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 29, 2017 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to Applied’s reportable segments.

The Semiconductor Systems reportable segment is comprised primarily of 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), equipment 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)
2017:
Semiconductor Systems	$	9,517	$	3,173		$	286	$	150	$	1,626		$	1,760
Applied Global Services	3,017		817			15		21		564			762
Display and Adjacent Markets	1,900		502			12		17		190			367
Corporate and Other	103		(624		)	94		157		(42		)	41
Total	$	14,537	$	3,868		$	407	$	345	$	2,338		$	2,930
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

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



	2017			2016			2015

	(In millions)
Unallocated net sales	$	103		$	157		$	133
Unallocated cost of products sold and expenses	(507		)	(538		)	(523		)
Share-based compensation	(220		)	(201		)	(187		)
Certain items associated with terminated business combination	—			—			(50		)
Gain on derivatives associated with terminated business combination	—			—			89
Total	$	(624	)	$	(582	)	$	(538	)

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:



	2017		2016		2015

	(In millions)
Net sales:
United States	$	1,474	$	1,143	$	1,630
Korea	4,052		1,883		1,654
Taiwan	3,291		2,843		2,600
China	2,746		2,259		1,623
Japan	1,518		1,279		1,078
Europe	816		615		642
Southeast Asia	640		803		432
Total outside United States	13,063		9,682		8,029
Consolidated total	$	14,537	$	10,825	$	9,659



	October 29, 2017		October 30, 2016

	(In millions)
Long-lived assets:
United States	$	915	$	798
Korea	21		12
Taiwan	50		34
China	47		44
Japan	8		8
Europe	47		34
Southeast Asia	98		85
Total outside United States	271		217
Consolidated total	$	1,186	$	1,015

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



	2017		2016		2015
Samsung Electronics Co., Ltd.	23	%	13	%	18	%
Taiwan Semiconductor Manufacturing Company Limited	15	%	16	%	15	%
Intel Corporation	*		11	%	*
Micron Technology, Inc.	*		11	%	*

______________________________

* Less than 10%