The following management's discussion and analysis is provided in addition to
the accompanying consolidated condensed financial statements and notes, and for
a full understanding of Applied's results of operations and financial condition
should be read in conjunction with the consolidated condensed financial
statements and notes included in this Form 10-Q and the financial statements and
notes for the fiscal year ended October 25, 2020 contained in the Company's Form
10-K filed on December 11, 2020.
This report contains forward-looking statements that involve a number of risks
and uncertainties. Examples of forward-looking statements include those
regarding Applied's future financial or operating results, customer demand and
spending, end-user demand, Applied's and market and industry trends and
outlooks, the impact of the ongoing COVID-19 pandemic and responses thereto on
Applied's operations and financial results, cash flows and cash deployment
strategies, declaration of dividends, share repurchases, business strategies and
priorities, costs and cost controls, products, competitive positions,
management's plans and objectives for future operations, research and
development, strategic acquisitions and investments, growth opportunities,
restructuring and severance activities, backlog, working capital, liquidity,
investment portfolio and policies, taxes, supply chain, manufacturing,
properties, legal proceedings and claims, and other statements that are not
historical facts, as well as their underlying assumptions. Forward-looking
statements may contain words such as "may," "will," "should," "could," "would,"
"expect," "plan," "anticipate," "believe," "estimate," "intend," "potential" and
"continue," the negative of these terms, or other comparable terminology. All
forward-looking statements are subject to risks and uncertainties and other
important factors, including those discussed in Part II, Item 1A, "Risk
Factors," below and elsewhere in this report. These and many other factors could
affect Applied's future financial condition and operating results and could
cause actual results to differ materially from expectations based on
forward-looking statements made in this document or elsewhere by Applied or on
its behalf. Forward-looking statements are based on management's estimates,
projections and expectations as of the date hereof, and Applied undertakes no
obligation to revise or update any such statements.
Applied's Pandemic Response
Applied Materials' business has been identified by the U.S. Department of
Homeland Security as part of the Critical Infrastructure Sectors that the
Federal government deems "essential to ensure the continuity of functions
critical to public health and safety, as well as economic and national security"
and that have "a special responsibility in these times to continue operations."
Applied responded quickly to put in place precautionary measures to keep its
workplaces healthy and safe, while ensuring compliance with orders and
restrictions imposed by government authorities, everywhere Applied operates in
the world.
Applied's top priority during the ongoing COVID-19 pandemic remains protecting
the health and safety of its employees and their families, customers, suppliers
and community. Applied continues to maintain workplace flexibility such as
working remotely where possible to reduce the number of people who are on campus
each day and following enhanced safety and health protocols-including
screenings, social distancing, and use of personal protective equipment. Applied
is keeping its labs and operations active and continuing to support customers.
Applied has a multi-phase plan to return to working on-site, which takes into
consideration factors such as Applied's business needs, local government
regulations, community case trends, and recommendations from public health
officials. The plan involves multiple phases that gradually allow additional
workers to return onsite while practicing social distancing and other safety
measures.
Applied Materials is committed to helping those most impacted by the ongoing
COVID-19 pandemic. In regions around the world, Applied and its Foundation are
addressing immediate humanitarian needs while investing resources to combat the
long-term effect of the virus on the nonprofit organizations in its communities.
Applied has shared masks and equipment with medical facilities, provided blood
analysis systems to medical professionals, helped secure oxygen concentrators
for medical facilities and sent emergency support to food banks.
Applied will continue to monitor and evaluate the ongoing COVID-19 pandemic and
will work to respond appropriately to the impact of COVID-19 on its business,
its customers' and suppliers' businesses and its communities.
Kokusai Electric Corporation
On June 30, 2019, Applied entered into a Share Purchase Agreement (SPA) with
Kokusai Electric Corporation (Kokusai Electric) and KKR HKE Investment L.P.
(KKR) providing for Applied's acquisition of all outstanding shares of Kokusai
Electric. The SPA, as subsequently amended, terminated as of March 19, 2021.
Applied paid KKR a termination fee of $154 million during the three months ended
May 2, 2021.

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Overview
Applied provides manufacturing equipment, services and software to the
semiconductor, display, and related industries. Applied's customers include
manufacturers of semiconductor wafers and chips, liquid crystal and organic
light-emitting diode (OLED) displays, and other electronic devices. These
customers may use what they manufacture in their own end products or sell the
items to other companies for use in advanced electronic components. Each of
Applied's businesses is subject to variable industry conditions, as demand for
manufacturing equipment and services can change depending on supply and demand
for chips, display technologies, and other electronic devices, as well as other
factors, such as global economic and market conditions, and the nature and
timing of technological advances in fabrication processes.
Applied operates in three reportable segments: Semiconductor Systems, Applied
Global Services, and Display and Adjacent Markets. A summary of financial
information for each reportable segment is found in Note 17 of Notes to
Consolidated Condensed Financial Statements. A discussion of factors that could
affect Applied's operations is set forth under "Risk Factors" in Part II,
Item 1A, which is incorporated herein by reference. Product development and
manufacturing activities occur primarily in the United States, Europe, Israel,
and Asia. Applied's broad range of equipment and service products are highly
technical and are sold primarily through a direct sales force.
Applied's results are driven primarily by customer spending on capital equipment
and services to support key technology transitions or to increase production
volume in response to worldwide demand for semiconductors and displays. While
certain existing technologies may be adapted to new requirements, some
applications create the need for an entirely different technological approach.
The timing of customer investment in manufacturing equipment is also affected by
the timing of next-generation process development, and the timing of capacity
expansion to meet end-market demand. In light of these conditions, Applied's
results can vary significantly year-over-year, as well as quarter-over-quarter.

The following table presents certain significant measurements for the periods
indicated:

                                          Three Months Ended                               Six Months Ended
                                   May 2,                     April 26,                                      May 2,           April 26,
                                    2021                         2020                     Change              2021               2020               Change

                                              (In millions, except per

share amounts and percentages)



Net sales                    $         5,582                 $   3,957                $     1,625          $ 10,744          $   8,119          $     2,625

Gross margin                            47.5   %                  44.2  %               3.3 points             46.6  %            44.4  %         2.2 points
Operating income             $         1,579                 $     932                $       647          $  2,862          $   1,974          $       888
Operating margin                        28.3   %                  23.6  %               4.7 points             26.6  %            24.3  %         2.3 points
Net income                   $         1,330                 $     755                $       575          $  2,460          $   1,647          $       813
Earnings per diluted share   $          1.43                 $    0.82                $      0.61          $   2.66          $    1.78          $      0.88





Fiscal 2021 and 2020 contain 53 weeks and 52 weeks, respectively, and the first
six months of fiscal 2021 and 2020 contained 27 and 26 weeks, respectively.
COVID-19 was designated a pandemic during fiscal 2020 and the resulting
restrictions put in place worldwide impacted Applied's supply chains and
manufacturing operations. The semiconductor industry was deemed to be part of a
U.S. Critical Infrastructure Sector, allowing Applied to continue operations,
while ensuring compliance with orders and restrictions imposed by government
authorities by putting additional precautionary measures in place to keep its
workplaces healthy and safe, everywhere Applied operates in the world.
Even with the ongoing challenges faced during the pandemic, semiconductor
equipment customers continued to make strategic investments in new technology
transitions during the three and six months ended May 2, 2021. Foundry and logic
spending increased in the three and six months ended May 2, 2021 compared to the
same periods in the prior year driven by customer investment in both advanced
nodes and specialty devices. Spending by memory customers increased in the three
and six months ended May 2, 2021 compared to the same periods in the prior year,
as the industry continues to invest to maintain balance between supply and
demand. Applied saw continued growth in its services business compared to the
same period in the prior year driven by an increase in the installed base of
equipment and in long-term service agreements. Applied's display and adjacent
markets revenue increased in the three and six months ended May 2, 2021 compared
to the same periods in the prior year due to increased investment in display
manufacturing equipment for TVs.
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In response to the ongoing COVID-19 pandemic and evolving conditions and
worldwide response, Applied made adjustments to its global operations and
continues to see recovery within its supply chain and strong demand from
semiconductor customers. However, the situation remains fluid and uncertain.
Applied is actively managing its responses in collaboration with its employees,
customers and suppliers. For additional risks associated with the ongoing
COVID-19 pandemic, see the risk factor entitled "The ongoing COVID-19 pandemic
and global measures taken in response thereto have adversely impacted, and may
continue to adversely impact, Applied's operations and financial results" in
Part II, Item 1A, "Risk Factors."
Results of Operations
Net Sales
Net sales for the periods indicated were as follows:
                                            Three Months Ended                                                        Six Months Ended
                                   May 2,                            April 26,                                                    May 2,                          April 26,
                                    2021                                2020                                 Change                2021                             2020                     Change

                                                                             (In millions, except percentages)
Semiconductor Systems   $    3,972             71  %                     $ 2,567                65  %                      55  %       $  7,525               70  %       $ 5,381                66  %          40  %
Applied Global Services      1,203             22  %                       1,018                26  %                      18  %          2,358               22  %         2,015                25  %          17  %
Display and Adjacent
Markets                        375              7  %                         365                 9  %                       3  %            786                7  %           697                 9  %          13  %
Corporate and Other             32              -  %                           7                 -  %                     357  %             75                1  %            26                 -  %         188  %
Total                   $    5,582            100  %                     $ 3,957               100  %                      41  %       $ 10,744              100  %       $ 8,119               100  %          32  %




For the three and six months ended May 2, 2021 compared to the same periods in the prior year, net sales increased primarily due to increased customer investments in semiconductor equipment. The Semiconductor Systems segment continued to represent the largest contributor of total net sales. Net sales by geographic region, determined by the location of customers' facilities to which products were shipped, were as follows:


                                              Three Months Ended                                                        Six Months Ended
                                     May 2,                            April 26,                                                    May 2,                          April 26,
                                      2021                                2020                                 Change                2021                             2020                     Change

                                                                               (In millions, except percentages)
China                     $    1,844             33  %                     $ 1,138                29  %                      62  %       $  3,227               30  %       $ 2,410                30  %          34  %
Korea                          1,428             25  %                         753                19  %                      90  %          2,717               25  %         1,261                16  %         115  %
Taiwan                         1,041             19  %                       1,029                26  %                       1  %          2,241               21  %         2,394                29  %          (6) %
Japan                            442              8  %                         467                12  %                      (5) %            900                8  %           818                10  %          10  %
Southeast Asia                   109              2  %                          58                 1  %                      88  %            299                3  %           130                 1  %         130  %
Asia Pacific                   4,864             87  %                       3,445                87  %                      41  %          9,384               87  %         7,013                86  %          34  %
United States                    489              9  %                         331                 8  %                      48  %            832                8  %           772                10  %           8  %
Europe                           229              4  %                         181                 5  %                      27  %            528                5  %           334                 4  %          58  %
Total                     $    5,582            100  %                     $ 3,957               100  %                      41  %       $ 10,744              100  %       $ 8,119               100  %          32  %





The changes in net sales in all regions in the three and six months ended May 2,
2021 compared to the same periods in the prior year primarily reflected changes
in semiconductor equipment spending. In addition, the decrease in net sales to
customers in Taiwan for the six months ended May 2, 2021 compared to the same
period in the prior year were primarily due to decreases in investments in
semiconductor equipment, partially offset by increases in customer spending for
display manufacturing equipment and comprehensive service agreements.
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Gross margins for the periods indicated were as follows:
                                          Three Months Ended                                   Six Months Ended
                                 May 2,                     April 26,                                               May 2,               April 26,
                                  2021                        2020                             Change                2021                  2020                  Change



Gross margin                        47.5  %                       44.2  %                    3.3 points                46.6  %                 44.4  %         2.2 points


Gross margin in the three and six months ended May 2, 2021 increased compared to
the same periods in the prior year primarily due to the increase in net sales
and favorable changes in customer and product mix, partially offset by higher
freight costs and higher personnel costs due to increase in headcount to provide
manufacturing capacity and flexibility. Gross margin during the three months
ended May 2, 2021 and April 26, 2020 included $29 million and $24 million of
share-based compensation expense, respectively. Gross margin during the six
months ended May 2, 2021 and April 26, 2020 included $65 million and $55 million
of share-based compensation expense, respectively.
Research, Development and Engineering
Research, Development and Engineering (RD&E) expenses for the periods indicated
were as follows:
                                                 Three Months Ended                             Six Months Ended
                                          May 2,                   April 26,                                       May 2,           April 26,
                                           2021                      2020                         Change            2021              2020              Change

                                                                          (In millions)
Research, development and engineering  $      617                $      550                     $    67          $ 1,223          $    1,102          $ 

121




Applied's future operating results depend to a considerable extent on its
ability to maintain a competitive advantage in the equipment and service
products it provides. Development cycles range from 12 to 36 months depending on
whether the product is an enhancement of an existing product, which typically
has a shorter development cycle, or a new product, which typically has a longer
development cycle. Most of Applied's existing products resulted from internal
development activities and innovations involving new technologies, materials and
processes. In certain instances, Applied acquires technologies, either in
existing or new product areas, to complement its existing technology
capabilities and to reduce time to market.
Management believes that it is critical to continue to make substantial
investments in RD&E to assure the availability of innovative technology that
meets the current and projected requirements of its customers' most advanced
designs. Applied has maintained and intends to continue its commitment to
investing in RD&E in order to continue to offer new products and technologies.
The increases in RD&E expenses during the three and six months ended May 2, 2021
compared to the same periods in the prior year were primarily due to additional
headcount. These increases reflect Applied's ongoing investments in product
development initiatives, consistent with the Company's strategy. Applied
continued to prioritize existing RD&E investments in technical capabilities and
critical research and development programs in current and new markets, with a
focus on semiconductor technologies. RD&E expenses during the three months ended
May 2, 2021 and April 26, 2020 included $31 million and $27 million of
share-based compensation expense, respectively. RD&E expense during the six
months ended May 2, 2021 and April 26, 2020 included $71 million and $62 million
of share-based compensation expense, respectively.
Marketing and Selling
Marketing and selling expenses for the periods indicated were as follows:

                                              Three Months Ended                           Six Months Ended
                                       May 2,                   April 26,                                    May 2,           April 26,
                                        2021                      2020                     Change             2021              2020              Change

                                                                      (In millions)
Marketing and selling               $      148                $      130                $      18          $   295          $      265          $    30


Marketing and selling expenses for the three and six months ended May 2, 2021
increased compared to the same periods in fiscal 2020 primarily due to
additional headcount. Marketing and selling expenses during the three months
ended May 2, 2021 and April 26, 2020 included $10 million and $8 million of
share-based compensation expense, respectively. Marketing and selling expenses
during the six months ended May 2, 2021 and April 26, 2020 included $23 million
and $19 million of share-based compensation expense, respectively.
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General and Administrative
General and administrative (G&A) expenses for the periods indicated were as
follows:
                                            Three Months Ended                            Six Months Ended
                                     May 2,                   April 26,                                     May 2,            April 26,
                                      2021                      2020                     Change              2021               2020               Change

                                                                     (In millions)
General and administrative        $      149                $      137                $      12          $     310          $      266          $      44


G&A expenses in the three and six months ended May 2, 2021 increased compared to
the same periods in the prior year primarily due to additional headcount and
higher expense associated with business combination activities. G&A expenses
during the three months ended May 2, 2021 and April 26, 2020 included $14
million and $12 million of share-based compensation expense, respectively. G&A
expenses during the six months ended May 2, 2021 and April 26, 2020 included $32
million and $28 million of share-based compensation expense, respectively.
Severance and Related Charges
Severance and related charges for the periods indicated were as follows:
                                           Three Months Ended                          Six Months Ended
                                     May 2,                 April 26,                                   May 2,           April 26,
                                      2021                     2020                   Change             2021               2020             Change

                                                                   (In

millions)


Severance and related charges     $       6                $       -                $      6          $    158          $       -          $    158


In the first quarter of fiscal 2021, Applied enacted a severance plan (Fiscal
2021 Severance Plan) to realign its workforce. Under this plan, Applied
implemented a one-time voluntary retirement program and other workforce
reduction actions. The voluntary retirement program was available to certain
U.S. employees who met minimum age and length of service requirements, as well
as other business-specific criteria. In addition, Applied implemented other
workforce reduction actions globally across the Display and Adjacent Markets
business.
Deal Termination Fee
Deal termination fee for the periods indicated were as follows:
                                               Three Months Ended                           Six Months Ended
                                        May 2,                   April 26,                                   May 2,           April 26,
                                         2021                       2020                   Change             2021               2020             Change

                                                                      (In millions)
Deal termination fee                $        154                $       -                $    154          $    154          $       -          $    154



On June 30, 2019, Applied entered into a Share Purchase Agreement (SPA) with
Kokusai Electric Corporation (Kokusai Electric) and KKR HKE Investment L.P.
(KKR) providing for Applied's acquisition of all outstanding shares of Kokusai
Electric. The SPA, as subsequently amended, terminated as of March 19, 2021.
Applied paid KKR a termination fee of $154 million during the three months ended
May 2, 2021.
                                       41

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Table of Contents Interest Expense and Interest and Other Income (Loss), net Interest expense and interest and other income (loss), net for the periods indicated were as follows:


                                           Three Months Ended                           Six Months Ended
                                    May 2,                   April 26,                                   May 2,            April 26,
                                     2021                      2020                    Change             2021               2020              Change

                                                                   (In millions)
Interest expense                 $       61                $       61

$ - $ 122 $ 120 $ 2 Interest and other income (loss), net

$       27                $        7

$ 20 $ 45 $ 29 $ 16




Interest expense incurred was primarily associated with issued senior unsecured
notes. Interest expense in the three and six months ended May 2, 2021 remained
relatively flat compared to the same periods in the prior year.
Interest and other income, net in the three and six months ended May 2, 2021
increased compared to the same periods in the prior year, primarily driven by
higher net gain from investments, partially offset by lower interest income
during the three and six months ended May 2, 2021 compared to the same periods
in the prior year.
Income Taxes
Provision for income taxes and effective tax rates for the periods indicated
were as follows:
                                          Three Months Ended                                 Six Months Ended
                                May 2,                         April 26,                                        May 2,           April 26,
                                 2021                             2020                      Change               2021               2020                Change

                                                          (In millions, except percentages)
Provision for income taxes   $     215                        $     123                $          92          $    325          $     236          $    

89


Effective tax rate                13.9   %                         14.0  %               (0.1) points             11.7  %            12.5  %         

(0.8) points





Applied's provision for income taxes and effective tax rate are affected by the
geographical composition of pre-tax income which includes jurisdictions with
differing tax rates, conditional reduced tax rates and other income tax
incentives. It is also affected by events that are not consistent from period to
period, such as changes in income tax laws and the resolution of prior years'
income tax filings.
On December 27, 2020, the U.S. government enacted the Consolidated
Appropriations Act., and on March 11, 2021, it enacted the American Rescue Plan.
The enactment of these Acts does not result in any material adjustments to
Applied's provision for income taxes.
Applied's effective tax rates for the second quarter of fiscal 2021 and 2020
were 13.9 percent and 14.0 percent, respectively. The effective tax rate for the
second quarter of fiscal 2021 included establishment of valuation allowance
related to the Kokusai Electric termination fee. A valuation allowance of
$19 million was recorded to recognize only the portion of the termination fee
deferred tax asset that is more likely than not to be realized. The amount of
the deferred tax asset considered realizable, could be adjusted in future
quarters if estimates of future taxable income during the carryforward period
change.
Applied's effective tax rates for the first half of fiscal 2021 and 2020 were
11.7 percent and 12.5 percent, respectively. The effective tax rate for the
first half of fiscal 2021 was lower than the same period in the prior fiscal
year primarily due to a tax benefit related to severance and related charges
recorded in the first quarter of fiscal 2021. This tax benefit was partially
offset by the reduction in excess tax benefits from stock-based compensation in
the first quarter of fiscal 2021 and the valuation allowance noted above
recorded in the second quarter of fiscal 2021.
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Segment Information
Applied reports financial results in three segments: Semiconductor Systems,
Applied Global Services, and Display and Adjacent Markets. A description of the
products and services, as well as financial data, for each reportable segment
can be found in Note 17 of Notes to Consolidated Condensed Financial Statements.
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 for share-based compensation; certain management, finance, legal, human
resource, and RD&E functions provided at the corporate level; and unabsorbed
information technology and occupancy. In addition, Applied does not allocate to
its reportable segments restructuring, severance and asset impairment charges
and any associated adjustments related to restructuring actions, unless these
actions pertain to a specific reportable segment.
The results for each reportable segment are discussed below.
Semiconductor Systems Segment
The Semiconductor Systems segment is comprised primarily of capital equipment
used to fabricate semiconductor chips. Semiconductor industry spending on
capital equipment is driven by demand for advanced electronic products,
including smartphones and other mobile devices, servers, personal computers,
automotive electronics, storage, and other products, and the nature and timing
of technological advances in fabrication processes, and as a result is subject
to variable industry conditions. Development efforts are focused on solving
customers' key technical challenges in transistor, interconnect, patterning and
packaging performance as devices scale to advanced technology nodes.
Certain significant measures for the periods indicated were as follows:
                                     Three Months Ended                                        Six Months Ended
                          May 2,                   April 26,                                           May 2,              April 26,
                           2021                      2020                      Change                   2021                 2020                     Change

                                                       (In millions, except percentages and ratios)

Net sales             $     3,972                 $  2,567                      $ 1,405                       55  %       $  7,525          $ 5,381          $ 2,144                 40   %

Operating income      $     1,542                 $    782                      $   760                       97  %       $  2,803          $ 1,697          $ 1,106                 65   %
Operating margin             38.8   %                 30.5  %                                        8.3 points               37.2  %          31.5  %                         5.7 points





Net sales for Semiconductor Systems by end use application for the periods
indicated were as follows:
                                                 Three Months Ended                 Six Months Ended
                                                  May 2,                    April 26,              May 2,                April 26,
                                                   2021                        2020                 2021                    2020
Foundry, logic and other                                56  %                      56  %                 57  %                    62  %
Dynamic random-access memory (DRAM)                     14  %                      22  %                 16  %                    18  %
Flash memory                                            30  %                      22  %                 27  %                    20  %

                                                       100  %                     100  %                100  %                   100  %


Net sales for the three and six months ended May 2, 2021 increased compared to
the same periods in the prior year. Semiconductor equipment customers continued
to make strategic investments in new technology transitions during the first six
months of fiscal 2021. Foundry and logic spending increased, in absolute
dollars, in the three and six months ended May 2, 2021 compared to the same
periods in the prior year driven by customer investment in both advanced nodes
and specialty devices. Spending by memory customers also increased in the three
and six months ended May 2, 2021 compared to the same periods in the prior year.
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Operating margin for the three and six months ended May 2, 2021 increased
compared to the same periods in the prior year, primarily reflecting higher net
sales and favorable changes in customer and product mix, partially offset by
higher personnel costs due to the hiring of additional headcount to provide
manufacturing capacity and flexibility and higher freight costs. In the three
months ended May 2, 2021, two customers each accounted for at least 10 percent
of this segment's net sales, and together they accounted for approximately 51
percent of this segment's total net sales, with one customer accounting for
approximately 35 percent of net sales.
The following regions accounted for at least 30 percent of total net sales for
the Semiconductor Systems segment for one or more of the periods presented.

                                      Three Months Ended                                                          Six Months Ended
                             May 2,                               April 26,                                                 May 2,                          April 26,
                              2021                                   2020                              Change                2021                             2020                     Change

                                                                     (In millions, except percentages)
Korea          $     1,237                 31%                          $ 623            24%                          99  %       $ 2,363             31%           $   988             18%              139  %
Taiwan         $       808                 20%                          $ 815            32%                          (1) %       $ 1,779             24%           $ 1,993             37%              (11) %
China          $     1,214                 31%                          $ 582            23%                         109  %       $ 1,924             26%           $ 1,304             24%               48  %





Applied Global Services Segment
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 solar products.
Demand for Applied Global Services' service solutions are driven by Applied's
large and growing installed base of manufacturing systems, and customers' needs
to shorten ramp times, improve device performance and yield, and optimize
factory output and operating costs. Industry conditions that affect Applied
Global Services' sales of spares and services are primarily characterized by
increases in semiconductor manufacturers' wafer starts and continued strong
utilization rates, growth of the installed base of equipment, growing service
intensity of newer tools, and the Company's ability to sell more comprehensive
service agreements.
Certain significant measures for the periods indicated were as follows:
                                     Three Months Ended                                        Six Months Ended
                          May 2,                   April 26,                                          May 2,              April 26,
                           2021                      2020                      Change                  2021                 2020                    Change

                                                       (In millions, except percentages and ratios)

Net sales             $     1,203                 $  1,018                        $ 185                      18  %       $  2,358          $ 2,015          $ 343                 17   %

Operating income      $       358                 $    256                        $ 102                      40  %       $    690          $   534          $ 156                 29   %
Operating margin             29.8   %                 25.1  %              

                        4.7 points               29.3  %          26.5  %                       2.8 points





Net sales for the three and six months ended May 2, 2021 increased compared to
the same periods in the prior year primarily due to higher customer spending on
comprehensive service agreements and spares, partially offset by lower customer
spending on legacy systems. In addition, the increase in net sales for the six
months ended May 2, 2021 compared to the same period in the prior year included
the impact of an additional one week during the first quarter of fiscal 2021.
Operating margin for the three and six months ended May 2, 2021 compared to the
same periods in the prior year increased primarily due to higher net sales,
partially offset by higher expense related to an increase in headcount to
support business growth and higher freight costs. In the three months ended
May 2, 2021, two customers accounted for more than 10 percent of this segment's
total net sales.
There was no single region that accounted for at least 30 percent of total net
sales for the Applied Global Services segment for any of the periods presented.

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Display and Adjacent Markets Segment
The Display and Adjacent Markets segment encompasses products for manufacturing
liquid crystal and OLED displays, and other display technologies for TVs,
monitors, laptops, personal computers, electronic tablets, smart phones, and
other consumer-oriented devices, equipment upgrades and flexible coating
systems. The segment is focused on expanding its presence through
technologically-differentiated equipment for manufacturing large-scale LCD TVs,
OLEDs, low temperature polysilicon (LTPS), metal oxide, and touch panel sectors;
and development of products that provide customers with improved performance and
yields.
Display industry growth depends primarily on consumer demand for increasingly
larger and more advanced TVs as well as larger and higher resolution displays
for next generation mobile devices. Uneven spending patterns by customers in the
Display and Adjacent Markets segment can cause significant fluctuations
quarter-over-quarter, as well as year-over-year.
Certain significant measures for the periods presented were as follows:
                                        Three Months Ended                                           Six Months Ended
                           May 2,                      April 26,                                             May 2,               April 26,
                            2021                         2020                       Change                    2021                  2020                    Change

                                                            (In millions,

except percentages and ratios)



Net sales               $    375                      $    365                          $  10                         3  %       $    786          $  697          $  89                  13   %

Operating income        $     65                      $     75                          $ (10)                      (13) %       $    130          $  113          $  17                  15   %
Operating margin            17.3   %                      20.5  %                                         (3.2) points               16.5  %         16.2  %                        0.3 points





Net sales for the three months ended May 2, 2021 increased slightly compared to
the same period in the prior year primarily due to higher customer investment in
display manufacturing equipment for TV's, partially offset by a decrease in
customer investments in display manufacturing equipment for mobile products. Net
sales for the six months ended May 2, 2021 increased compared to the same period
in the prior year primarily due to higher customer investment in display
manufacturing equipment for TVs. Operating margin for the three months ended
May 2, 2021 decreased compared to the same period in the prior year primarily
due to unfavorable product mix, partially offset by higher net sales. Operating
margin for the six months ended May 2, 2021 increased compared to the same
period in the prior year due to higher net sales. In the three months ended
May 2, 2021, two customers each accounted for at least 30 percent of this
segment's net sales, and together they accounted for approximately 66 percent of
this segment's total net sales.
The following region accounted for at least 30 percent of total net sales for
the Display and Adjacent Markets segment for one or more of the periods
presented:

                           Three Months Ended                                          Six Months Ended
                   May 2,                          April 26,                                         May 2,             April 26,
                    2021                             2020                            Change           2021                2020            Change

                                                (In millions, except percentages)
China   $      315               84%                     $ 312           85%                      1%     $ 652       83%      $ 616        88%        6%






                                       45

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Table of Contents Financial Condition, Liquidity and Capital Resources Applied's cash, cash equivalents and investments consist of the following:



                                                May 2,       October 25,
                                                 2021            2020

                                                      (In millions)
Cash and cash equivalents                      $ 6,305      $      5,351
Short-term investments                             460               387
Long-term investments                            1,569             1,538

Total cash, cash-equivalents and investments $ 8,334 $ 7,276




Sources and Uses of Cash
A summary of cash provided by (used in) operating, investing, and financing
activities is as follows:

                                                           Six Months Ended
                                                   May 2, 2021       April 26, 2020

                                                            (In millions)
Cash provided by operating activities             $      2,608      $       

1,622

Cash provided by (used in) investing activities $ (435) $

3

Cash provided by (used in) financing activities $ (1,226) $

642

Kokusai Electric Corporation
On June 30, 2019, Applied entered into a Share Purchase Agreement (SPA) with
Kokusai Electric Corporation (Kokusai Electric) and KKR HKE Investment L.P.
(KKR) providing for Applied's acquisition of all outstanding shares of Kokusai
Electric. The SPA, as subsequently amended, terminated as of March 19, 2021.
Applied paid KKR a termination fee of $154 million during the three months ended
May 2, 2021.
Operating Activities
Cash from operating activities for the six months ended May 2, 2021 was $2.6
billion, which reflects net income adjusted for the effect of non-cash charges
and changes in working capital components. Non-cash charges included
depreciation, amortization, severance and related charges, share-based
compensation and deferred income taxes. Cash provided by operating activities
increased in the first six months of fiscal 2021 compared to the same period in
the prior year primarily due to higher net income, partially offset by higher
payments to suppliers and variable compensation.
Applied has agreements with various financial institutions to sell accounts
receivable and discount promissory notes from selected customers. Applied sells
its accounts receivable generally without recourse. Applied, from time to time,
also discounts letters of credit issued by customers through various financial
institutions. The discounting of letters of credit depends on many factors,
including the willingness of financial institutions to discount the letters of
credit and the cost of such arrangements. Applied sold $671 million and $364
million of accounts receivable during the six months ended May 2, 2021 and
April 26, 2020, respectively. Applied did not discount letters of credit issued
by customers or discount promissory notes during the six months ended May 2,
2021 and April 26, 2020.
Applied's working capital was $10.1 billion as of May 2, 2021 and $8.9 billion
as of October 25, 2020.


Days sales outstanding for the three months ended May 2, 2021 and April 26, 2020
were 55 days and 60 days, respectively. Days sales outstanding varies due to the
timing of shipments and payment terms. The decrease in days sales outstanding
was primarily due to higher revenue and accounts receivable factoring compared
to the same period in the prior year, partially offset by unfavorable revenue
linearity.
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Investing Activities
Applied used $435 million of cash in investing activities during the six months
ended May 2, 2021. Capital expenditures totaled $325 million, net cash paid for
an immaterial acquisition was $12 million and purchases of investments, net of
proceeds from sales and maturities of investments were $98 million during the
six months ended May 2, 2021.
Applied's investment portfolio consists principally of investment grade money
market mutual funds, U.S. Treasury and agency securities, municipal bonds,
corporate bonds and mortgage-backed and asset-backed securities, as well as
equity securities. Applied regularly monitors the credit risk in its investment
portfolio and takes appropriate measures, which may include the sale of certain
securities, to manage such risks prudently in accordance with its investment
policies.
Financing Activities
Applied used $1,226 million of cash in financing activities during the six
months ended May 2, 2021, consisting primarily of cash used for repurchases of
common stock of $750 million, dividends to stockholders of $403 million and tax
withholding payments for vested equity awards of $159 million, partially offset
by proceeds from common stock issuance of $86 million.
In March 2021 and December 2020, Applied's Board of Directors declared quarterly
cash dividends, in the amount of $0.24 and $0.22 per share, respectively. The
dividend declared in March 2021 is payable in June 2021. Applied currently
anticipates that cash dividends will continue to be paid on a quarterly basis,
although the declaration of any future cash dividend is at the discretion of the
Board of Directors and will depend on Applied's financial condition, results of
operations, capital requirements, business conditions and other factors, as well
as a determination by the Board of Directors that cash dividends are in the best
interests of Applied's stockholders.
In March 2021, Applied's Board of Directors approved a common stock repurchase
program authorizing $7.5 billion in repurchases. This authorized repurchase
program supplemented the previously existing authorization, which has
approximately $525 million remaining as of May 2, 2021. As of May 2, 2021,
approximately $8.0 billion, in aggregate, remained available for future stock
repurchases under these repurchase programs.
Applied has credit facilities for unsecured borrowings in various currencies of
up to $1.6 billion, of which $1.5 billion is comprised of a committed revolving
credit agreement (Revolving Credit Agreement) with a group of banks. The
Revolving Credit Agreement includes a provision under which Applied may request
an increase in the amount of the facility of up to $500 million for a total
commitment of no more than $2.0 billion, subject to the receipt of commitments
from one or more lenders for any such increase and other customary conditions.
The Revolving Credit Agreement is scheduled to expire in February 2025, unless
extended as permitted under the Revolving Credit Agreement. The Revolving Credit
Agreement provides for borrowings in United States dollars that bear interest
for each advance at one of two rates selected by Applied, plus an applicable
margin, which varies according to Applied's public debt credit ratings. The
Revolving Credit Agreement includes financial and other covenants with which
Applied was in compliance as of May 2, 2021.
Remaining credit facilities in the amount of approximately $74 million are with
Japanese banks. Applied's ability to borrow under these facilities is subject to
bank approval at the time of the borrowing request, and any advances will be at
rates indexed to the banks' prime reference rate denominated in Japanese yen.
No amounts were outstanding under any of these facilities at both May 2, 2021
and October 25, 2020.
In August 2019, Applied entered into a term loan credit agreement (Term Loan
Credit Agreement) with a group of lenders under which the lenders committed to
make an unsecured term loan to Applied of up to $2.0 billion to finance in part
Applied's planned acquisition of all outstanding shares of Kokusai Electric, to
pay related transaction fees and expenses and for general corporate purposes. In
March 2021, the Term Loan Credit Agreement, as subsequently amended, terminated
automatically in accordance with its terms upon the termination of the SPA. No
amounts were borrowed under the Term Loan Credit Agreement at both May 2, 2021
and October 25, 2020.
Applied has a short-term commercial paper program under which Applied may issue
unsecured commercial paper notes of up to a total amount $1.5 billion. As of
May 2, 2021, Applied did not have any commercial paper outstanding but may issue
commercial paper notes under this program from time to time in the future. The
commercial paper program is backstopped by the Revolving Credit Agreement and
borrowings under the Revolving Credit Agreement reduce the amount of commercial
paper notes Applied can issue.
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In May 2020, Applied issued $750 million aggregate principal amount of 1.750%
senior unsecured notes due 2030 and $750 million aggregate principal amount of
2.750% senior unsecured notes due 2050, in a registered public offering. In June
2020, Applied used a portion of the net proceeds from the offering to redeem the
outstanding $600 million in aggregate principal amount of its 2.625% senior
unsecured notes due October 1, 2020 and $750 million in aggregate principal
amount of its 4.300% senior unsecured notes due June 15, 2021, at a total
aggregate redemption price of $1.4 billion. As a result, Applied recognized a
$33 million loss on early extinguishment of these senior unsecured notes during
the third quarter of fiscal 2020.
Applied had senior unsecured notes in the aggregate principal amount of $5.5
billion outstanding as of May 2, 2021. See Note 11 of the Notes to the
Consolidated Condensed Financial Statements for additional discussion of
existing debt. Applied may seek to refinance its existing debt and may incur
additional indebtedness depending on Applied's capital requirements and the
availability of financing.
In the ordinary course of business, Applied provides standby letters of credit
or other guarantee instruments to third parties as required for certain
transactions initiated by either Applied or its subsidiaries. As of May 2, 2021,
the maximum potential amount of future payments that Applied could be required
to make under these guarantee agreements was approximately $346 million. Applied
has not recorded any liability in connection with these guarantee agreements
beyond that required to appropriately account for the underlying transaction
being guaranteed. Applied does not believe, based on historical experience and
information currently available, that it is probable that any amounts will be
required to be paid under these guarantee agreements.
Applied also has agreements with various banks to facilitate subsidiary banking
operations worldwide, including overdraft arrangements, issuance of bank
guarantees, and letters of credit. As of May 2, 2021, Applied has provided
parent guarantees to banks for approximately $146 million to cover these
arrangements.
Others
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax
Act). The Tax Act requires a one-time transition tax on certain unrepatriated
earnings of foreign subsidiaries. The transition tax expense is payable in
installments over eight years, with eight percent due in each of the first five
years starting with fiscal 2018. As of May 2, 2021, Applied had $775 million of
total payments remaining, payable in installments in the next five years. Before
the Tax Act, U.S. income tax had not been provided for certain unrepatriated
earnings that were considered indefinitely reinvested. Income tax is now
provided for all unrepatriated earnings.
Although cash requirements will fluctuate based on the timing and extent of
factors such as those discussed above, Applied's management believes that cash
generated from operations, together with the liquidity provided by existing cash
balances and borrowing capability, will be sufficient to satisfy Applied's
liquidity requirements for the next 12 months. For further details regarding
Applied's operating, investing and financing activities, see the Consolidated
Condensed Statements of Cash Flows in this report.
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Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported. Note 1 of Notes to Consolidated Financial
Statements in Applied's Annual Report on Form 10-K and Note 1 of Notes to
Consolidated Condensed Financial Statements in this report describe the
significant accounting policies used in the preparation of the consolidated
financial statements. Certain of these significant accounting policies are
considered to be critical accounting policies.
A critical accounting policy is defined as one that is both material to the
presentation of Applied's consolidated financial statements and that requires
management to make difficult, subjective or complex judgments that could have a
material effect on Applied's financial condition or results of operations.
Specifically, these policies have the following attributes: (1) Applied is
required to make assumptions about matters that are highly uncertain at the time
of the estimate; and (2) different estimates Applied could reasonably have used,
or changes in the estimate that are reasonably likely to occur, would have a
material effect on Applied's financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be
determined with certainty. Applied bases its estimates on historical experience
and on various other assumptions believed to be applicable and reasonable under
the circumstances. These estimates may change as new events occur, as additional
information is obtained and as Applied's operating environment changes. These
changes have historically been minor and have been included in the consolidated
financial statements as soon as they became known. In addition, management is
periodically faced with uncertainties, the outcomes of which are not within its
control and will not be known for prolonged periods of time. These uncertainties
include those discussed in Part II, Item 1A, "Risk Factors." Based on a critical
assessment of its accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, management believes
that Applied's consolidated financial statements are fairly stated in accordance
with accounting principles generally accepted in the United States of America,
and provide a meaningful presentation of Applied's financial condition and
results of operations.
Management believes that the following are critical accounting policies and
estimates:
Revenue Recognition
Applied recognizes revenue when promised goods or services (performance
obligations) are transferred to a customer in an amount that reflects the
consideration to which Applied expects to be entitled in exchange for those
goods or services. Applied performs the following five steps to determine when
to recognize revenue: (1) identification of the contract(s) with customers, (2)
identification of the performance obligations in the contract, (3) determination
of the transaction price, (4) allocation of the transaction price to the
performance obligations in the contract, and (5) recognition of revenue when, or
as, a performance obligation is satisfied. Management uses judgment to identify
performance obligations within a contract and to determine whether multiple
promised goods or services in a contract should be accounted for separately or
as a group. Judgment is also used in interpreting commercial terms and
determining when transfer of control occurs. Moreover, judgment is used to
estimate the contract's transaction price and allocate it to each performance
obligation. Any material changes in the identification of performance
obligations, determination and allocation of the transaction price to
performance obligations, and determination of when transfer of control occurs to
the customer, could impact the timing and amount of revenue recognition, which
could have a material effect on Applied's financial condition and results of
operations.
Warranty Costs
Applied provides for the estimated cost of warranty when revenue is recognized.
Estimated warranty costs are determined by analyzing specific product, current
and historical configuration statistics and regional warranty support costs.
Applied's warranty obligation is affected by product and component failure
rates, material usage and labor costs incurred in correcting product failures
during the warranty period. As Applied's customer engineers and process support
engineers are highly trained and deployed globally, labor availability is a
significant factor in determining labor costs. The quantity and availability of
critical replacement parts is another significant factor in estimating warranty
costs. Unforeseen component failures or exceptional component performance can
also result in changes to warranty costs. If actual warranty costs differ
substantially from Applied's estimates, revisions to the estimated warranty
liability would be required, which could have a material adverse effect on
Applied's business, financial condition and results of operations.
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Allowance for Credit Losses
Applied maintains an allowance for credit losses for estimated losses resulting
from the inability of its customers to make required payments. This allowance is
based on historical experience, credit evaluations, specific customer collection
history and any customer-specific issues Applied has identified. Changes in
circumstances, such as an unexpected material adverse change in a major
customer's ability to meet its financial obligation to Applied or its payment
trends, may require Applied to further adjust its estimates of the
recoverability of amounts due to Applied, which could have a material adverse
effect on Applied's business, financial condition and results of operations.
Inventory Valuation
Inventories are generally stated at the lower of cost or net realizable value,
with cost determined on a first-in, first-out (FIFO) basis. The carrying value
of inventory is reduced for estimated obsolescence by the difference between its
cost and the estimated net realizable value based upon assumptions about future
demand. Applied evaluates the inventory carrying value for potential excess and
obsolete inventory exposures by analyzing historical and anticipated demand. In
addition, inventories are evaluated for potential obsolescence due to the effect
of known and anticipated engineering change orders and new products. If actual
demand were to be substantially lower than estimated, additional adjustments for
excess or obsolete inventory may be required, which could have a material
adverse effect on Applied's business, financial condition and results of
operations.
Goodwill and Intangible Assets
Applied reviews goodwill and intangible assets for impairment annually during
the fourth quarter of each fiscal year and whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The process of evaluating the potential impairment of goodwill and
intangible assets requires significant judgment, especially in emerging markets.
When reviewing goodwill for impairment, Applied first performs a qualitative
assessment to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying value.
In performing a qualitative assessment, Applied considers business conditions
and other factors including, but not limited to (i) adverse industry or economic
trends, (ii) restructuring actions and lower projections that may impact future
operating results, (iii) sustained decline in share price, and (iv) overall
financial performance and other events affecting the reporting units. If Applied
concludes that is more likely than not that the fair value of a reporting unit
is less than its carrying amount, then a quantitative impairment test is
performed by estimating the fair value of the reporting unit and comparing it to
its carrying value. If the carrying value of a reporting unit exceeds its fair
value, Applied would record an impairment charge equal to the excess of the
carrying value of the reporting unit's goodwill over its fair value.
Applied determines the fair value of each reporting unit based on a weighting of
an income and a market approach. Applied bases the fair value estimates on
assumptions that it believes to be reasonable but that are unpredictable and
inherently uncertain. Under the income approach, Applied estimates the fair
value based on discounted cash flow method.
The estimates used in the impairment testing are consistent with the discrete
forecasts that Applied uses to manage its business, and considers any
significant developments during the period. Under the discounted cash flow
method, cash flows beyond the discrete forecasts are estimated using a terminal
growth rate, which considers the long-term earnings growth rate specific to the
reporting units. The estimated future cash flows are discounted to present value
using each reporting unit's weighted average cost of capital. The weighted
average cost of capital measures a reporting unit's cost of debt and equity
financing weighted by the percentage of debt and equity in a reporting unit's
target capital structure. In addition, the weighted average cost of capital is
derived using both known and estimated market metrics, and is adjusted to
reflect both the timing and risks associated with the estimated cash flows. The
tax rate used in the discounted cash flow method is the median tax rate of
comparable companies and reflects Applied's current international structure,
which is consistent with the market participant perspective. Under the market
approach, Applied uses the guideline company method which applies market
multiples to forecasted revenues and earnings before interest, taxes,
depreciation and amortization. Applied uses market multiples that are consistent
with comparable publicly-traded companies and considers each reporting unit's
size, growth and profitability relative to its comparable companies.
Intangible assets, such as purchased technology, are generally recorded in
connection with a business acquisition. The value assigned to intangible assets
is usually based on estimates and judgments regarding expectations for the
success and life cycle of products and technology acquired. If actual product
acceptance differs significantly from the estimates, Applied may be required to
record an impairment charge to reduce the carrying value of the reporting unit
to its estimated fair value.
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Income Taxes
Applied's provision for income taxes and effective tax rate are affected by the
geographical composition of pre-tax income which includes jurisdictions with
differing tax rates, conditional reduced tax rates and other income tax
incentives. It is also affected by events that are not consistent from period to
period, such as changes to income tax laws and the resolution of prior years'
income tax filings. Applied recognizes a current tax liability for the estimated
amount of income tax payable on tax returns for the current fiscal year.
Deferred tax assets and liabilities are recognized for the estimated future tax
effects of temporary differences between the book and tax bases of assets and
liabilities. Deferred tax assets are also recognized for net operating loss and
tax credit carryforwards. Deferred tax assets are offset by a valuation
allowance to the extent it is more likely than not that they are not expected to
be realized.
Applied recognizes tax benefits from uncertain tax positions only if it is more
likely than not that the tax position will be sustained upon examination by the
taxing authorities based on the technical merits of the position. The tax
benefits recognized from such positions are estimated based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. Any changes in judgment related to uncertain tax positions are
recognized in Applied's provision for income taxes in the quarter in which such
change occurs. Interest and penalties related to uncertain tax positions are
recognized in Applied's provision for income taxes.
The calculation of Applied's provision for income taxes and effective tax rate
involves significant judgment in estimating the impact of uncertainties in the
application of complex tax laws. Resolution of these uncertainties in a manner
inconsistent with Applied's expectations could have an adverse material impact
on Applied's results of operations and financial condition.
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Non-GAAP Adjusted Financial Results
Management uses non-GAAP adjusted financial measures to evaluate the Company's
operating and financial performance and for planning purposes, and as
performance measures in its executive compensation program. Applied believes
these measures enhance an overall understanding of its performance and
investors' ability to review the Company's business from the same perspective as
the Company's management and facilitate comparisons of this period's results
with prior periods on a consistent basis by excluding items that management does
not believe are indicative of Applied's ongoing operating performance.
The non-GAAP adjusted financial measures presented below are adjusted to exclude
the impact of certain costs, expenses, gains and losses, including certain items
related to mergers and acquisitions; restructuring and severance charges and any
associated adjustments; certain incremental expenses related to COVID-19;
impairments of assets; gain or loss on strategic investments; loss on early
extinguishment of debt; certain income tax items and other discrete adjustments.
On a non-GAAP basis, the tax effect related to share-based compensation is
recognized ratably over the fiscal year. Additionally, non-GAAP results exclude
estimated discrete income tax expense items associated with U.S. tax
legislation. Reconciliations of these non-GAAP measures to the most directly
comparable financial measures calculated and presented in accordance with GAAP
are provided in the financial tables presented below. There are limitations in
using non-GAAP financial measures because the non-GAAP financial measures are
not prepared in accordance with generally accepted accounting principles, may be
different from non-GAAP financial measures used by other companies, and may
exclude certain items that may have a material impact upon our reported
financial results. The presentation of this additional information is not meant
to be considered in isolation or as a substitute for the directly comparable
financial measures prepared in accordance with GAAP.
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The following tables present a reconciliation of the GAAP and non-GAAP adjusted
consolidated results:

                            APPLIED MATERIALS, INC.
         UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
                                                                Three Months Ended            Six Months Ended
                                                                  May 2,                 April 26,          May 2,          April 26,
(In millions, except percentages)                                  2021                    2020              2021             2020
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis                             $   2,653                $  1,749          $ 5,002          $  3,607
Certain items associated with acquisitions1                            7                       8               15                17
Certain incremental expenses related to COVID-192                      -                       8               12                 8

Other charges                                                          2                       -                2                 -
Non-GAAP adjusted gross profit                                 $   2,662                $  1,765          $ 5,031          $  3,632
Non-GAAP adjusted gross margin                                      47.7  %                 44.6  %          46.8  %           44.7  %
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                         $   1,579                $    932          $ 2,862          $  1,974
Certain items associated with acquisitions1                           12                      13               25                26
Acquisition integration and deal costs                                11                      21               35                34
Certain incremental expenses related to COVID-192                      -                      10               24                10

Severance and related charges3                                         6                       -              158                 -

Deal termination fee                                                 154                       -              154                 -
Other charges                                                          6                       -                6                 -
Non-GAAP adjusted operating income                             $   1,768                $    976          $ 3,264          $  2,044
Non-GAAP adjusted operating margin                                  31.7  %                 24.7  %          30.4  %           25.2  %
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis                               $   1,330                $    755          $ 2,460          $  1,647
Certain items associated with acquisitions1                           12                      13               25                26
Acquisition integration and deal costs                                12                      21               36                34

Certain incremental expenses related to COVID-192                      -                      10               24                10
Severance and related charges3                                         6                       -              158                 -
Deal termination fee                                                 154                       -              154                 -
Realized loss (gain) on strategic investments, net                     6                       5                4                 7
Unrealized loss (gain) on strategic investments, net                 (26)                      2              (32)                4

Other charges                                                          6                       -                6                 -

Income tax effect of share-based compensation4                         6                       8              (23)              (25)

Income tax effects related to intra-entity intangible asset transfers

                                                       17                      16               37                37

Resolution of prior years' income tax filings and other tax items

                                                            (10)                     (3)             (13)               (4)
Income tax effect of non-GAAP adjustments5                            (4)                    (10)             (45)              (15)
Non-GAAP adjusted net income                                   $   1,509                $    817          $ 2,791          $  1,721

1 These items are incremental charges attributable to completed acquisitions, consisting

of amortization of purchased intangible assets.

2 Temporary incremental employee compensation during the COVID-19 pandemic. 3 The severance and related charges primarily related to a one-time voluntary retirement

program offered to certain eligible employees. 4 GAAP basis tax benefit related to share-based compensation is recognized ratably over

the fiscal year on a non-GAAP basis.

5 Adjustment to provision for income taxes related to non-GAAP adjustments reflected in

income before income taxes.


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                            APPLIED MATERIALS, INC.
         UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS


                                                               Three Months Ended            Six Months Ended
                                                                May 2,                   April 26,           May 2,           April 26,
(In millions, except per share amounts)                          2021                      2020               2021              2020

Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis              $   1.43                $    0.82             $ 2.66          $     1.78
Certain items associated with acquisitions                        0.01                     0.01               0.02                0.02
Acquisition integration and deal costs                            0.01                     0.02               0.03                0.04
Certain incremental expenses related to COVID-19                     -                     0.01               0.02                0.01

Severance and related charges                                     0.01                        -               0.13                   -
Deal termination fee                                              0.17                        -               0.17                   -
Realized loss (gain) on strategic investments, net                0.01                     0.01                  -                0.01
Unrealized loss (gain) on strategic investments, net             (0.03)                       -              (0.02)                  -

Income tax effect of share-based compensation                     0.01                     0.01              (0.02)              (0.03)

Income tax effects related to intra-entity intangible asset transfers

                                                   0.02                     0.02               0.04                0.04

Resolution of prior years' income tax filings and other tax items

                                                        (0.01)                   (0.01)             (0.01)              (0.01)

Non-GAAP adjusted earnings per diluted share                  $   1.63                $    0.89             $ 3.02          $     1.86
Weighted average number of diluted shares                             927                         923             926                 925


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The following table presents a reconciliation of the GAAP and non-GAAP adjusted
segment results:

                            APPLIED MATERIALS, INC.
         UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

                                                                Three Months Ended            Six Months Ended
                                                                  May 2,                 April 26,          May 2,          April 26,
(In millions, except percentages)                                  2021                    2020              2021             2020

Semiconductor Systems Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis

$   1,542                $    782          $ 2,803          $  1,697
Certain items associated with acquisitions1                           10                      10               20                20
Acquisition integration costs                                          -                       -               (2)                -
Certain incremental expenses related to COVID-192                      -                       6               12                 6

Other charges                                                          3                       -                3                 -
Non-GAAP adjusted operating income                             $   1,555                $    798          $ 2,836          $  1,723
Non-GAAP adjusted operating margin                                  39.1  %                 31.1  %          37.7  %           32.0  %
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis                         $     358                $    256          $   690          $    534

Certain incremental expenses related to COVID-192                      -                       4                8                 4

Other charges                                                          1                       -                1                 -
Non-GAAP adjusted operating income                             $     359                $    260          $   699          $    538
Non-GAAP adjusted operating margin                                  29.8  %                 25.5  %          29.6  %           26.7  %

Display and Adjacent Markets Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis

$      65                $     75          $   130          $    113
Certain items associated with acquisitions1                            1                       3                2                 6

Certain incremental expenses related to COVID-192                      -                       -                1                 -
Severance and related charges3                                         -                       -                8                 -
Non-GAAP adjusted operating income                             $      66                $     78          $   141          $    119
Non-GAAP adjusted operating margin                                  17.6  %                 21.4  %          17.9  %           17.1  %


1 These items are incremental charges attributable to completed acquisitions, consisting

of amortization of purchased intangible assets.

2 Temporary incremental employee compensation during the COVID-19 pandemic. 3 The severance and related charges related to workforce reduction actions globally

across the Display and Adjacent Markets business.




Note: The reconciliation of GAAP and non-GAAP adjusted segment results above
does not include certain revenues, costs of products sold and operating expenses
that are reported within corporate and other and included in consolidated
operating income.


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