Q4 2004 Applied Materials Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Applied Materials fourth quarter fiscal 2004 earnings release conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in the question and answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, November 17, 2004.

I would now like to turn the conference over to Mr. Paul Bowman, Managing Director of Investor Relations, Applied Materials. Please go ahead, sir.

PAUL BOWMAN, MANAGING DIRECTOR OF INVESTOR RELATIONS, APPLIED MATERIALS: Thank you, Miles. Good afternoon and welcome to Applied Materials' fourth quarter and fiscal year 2004 earnings conference call. With me today are Mike Splinter, President and CEO; Nancy Handel, Group Vice President and Chief Financial Officer; and Joe Sweeney, Group Vice President, Legal Affairs, Intellectual Property and Corporate Secretary.

Financial results for our fourth quarter and fiscal year were released on Business Wire shortly after 105 PM Pacific Time. You can obtain a copy of the news release on the Investor section of our web site at www.AppliedMaterials.com.

Today's earnings call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include but are not limited to those set forth in today's earnings release and in the Company's filings with the Securities and Exchange Commission, including its most recent Forms 10-K, 10-Q and 8-K.

The Company assumes no obligation to update the information provided in this call.

Today's presentation also contains non-GAAP financial measures. Reconciliations of GAAP financial measures to non-GAAP financial measures are contained in our earnings press release issued today, which is on the Applied Materials Web site.

Today's call will begin with an update on the business by Mike Splinter, followed by Nancy Handel, who will provide an analysis of fourth quarter and fiscal year financial results, followed by first quarter 2005 financial targets. After the opening remarks, we'll open up the conference call for questions.

With that, I would like to turn the call over to Mike Splinter. Mike.

MIKE SPLINTER, PRESIDENT AND CEO, APPLIED MATERIALS: Thanks Paul. Good afternoon and thank you for joining us on our call. Applied Materials delivered solid financial performance in the past quarter and ended fiscal 2004 with overall outstanding results.

We grew revenues 79 percent year-over-year, making this our best year (technical difficulty) since 2001 (ph) and one of the top 5 growth years since we went public in 1972. Our employees are focused and delivering excellent results.

Applied Materials grew faster than the industry with order growth of 108 percent, outpacing the others and further setting ourselves apart as the clear industry leader. We gained market share in key technology areas and broadened our portfolio through new service agreement and new products for both semiconductors and flat-panel displays.

We have good traction in growth areas in the technologies and regions where the most opportunities exist. Our products are well positioned for the 65-nm node and other advanced applications. And we are delivering solutions that make a significant impact on our customers' business.

We delivered 10 new breakthrough products this year. And this achievement reflects strong, focused internal investment to translate our proven product and process expertise into cost-effective innovative solutions for our customers.

Services are becoming more important as our customers look to get the maximum value from their fab operations. With our installed base and new capabilities for value added service, Applied has a significant strategic growth opportunity. And we certainly plan to capitalize on it.

We recently marked the 25th anniversary of Applied Materials Japan, where we gained additional share and advanced our leadership position in that market as Japan's semiconductor industry continues to retool and make strategic investments.

In China, we celebrated the 20th anniversary of our operations. Applied Materials was the first equipment company to establish a presence in China way back in 1984. And our long-standing commitment has been a key part of our success as China has established its place among the major chip-making regions of the world.

Recognizing early the tremendous potential for our industry in China, Applied Materials established our leadership through key relationships and by building a strong sales and service network to support our customers' rapid growth.

Through this year, we continued to make progress on streamlining our operations and delivering efficiencies throughout our business. Our cycle time improved 22 percent, and the efficiency of our factory was demonstrated as we grew. We have plans in place to continue to reduce operational cycle time and further reduce material cost through re-use and commonality.

Applied Materials is operating well, with the right capabilities, the right market position to set us up for further growth as opportunities emerge.

As we look to the first quarter of 2005, we'll start off lower than Q4. The semiconductor and flat-panel display industries are becoming increasingly more cautious on capital investments and working to improve the productivity ahead of new investments.

Inventory levels have increased for some semiconductor products. And our customers are responding quickly to reduce inventory and manage their factory utilization quite tightly.

For 2005, the industry consensus is for semiconductor revenues to be flat or slightly up, with capital spending expected to the flat to down 10 percent or so. We will learn more in January as year-end sales and inventories are assessed, and when many of our customers announce their CapEx plans for next year.

However, investment for 300 mm is forecasted to remain strong, with approximately 45 projects adding equipment through 2005. This past quarter, about 84 percent of our orders were for 300 mm. There is no doubt Applied has more 300 mm installed chambers than the rest of the industry combined. And this leadership position offers opportunities for future revenue streams in service and technology upgrades.

Our customers are investing in advance (ph) (technical difficulty) technology, where factory utilization rates remain high and capacity is limited. 110 and 90 nm reduction buys (ph) continue and 65 nm are indeed -- is gaining momentum.

DRAM investment in 2004 continued strong. And we expect these customers to continue to invest in capacity and new generation technology throughout '05.

Following a strong year, order levels in China are expected to be (technical difficulty) lower (ph) as customers assimilate their investments.

In flat-panel displays, manufactures are focused on the upcoming LCD TV market expansion. With 8 gen-6 and gen-7 factories coming online over the next 6 to 12 months, the focus has shifted to cost and …