FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (MF Raleigh)

APPLIED MATERIALS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %>
3050 Bowers Ave.
Santa Clara, CA 95054-3299
(408) 727-5555
http://www.appliedmaterials.com

ALEXANDRIA, Va., Nov. 25, 1996 /FOOLWIRE/ --Applied Materials, Inc. reported on November 21 results for its fiscal year ended October 27, 1996, with record net sales of $4.1 billion, an increase of 35.4 percent from fiscal 1995 net sales of $3.1 billion. Net income for fiscal 1996 increased 32.1 percent to $599.6 million, or $3.27 per share, from $454.1 million, or $2.56 per share, for fiscal 1995. New orders increased 10.3 percent in fiscal 1996 to $4.3 billion, from $3.9 billion in fiscal 1995. Backlog at the end of fiscal 1996 was $1.4 billion, down from $1.5 billion at the end of fiscal 1995.

The Company also announced results for its fourth fiscal quarter ended October 27, 1996, with net sales of $861.0 million, a decrease of 12.4 percent from net sales of $982.7 million for the fourth fiscal quarter of 1995. Net income for the fourth fiscal quarter of 1996 was $73.1 million, or $0.40 per share, a decrease of 53.0 percent, from $155.4 million, or $0.84 per share, for the fourth fiscal quarter of 1995. The Company's results of operations for the fourth fiscal quarter of 1996 include a pre-tax restructuring charge of $25.1 million, or $0.09 per share after-tax, to cover costs associated with a reduction in workforce and consolidation of certain facilities.

The Company's results for the fourth fiscal quarter of 1996 continued to be impacted by the downturn in the semiconductor industry, but were in line with management's expectations. New orders of $683.2 million were received during the fourth fiscal quarter, down 42.9 percent from $1.2 billion in the fourth fiscal quarter of 1995 and down from third fiscal quarter orders of $931.3 million. Significant decreases from third quarter orders were seen in Europe and Asia-Pacific. Geographically, North America new orders for the fourth fiscal quarter comprised 42 percent of the Company's total, Europe 17 percent, Japan 26 percent, Korea 5 percent and Asia-Pacific 10 percent.

Net sales for the fourth quarter of $861.0 million decreased 22.8 percent from third fiscal quarter net sales of $1.1 billion and net income of $73.1 million decreased 56.8 percent from third fiscal quarter net income of $169.1 million. For the fourth fiscal quarter of 1996, net income before the restructuring charge represented 10.4 percent of net sales. Gross margins for the fourth fiscal quarter of 1996 were 44.1 percent, versus 47.7 percent for the third fiscal quarter of 1996. Gross margin was affected by lower production and capacity utilization while revenues were comprised of a greater percentage of lower-margin service and spare parts revenues.

The Company's financial condition remained strong as of October 27, 1996, with total assets of $3.6 billion, cash and short-term investments of $1.0 billion, a ratio of current assets to current liabilities of 2.9 to 1 and a total debt to capital ratio of 13.7 percent. The Company's focus on asset management resulted in a decrease in accounts receivable and inventory of $206.4 million during the fourth fiscal quarter of 1996.

"Looking forward, we believe the industry downturn could extend through the early part of 1997, with the last half of 1997 still uncertain. We are cautiously optimistic that memory device prices and inventory levels are stabilizing in our customers' business," said James C. Morgan, chairman and chief executive officer. "Applied Materials has always used industry slowdowns to strongly position the Company for long-term growth. At present, most of our new products introduced during the past year are being considered by our customers as they prepare for their next phase of technology evolution. During the remainder of the downturn, we will leverage our balanced global presence, broad product line, technical strength and financial resources to develop world-class technology, provide superior global support and seek to increase our market share.

"In keeping with our commitment to technology leadership and product excellence, Applied Materials introduced several key new systems during the fourth fiscal quarter. These systems include the DxZ Optima platform for high-volume CVD applications, as well as the Liner TxZ Centura, a fully integrated CVD-PVD system for advanced multi-level metallization schemes. These introductions follow the second quarter release of the Metal Etch DPS Centura system and Vectra Ion Metal Plasma technology for the manufacture of critical interconnect structures on advanced logic and memory devices. We have also announced plans to build a state-of-the-art European Technical Center in Newcastle, England, and to expand the infrastructure of our Korea and Asia-Pacific operations."

FINANCIAL COMMENTS

Gross margin for the year reached 47%, up one percentage point from 1995. Pre-tax income was $922 million, or 22.6% of revenues. Pre-tax income increased 32% from last year. Net margin was 14.5% of sales and EPS increased 28%.

Before the restructuring charge, Q4 net margin was 10.4%. Operating earnings of $0.49 were ahead of expectations. Net margin in Q4 1995 was 15.8%. Gross margin declined to 44.1

Geographic mix of Q4 revenues: N. America, 22%; Europe, 24%; Japan, 28%; Korea, 10%; Asia/Pacific, 16%. N. American orders were down from the prior quarter while Europe showed a rebound.

The systems business slowed from Q3 with the exception of high temperature films, epy, and high temperature poly, which reached record levels. RTP continued at near-record levels. Initial shipments of CMP were made in the quarter. Service revenues increased from 15% of revenues to 19% this year. That part of the business is much more predictable than the systems business.

R&D was reduced about $10 million and SG&A (sales, general, and administrative) expenses declined $16 million from last quarter.

Q4 geographic mix of orders was: N. America, 42%; Europe, 17%; Japan, 26%; Korea, 5%; Asia/Pacific, 10%. Japan increased orders due to capacity addition for chips going into consumer products and flash memory.

US orders were driven by logic and telecom. Korea was soft, as expected, as was Taiwan. Customers are still being cautious in their capacity additions, especially in DRAM. 8 inch levels are about half Q1-Q2 levels, a sign that customers are slowing capacity levels.

Cash increased $250 million as working capital was liquidated. Accounts/receivable and inventory reductions accounted for 80% of this increase.

Capital expenditures for the quarter totaled $91 million, slightly below expectations. Capital spending for the year was $468 million. Depreciation in Q4 was $45 and was just $149 million for the year. Total debt as a percentage of capital dropped from 17% to 14% at year end.

FURTHER COMMENTS FROM JIM MORGAN

The change in the industry's environment were "about as dramatic" as Mr. Morgan has seen in 20 years in the business. The company has seen almost no significant changes in customer plans over the last few months. In addition to the uncertainty caused by DRAM pricing, flat panel pricing has been a difficult factor for customers to deal with. Companies are making, or have made, their decisions to shift down in feature sizes, as in moving to 64 Mbit DRAM, and are now focusing on the decision of when to implement those plans.

Capacity in non-DRAM looks as though it will afford growth for Applied. In DRAM, Morgan expects that DRAM will have excess capacity in the first half of 1997 but those companies will have to look at adding capacity at some point in the next 12 months.

NEAR TERM OUTLOOK

Final market demand will continue to be strong in 1997. Faced with the challenging environment, Applied will focus on positioning its leading edge products, aggressively introduce new products, access new markets, and strengthen its global sales and service capabilities. The company will also focus on asset management and cost reductions as well as lead-time reduction and initiatives in information systems.

The company expects orders in the $725-750 million range for Q1; revenues of $800 million; gross margin of 45%; net income of $82 million, or 10% of sales, and EPS of $0.44-0.45. Backlog should decrease somewhat from its present level.

Customers are looking at selective technology buys and some are evaluating strategic capacity investments.

For the full year, the company expects a soft environment for the first half. Revenues are targeted between $3.2 and $3.4 billion with some upward order movement possible above $800 million through the latter part of the year. Order levels should improve modestly and book-to-bill is expected to be above 1.0 for the entire year. The company is targeting $1.80-$1.90 for the full year and net margin of 10%. Due to material cost management, the company expects gross margin to trend upward slightly from the 45% they expect this quarter. R&D will move forward, especially with 300 mm. programs and high density plasma process programs for CVD and PVD technologies.

Capital expenditures are programmed for $250 million. Depreciation will move up to $198 million from $149 million in 1996.

QUESTION & ANSWER SESSION

Tokyo Electron Limited (TEL) has shown a smaller book-to-bill because the company believes that it is leading in product mix and global infrastructure.

Logic producers are using their capacity well while memory companies are trying to shift some of their capacity to logic. The company believes that capacity utilization in memory is somewhere near or below 80% but that the next shrink to 64 Meg will suck up some of that excess.

CMP units are being shipped in revenue units and evaluation units. The company will introduce the next version of its high density CVD tool at the Semicon Japan show.

There were 14 orders over $10 million; five over $20 million; two over $40 million; and one over $60 million. About $50-60 billion in orders were rolled over into Q1, but that is nor an abnormality.

Single wafer multi-chamber products were impacted by the current capacity bind. The company has a 60%+ market share position in PVD and has opportunity in etch, where its share is 30-something share. Emerging products with opportunity include high temperature films, RTP, CMP, and high density plasma. Epy is in good shape. RTP should reach $500 million by the end of the century and will expand as 300 mm. comes on. Market share gains in etch have occurred in etch and oxide. In etch, the company gained about 9 points in 1995 and somewhere around 4 points in 1996. The high density oxide etch market is wide open. Metal etch and polysilicon etch are seeing progress against Lam. In overall etch, the company is holding its position at about 33%.

The company has not revised its goal of $6-10 billion in revenues by the end of the century.

Flat panel demand in 1997 could show itself in increased orders by the second half of the year.

The company believes that it will see several hundred million dollars in orders in Korea this year, but they also expect orders from Korean Samsung and Hyundai for their offshore fabs.

The company is on-track with its $50 million cost reduction effort.

Total headcount dropped to 12,200 from 13,800.

Increasing Megabits per chip from 16 to 64 is forecast to take up to 6 months for equipment changeover and moving up the yield learning curve.

During this cycle, there has not been a long tail on capacity additions as there has been in past cycles due to the faster implementation of capacity additions.

The company believes that DRAM makers represent about 40-42% of their orders, which mirrors the overall market.

The company has just undergone a successful evaluation for its next-generation CVD tool and has received a sizable advance order for a Taiwanese chip maker. In advanced metalization market, the company believes that it will have a strategic lead on its competitors. The company regards Novellus as its main competitor in this market. As the company goes into accounts, they will be upgrading Centura platforms to new chambers, which gives the company a sales advantage, too.

The company anticipates being a major player in 300 mm.; with the current slowdown, the company and its customers have time to plan for movement toward that class of process tools.

The company expects the CMP evaluation mentioned to lead to booked orders.

The company believes that its position in the epy market, particularly with regard to 64 Mbit DRAM production, is superior to the competition's.

All of the company's legal proceedings with ASM International are inactive right now but injunctions are in place which prohibit ASM from selling the disputed technology in the US. That agreement is in force until the end of the year.

Most of the customers' decisions have been made in regard to capacity in DRAM, as those companies are readying themselves for the next cycle of the market. The company doesn't rest secure in any price forecasts for the DRAM spot market but is staying close to customers in fulfilling whatever needs they have with technology and service.

The company's overall market share in CVD is 51%.

The company's first quarter includes three weeks of shutdown time in it because of holidays.

The company believes that it will lead the market in coming quarters in high density etch.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.