Adjacent Markets	848		202			7		4		157			117
Corporate and Other	132		(611		)	89		96		(55		)	64
Total	$	9,072	$	1,520		$	375	$	241	$	1,670		$	1,567

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

	2016			2015			2014
	(In millions)
Unallocated net sales	$	157		$	133		$	132
Unallocated cost of products sold and expenses	(538		)	(523		)	(523		)
Share-based compensation	(201		)	(187		)	(177		)
Certain items associated with terminated business combination	—			(50		)	(73		)
Gain (loss) on derivatives associated with terminated business combination	—			89			30
Total	$	(582	)	$	(538	)	$	(611	)

For geographical reporting, revenue by geographic location is determined by the location of customers’ facilities to which products were shipped. Long-lived assets consist primarily of property, plant and equipment and are attributed to the geographic location in which they are located. Net sales and long-lived assets by geographic region for and as of each fiscal year were as follows:

	2016		2015		2014
	(In millions)
Net sales:
United States	$	1,143	$	1,630	$	1,966
Taiwan	2,843		2,600		2,702
China	2,259		1,623		1,608
Korea	1,883		1,654		965
Japan	1,279		1,078		817
Europe	615		642		658
Southeast Asia	803		432		356
Total outside United States	9,682		8,029		7,106
Consolidated total	$	10,825	$	9,659	$	9,072

	October 30, 2016		October 25, 2015
	(In millions)
Long-lived assets:
United States	$	798	$	705
Taiwan	34		39
China	44		46
Korea	12		12
Japan	8		6
Europe	34		75
Southeast Asia	85		73
Total outside United States	217		251
Consolidated total	$	1,015	$	956

The following customers accounted for at least 10 percent of Applied’s net sales in each fiscal year, which were for products in multiple reportable segments:

	2016		2015		2014
Taiwan Semiconductor Manufacturing Company Limited	16	%	15	%	21	%
Samsung Electronics Co., Ltd.	13	%	18	%	12	%
Intel Corporation	11	%	*		*
Micron Technology, Inc.	11	%	*		*