Applied Experience

Electronic News, July 23, 2001 by Jeff Chappell

AMAT's long-time CEO discusses 300mm delays, the downturn and Semicon West

The downturn and delays in chipmakers' 300mm plans causes concern for everyone in semiconductor capital equipment, even the head of a company that had nearly $10 billion in sales last year.

"Our business would be a lot better if they were moving forward, sure," quipped Jim Morgan, long-time chief executive officer of Applied Materials Inc., referring to the 300mm postponements.

But in all seriousness, his concern goes beyond Applied's bottom line. Morgan has seen his share of semiconductor downturns and ramps, having been at the helm of the Santa Clara, Calif.-based Applied (nasdaq: AMAT) for 24 of its 34 years of existence. Like many of his colleagues, he is concerned that chipmakers won't have the capacity in place to ramp quickly when the upturn comes, particularly with the technology transitions taking place to 0.13-and 0.10-micron lines and copper and low-k dielectrics.

"The capacity that is out there now is the older technologies," Morgan said, while many new chip designs incorporate the newer technologies. It is a problem that has occurred in previous cycles and creates headaches for the tool OEMs that get asked to ramp production of new tools quickly as chipmakers try to jump-start capacity when demand returns.

The challenge for tool suppliers such as Applied is that customers have aggressive plans for the near future that require a lot of equipment--on paper.

"But the CEO won't sign the papers," Morgan lamented. "That puts a terrific challenge on us to get the current products in position, maintain capabilities and manage the downturn, and at the same time prepare to be a $20 billion company someday. You can't do that after the fact," he said.

While being a $10 billion company now may not provide freedom from industry-related frown lines, it does provide the critical mass necessary to weather a downturn and prepare for an upturn, Morgan said. "Fortunately, we've been able to focus and prioritize and have the balance sheet," he said. Applied has been affected just like everyone else; it has seen its share of cutbacks in staff and sequential declines in quarterly revenues throughout the year.

However, Morgan observed that Applied has been able to steadily increase its research and development budget, even during this year, which Morgan described as one of the worst ever. In 1997 Applied's R&D budget was a little more than $500 million; this year it topped the $1 billion mark.

"We've got a lot of things going. There are a lot of exciting opportunities," Morgan said. "We just hope some customers are taking advantage of that technology investment."

Mustering the Troops

The critical mass that comes with being the largest equipment supplier in the world also permits Applied to fully participate in Semicon West, despite the gloom and doom pervading the industry. While some companies may question the return on their investment in participating in a trade show during an extended downturn, Morgan said it is important for his company, his customers and the industry at-large.

For Applied, trade shows such as Semiconductor Equipment and Materials International's Semicons are a chance to present Applied Materials as a whole. Often in the course of doing business, customers tend to focus on one area of technology at a time. The show offers a chance to expose those customers to the different products and services Applied can offer, Morgan explained. Also, customers can see that the company offers whole suites of tools in different areas of process technology as opposed to one specific aspect.

"A lot of things get clearer or they get a little bit better sense of the success and the progress that's been made, and the overall ability of the company," he said. "We can do that pretty well at the show."

Not withdrawing from the show during a severe downturn also serves as a vote of confidence, and not only for Applied's customers' benefit.

"We believe we need to do it to support the industry," Morgan said.