October 4, 2012 - Applied Materials says it will reduce its work force by between 6% and 9% (900-1300 positions) amid a global realignment deemed necessary to achieve certain strategic objectives, freeing up to $190M annually "to fund key growth initiatives."
The plan is twofold, according to the company: a voluntary retirement program for certain US employees meeting minimum age and service term requirements (and other non specified business-related criteria), and a subsequent further global workforce reduction, the scope of which will depend upon participation in that voluntary retirement program "and other considerations." The restructuring plan is expected to be substantially completed by the end of fiscal 3Q13 (end of July 2013), and free up $140M-$190M annually "to fund key growth initiatives."
"Achieving our strategic objectives requires us to deploy our talent in the best way possible," stated chairman/CEO Mike Splinter. "We are taking action to realign our worldwide organization and workforce while investing in key product development capabilities that will enhance our ability to grow."
The plan will result in pretax restructuring charges (severance and other termination benefits) of $180M-$230M, substantially all of which will be in cash. These charges will be recorded starting in fiscal 4Q12 (the current quarter, ending in October) and continuing through fiscal 2013.
UPDATE 10/4: First analysis out of the gate comes from Barclays’ CJ Muse, who thinks the cuts will primarily be overhead/corporate functions across all divisions, while the reinvestments will target the Silicon Services Group (technical marketing support, field service, and R&D) to reinforce leadership and recapture lost share in wafer-fab equipment (specifically process control and etch, deposition, CMP, and implant). Moreover, the move likely means a de-emphasis on the company’s Displays division and EES, the latter of which could see reduced breakeven or even an exit. "Let the turnaround begin," he proclaims, with these reinvestments representing a first step in a "transformation" to increasing its focus to core competencies, lowering its breakeven profit points, and boosting EPS.
Deutsche Bank’s Vishal Shah agrees the moves are a longer-term strategic play, and not a response to near-term sluggishness: "Today’s restructuring announcement is a step in the right direction as the company repositions to gain share over the next 3-5 years." He also points out that the company is choosing to cut back spending in corporate overhead and reallocate costs, instead of increasing opex.