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 January 27, 2019 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 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), equipment upgrades and flexible coating systems and other display technologies for TVs, monitors, laptops, 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.

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



	Three Months Ended
	Net Sales		Operating Income (Loss)

	(In millions)
January 27, 2019:
Semiconductor Systems	$	2,268	$	631
Applied Global Services	962		285
Display and Adjacent Markets	507		115
Corporate and Other	16		(123		)
Total	$	3,753	$	908
January 28, 2018:
Semiconductor Systems	$	2,852	$	1,024
Applied Global Services	881		255
Display and Adjacent Markets	443		90
Corporate and Other	29		(154		)
Total	$	4,205	$	1,215

Net sales by geographic region, determined by the location of customers’ facilities to which products were shipped to, were as follows:



	Three Months Ended
	January 27, 2019				January 28, 2018

	(In millions, except percentages)
China	$	968	26	%	$	964	23	%
Korea	572		15	%	1,203		29	%
Taiwan	656		18	%	741		18	%
Japan	651		17	%	482		11	%
Southeast Asia	160		4	%	193		4	%
Asia Pacific	3,007		80	%	3,583		85	%
United States	450		12	%	370		9	%
Europe	296		8	%	252		6	%
Total	$	3,753	100	%	$	4,205	100	%

Net sales for Semiconductor Systems by end use application for the periods indicated were as follows:



	Three Months Ended
	January 27, 2019		January 28, 2018
Foundry, logic and other	44	%	37	%
Dynamic random-access memory (DRAM)	21	%	26	%
Flash memory	35	%	37	%
	100	%	100	%

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



	Three Months Ended
	January 27, 2019			January 28, 2018

	(In millions)
Unallocated net sales	$	16		$	29
Unallocated cost of products sold and expenses	(74		)	(118		)
Share-based compensation	(65		)	(65		)
Total	$	(123	)	$	(154	)

The following customers accounted for at least 10 percent of Applied’s net sales for the three months ended January 27, 2019, and sales to these customers included products and services from multiple reportable segments.



	Percentage of Net Sales
Toshiba	14	%
SK Hynix Inc.	13	%
Intel Corporation	13	%
Taiwan Semiconductor Manufacturing Company Limited	11	%