Applied Materials Applied Materials 2005 annual report 2005 Annual Report WWW.APPLIEDMATERIALS.COM 3050 Bowers Avenue P.O. Box 58039 Santa Clara, California 95052-8039 Tel: (408) 727–5555 Board of Directors Corporate Management James C. Morgan James C. Morgan George S. Davis Chairman Chairman of the Board of Directors Group Vice President, General Manager Applied Materials, Inc. Corporate Business Development Michael R. Splinter Michael R. Splinter President and Chief Executive Officer Menachem Erad President and Chief Executive Officer Group Vice President, Chief of Staff Applied Materials, Inc. Franz Janker Executive Vice President, Bradley L. Hansen Michael H. Armacost1,2,4 Sales and Marketing Vice President, General Manager Shorenstein Distinguished Fellow Planarization, Plating and Clean, Asia/Pacific Research Center, Nancy H. Handel Thin Films Product Business Group Stanford University Senior Vice President, Chief Financial Officer In Doo Kang Deborah A. Coleman1,2 Vice President, General Manager General Partner Manfred Kerschbaum Display Industry Product Groups, SmartForest Ventures LLC Senior Vice President, General Manager AKT Applied Global Services Moving ideas to market. Herbert M. Dwight, Jr.2,3,5 Raymond L. Leubner Chief Executive Officer Farhad Moghadam Vice President, Optical Coating Laboratory, Inc. Senior Vice President, General Manager Global Materials Operations Nanomanufacturing technology to improve the way people live. (retired) Thin Films Product Business Group and Foundation Engineering Jeannette Liebman Philip V. Gerdine1,2 Group Vice President, Executive Director (Overseas Acquisitions) Mark R. Pinto Global Human Resources Siemens AG (retired) Senior Vice President, Chief Technology Officer and General Manager William H. McClintock Thomas J. Iannotti2,3 New Business and New Products Group Vice President, Business Management, The world of semiconductors and related products is Senior Vice President Business Operations, Thin Films Product Business Group increasingly being shaped by the emerging culture of Technology Solutions Group Thomas St. Dennis Hewlett-Packard Company Senior Vice President, General Manager John McClure eLifestyle—a trend toward rapid adoption of electronic Etch and Front End Products Vice President, Corporate Strategy products by individuals. The performance features of Charles Y.S. Liu1 Business Groups these products reflect the tremendous technological Senior Managing Partner Hichem M’saad Hao Ran China Fund Joseph J. Sweeney Vice President, General Manager changes taking place at the nanoscale level, deep within Senior Vice President, General Counsel Blanket DSM, Thin Films Product each device. Consumers’ drive for more powerful, Paul R. Low2,3 and Corporate Secretary Business Group Chief Executive Officer portable and affordable products creates increasing P.R.L. Associates George Alajajian Charlie Pappis pressures of costs and complexity for our customers and Vice President, Operations Manager Vice President, General Manager brings a new set of opportunities for Applied Materials. Dan Maydan Thin Films Product Business Group Core Services, Applied Global Services Director and Foundation Engineering With our achievement-oriented culture, Applied Applied Materials, Inc. Mike Rice Gilad Almogy Vice President, Manager Materials is focused on finding new approaches to meet Gerhard H. Parker1,2 Group Vice President, General Manager Platform Product Engineering, the most challenging nanomanufacturing requirements. Executive Vice President, Process Diagnostics and Control Foundation Engineering At the heart of the Company’s success is the passion of New Business Group Product Business Group Intel Corporation (retired) Seiji Sato our employees—the key to our industry-leading products, Norm Armour Vice President, Applied Materials Japan ideas and performance. We believe that if customers can Willem P. Roelandts2,3 Vice President, Manager Chairman, President and Corporate Asset Services Avi Tepman imagine it, we can apply our unique talent, knowledge, Chief Executive Officer Vice President, Manager technology and global infrastructure to make it a reality. Xilinx, Inc. Chris Belden New Disruptive Products Group Vice President, General Manager Global Operations Yvonne Weatherford Vice President, Corporate Controller Wendell T. Blonigan Group Vice President, General Manager Zheng Xu AKT Vice President, General Manager Copper, Physical Vapor Deposition and Integrated Systems, Thin Films Product Business Group 1 Audit Committee 2 Corporate Governance and Nominating Committee © Applied Materials, Inc. 2006. Applied Materials, the Applied Materials logo and other trademarks so designated or 3 Human Resources and Compensation Committee otherwise indicated as product names or services, are trademarks of Applied Materials, Inc. in the U.S. and other countries. 4 Ethics Ombudsman All other product and service marks contained herein are the trademarks of their respective owners. All rights reserved. 5 Lead Independent Director Printed in the U.S.A. 6636001 02/06 389K Applied Materials 2005 Annual Report 01 Financial Highlights Financial Highlights Fiscal Year Ended 2003 2004 2005 (In thousands, except percentages and per share amounts) net sales 4,477,291 8,013,053 6,991,823 net income/(loss) (149,147) 1,351,303 1,209,900 net income/(loss) per diluted share (0.09) 0.78 0.73 weighted average common shares and equivalents 1,659,557 1,721,645 1,657,493 stockholders’ equity 8,068,034 9,262,027 8,928,549 return on equity* (1.9)% 15.6% 13.3% order backlog 2,495,115 3,368,382 2,570,808 *Based on net income >> new orders >> net sales >> earnings per share 2 8,98 $ 8,013 $ 6,992 $ 6,389 $ ) ) 4,477 4,318 $ $ 0.78 $ 0.73 $ (In millions (In millions (0.09) $ Fiscal Year 2003 2004 2005 Fiscal Year 2003 2004 2005 Fiscal Year 2003 2004 2005 Corporate Profile Applied Materials is the largest supplier of integrated circuit manufacturing systems and related services to the worldwide semiconductor and semiconductor-related industry. The Company supplies fabrication systems that perform atomic layer deposition (ALD), chemical vapor deposition (CVD), physical vapor deposition (PVD), epitaxial and polysilicon deposition, rapid thermal processing (RTP), plasma etching, electrochemical plating (ECP), ion implantation, metrology, inspection, chemical mechanical polishing (CMP) and wafer wet cleaning; maskmaking equipment; CVD and test systems used to produce flat panel displays (FPDs); waste treatment systems; and manufacturing execution system (MES) software for semiconductor factory automation. Applied’s service products include equipment maintenance, materials supply and management, parts refurbishment, equipment remanufacturing, yield enhancement, training and other solutions for increasing semiconductor manufacturing productivity. Applied Materials 2005 Annual Report 02 Letter to Our Stockholders Michael R. Splinter James C. Morgan President and Chairman of the To Our Stockholders, Chief Executive Officer Board of Directors Applied Materials ended fiscal 2005 with solid performance, poised to extend this year’s successes and to focus on the opportunities ahead. Our customers are aggressively pursuing advanced technologies to produce new semiconductor and semiconductor-related products aligned with the requirements of individual consumers and global businesses, as well as emerging economies. These new technologies require innovative, cost-effective nanomanufacturing solutions and Applied is demonstrating that we have the capabilities to be the best partner to move customers’ ideas to market. Applied’s core capabilities—our broad and deep technologies that address customers’ key roadmaps, our worldwide network for the distribution and on-site support of sophisticated technology, and our global culture—have made us the leader in our industry. A good partner also needs to have the financial strength and operational excellence to stand behind customers’ ideas. We have developed these capabilities and strengths through decades of experience and investment, and they will serve us well as we grow through innovation. Applied Materials 2005 Annual Report 03 Letter to Our Stockholders (continued) Growing Through Innovation For speedier, more powerful interconnects at the 65nm The shrinking size of transistors and complex web of level and below, Applied offered breakthrough barrier/ circuitry connecting them are driving the innovative use seed applications with its Applied Endura CuBS system of materials, new processes and an increased number of and the industry’s most advanced, manufacturable low k production steps—all with the aim of keeping Moore’s dielectric film, theApplied Producer Black Diamond II with Law alive as the industry moves to 65 nanometer (nm) innovative NanoCure UV curing technology. and below. In an era where multiple processes and broad To expand our portfolio of solutions for streamlining integration knowledge are needed to solve advanced customers’ fab operations, Metron Technology, a manufacturing challenges, customers continue to turn wholly-owned subsidiary of Applied, operates as an to Applied for solutions that match their requirements, independent provider of multi-vendor solutions on from strained silicon to advanced transistor and inter- a worldwide scale. Metron’s newly-acquired EcoSys connect applications to cutting-edge defect inspection. products provide a broad range of optimized gas In fiscal 2005, Applied invested nearly $1 billion in abatement solutions that help customers assure