Industry Segment Operations

12 Months Ended

Oct. 27, 2019

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 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, 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)
2019:
Semiconductor Systems	$	9,027	$	2,464	$	202	$	168	$	1,543	$	1,703
Applied Global Services	3,854		1,101		25		47		790		1,535
Display and Adjacent Markets	1,651		294		22		43		246		214
Corporate and Other	76		(509)		114		183		(46)		22
Total	$	14,608	$	3,350	$	363	$	441	$	2,533	$	3,474
2018:
Semiconductor Systems	$	10,577	$	3,441	$	303	$	168	$	1,597	$	2,215
Applied Global Services	3,754		1,102		21		33		630		1,243
Display and Adjacent Markets	2,298		574		20		39		142		246
Corporate and Other	76		(626)		113		382		(46)		17
Total	$	16,705	$	4,491	$	457	$	622	$	2,323	$	3,721
2017:
Semiconductor Systems	$	9,544	$	3,177	$	286	$	150	$	1,626	$	1,638
Applied Global Services	3,014		817		15		21		564		762
Display and Adjacent Markets	2,042		585		12		17		190		279
Corporate and Other	98		(643)		94		157		(42)		28
Total	$	14,698	$	3,936	$	407	$	345	$	2,338	$	2,707

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


	2019		2018		2017
Foundry, logic and other	52	%	36	%	51	%
Dynamic random-access memory (DRAM)	22	%	27	%	15	%
Flash memory	26	%	37	%	34	%

	100	%	100	%	100	%

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


	2019		2018		2017

	(In millions)
Unallocated net sales	$	76	$	76	$	98
Unallocated cost of products sold and expenses	(322)		(444)		(521)
Share-based compensation	(263)		(258)		(220)


Total	$	(509)	$	(626)	$	(643)

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:


	2019		2018		2017

	(In millions)
Net sales:
United States	$	1,871	$	1,413	$	1,512
China	4,277		5,047		2,758
Korea	1,929		3,539		4,087
Taiwan	2,965		2,504		3,369
Japan	2,198		2,396		1,519
Europe	820		1,009		828
Southeast Asia	548		797		625
Total outside United States	12,737		15,292		13,186
Consolidated total	$	14,608	$	16,705	$	14,698


	October 27, 2019		October 28, 2018

	(In millions)
Long-lived assets:
United States	$	1,539	$	1,414
China	20		13
Korea	24		21
Taiwan	56		29
Japan	16		9
Europe	28		50
Southeast Asia	23		25
Total outside United States	167		147
Consolidated total	$	1,706	$	1,561

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:


	2019		2018		2017
Samsung Electronics Co., Ltd.	*		13	%	23	%
Taiwan Semiconductor Manufacturing Company Limited	14	%	*		16	%

Intel Corporation	12	%	11	%	*

______________________________

* Less than 10%