
Note 15	Industry Segment Operations

Applied’s four reportable segments are: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. 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 May 1, 2011 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 charges or adjustments 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.

In fiscal 2010, as part of the restructuring of the Energy and Environmental Solutions segment, Applied discontinued sales to new customers of its fully-integrated SunFab production lines but continued to offer individual tools for thin film solar manufacturing. Applied is supporting existing SunFab customers with services, upgrades and capacity increases through its Applied Global Services segment as these products are considered to have reached a particular stage in the product lifecycle. Effective in the first quarter of fiscal 2011, Applied accounts for thin film products under its Applied Global Services segment.

The Silicon Systems Group segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, and wafer packaging.

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 for TVs, personal computers, tablets, smart phones and other video-enabled devices.

The Energy and Environmental Solutions segment includes products for fabricating crystalline-silicon (c-Si) solar photovoltaic cells and modules, high throughput roll-to-roll coating systems for flexible electronics and web products, and systems used in the manufacture of energy-efficient glass.

Net sales and operating income (loss) for each reportable segment for the three and six months ended May 1, 2011 and May 2, 2010 were as follows:


	Three Months Ended					Six Months Ended
			Operating					Operating
	Net Sales		Income (Loss)			Net Sales		Income (Loss)
	(In millions)					(In millions)

May 1, 2011:
Silicon Systems Group	$	1,453	$	491		$	2,950	$	1,034
Applied Global Services		614		91			1,181		176
Display		158		31			305		58
Energy and Environmental Solutions		637		170			1,113		313

Total Segment	$	2,862	$	783		$	5,549	$	1,581

May 2, 2010:
Silicon Systems Group	$	1,404	$	498		$	2,374	$	803
Applied Global Services		456		89			881		153
Display		270		90			402		115
Energy and Environmental Solutions		166		(145	)		487		(181	)

Total Segment	$	2,296	$	532		$	4,144	$	890

Operating results for the three and six months ended May 1, 2011 included favorable adjustments of $8 million and $36 million, respectively, related to a restructuring program, announced in fiscal 2010, which was reported in the Energy and Environmental Solutions segment.

In the second quarter of fiscal 2011, Applied negotiated the divestiture of certain assets held in the Applied Global Services segment and determined identified intangible assets and purchased technology included in assets held for sale to be impaired. Results for the three and six months ended May 1, 2011 included impairment charges of $24 million, which were reported in the Applied Global Services segment.

Reconciliations of total segment operating income to Applied’s consolidated operating income for the three and six months ended May 1, 2011 and May 2, 2010 were as follows:


	Three Months Ended						Six Months Ended
	May 1,			May 2,			May 1,			May 2,
	2011			2010			2011			2010
	(In millions)						(In millions)

Total segment operating income	$	783		$	532		$	1,581		$	890
Corporate and unallocated costs		(126	)		(137	)		(251	)		(275	)
Restructuring and asset impairment benefit (charges), net		20			(9	)		21			(113	)

Income from operations	$	677		$	386		$	1,351		$	502

The following companies accounted for at least 10 percent of Applied’s net sales for the six months ended May 1, 2011, which were for products in multiple reportable segments.


	May 1,
	2011

Taiwan Semiconductor Manufacturing Company Limited		13	%
Samsung Electronics Co., Ltd.		13	%

As of May 1, 2011, accounts receivable for those customers that accounted for at least 10 percent of Applied’s net sales for the six months ended May 1, 2011, as a percentage of total accounts receivable, were as follows:


	May 1,
	2011

Taiwan Semiconductor Manufacturing Company Limited		18	%
Samsung Electronics Co., Ltd.		10	%