Applied Materials, Inc. Statement of Cash Flows Analysis

Applied Materials, Inc. Statement of Cash Flows Analysis

Analysis of Cash Flow from Operating Activities:

While Applied has maintained a positive cash flow from operations throughout all three years, there is a significant drop in cash flows from 2011-2013. A point of significance is the drop of net income from the same three years. Towards the end of fiscal 2011, the semiconductor, display, and solar industry was negatively impacted by uncertainty in the macroeconomic environment, along with overcapacity in the display and solar equipment industries.

Fiscal 2012 brought significant fluctuations in the semiconductor industry, in addition to a weak market environment in the display and solar equipment industry. Applied also completed the acquisition of Varian Semiconductor Equipment Associates in the first quarter of fiscal 2012. Consumer spending and industry spending and investment levels were also lower for fiscal 2012, due to a decreased capacity requirement for the display industry. The solar industry brought a period of excess manufacturing capacity, leading to a significant decrease in demand for crystalline-silicon (c-Si) equipment, as well as a weaker operating performance and outlook by the fourth quarter. The increase in marketing and selling expenses for fiscal 2012 compared to fiscal 2011 was primarily attributable to marketing and selling expenses incurred in connection with the acquisition of Varian. The increase of restructuring charges in 2012 were due to a new restructuring plan implemented by Applied to realign its global workforce and enhance its ability to invest for growth. Applied implemented a voluntary retirement program and other workforce reduction actions expected to affect 900 to 1,300 positions.

The semiconductor industry in fiscal 2013 continued to be affected by mobility, with demand strong in the first half of the fiscal year from foundry customers seeking advanced mobile chips, and weaker in the second half. The second half of the fiscal year brought along stronger demand from memory and logic customers. Fiscal 2013 also brought along recovering demand for TV manufacturing equipment, along with market growth for solar equipment. Solar equipment industry investment remained low due to excess manufacturing capacity. The decrease in marketing and selling expenses for fiscal 2013 compared to fiscal 2012 was primarily attributable to savings from restructuring programs along with a reduction in the bad debt provision during the year as a result of lower risk exposures in display and solar customers. The restructuring charges decreased from 2012 to 2013 due to a year passing from the time the new restructuring plan was implemented, and thus a decrease in costs followed. The decrease in cash from operating activities from fiscal 2012 to fiscal 2013 was primarily due to increases in accounts receivable and inventory balances. The increase in accounts receivable resulted from a higher proportion of shipments near the end of the year, while inventories grew to support projected customer demand.