Industry Segment Operations

3 Months Ended

Jan. 31, 2016

Segment Reporting [Abstract]

Industry Segment Operations

Industry Segment Operations

Applied’s four reportable segments are: Silicon Systems, Applied Global Services, Display, and Energy and Environmental Solutions. 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 January 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.

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. 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 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 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 were as follows:

	Three Months Ended
	Net Sales		Operating Income  (Loss)
	(In millions)
January 31, 2016:
Silicon Systems	$	1,373	$	265
Applied Global Services	626		156
Display	213		38
Energy and Environmental Solutions	45		6
Total Segment	$	2,257	$	465
January 25, 2015:
Silicon Systems	$	1,446	$	307
Applied Global Services	583		153
Display	275		72
Energy and Environmental Solutions	55		(4		)
Total Segment	$	2,359	$	528

Reconciliations of total segment operating results to Applied consolidated totals were as follows:

	Three Months Ended
	January 31, 2016			January 25, 2015
	(In millions)
Total segment operating income	$	465		$	528
Corporate and unallocated costs	(111		)	(128		)
Certain items associated with terminated business combination	—			(20		)
Gain on derivatives associated with terminated business combination	—			78
Income from operations	$	354		$	458

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

	Percentage of Net Sales
Taiwan Semiconductor Manufacturing Company Limited	13	%
Micron Technology, Inc.	11	%
Samsung Electronics Co., Ltd.	10	%