Alan & All,
this interview is dtd 03-05-97...
Interview With CEO of Applied Materials at the Robertson Stephens &
Company Technology Conference
PETER SCHACKNOW, ANCHOR, NBC PRIVATE FINANCIAL
NETWORK: And welcome back to NBC Private Financial Network. I'm
Peter Schacknow. We're going back out to San Francisco now.
This time to visit with James Morgan, the Chief Executive Officer of
Applied Materials which makes equipment for the semi- conductor
industry and whose stock has benefited from a new burst of optimism.
We do thank you for joining us today from KRON.
JIM MORGAN, CHIEF EXECUTIVE OFFICER (CEO), APPLIED
MATERIALS: Nice to talk with you, Peter.
SCHACKNOW: Now the company itself is now more optimistic than it
was just a couple of months ago and Wall Street seems to share your
enthusiasm. I guess my question is what's changed? It would seem
unlikely that the fundamentals of the market could change so radically, so quickly.
MORGAN: Well, I think clearly the bookings have begun to pick up. And
of course, people are beginning to look through this current slowdown in 1998 and clearly to meet the semi-conductor demand in the latter part of this decade there's going to be a significant investment all over the world in advanced semi-conductor production machinery like we make.
SCHACKNOW: How much of the growth has been from the upgrading of
plants from 16 megabytes to 64-megabyte technology? There's a lot of
that which certainly will provide a lot of spur going forward.
MORGAN: Well, clearly there's an upgrade from 16 to 64. Plus in other
areas because DRAMs aren't the only product. There's a shift in
technology down to .25 and .18 micron production capability.
And so, there's a big investment needed by most of the major
companies around the world in that level of technology.
SCHACKNOW: A few months back before this new round of optimism
came in there was a lot of talk about over capacity in the DRAM market. I'm sure that hasn't disappeared as a concern. But how would you assess it as it would effect you right now?
MORGAN: Well, I think the investment now is moving towards the newer
technologies. And fortunately, we've introduced -- we'll use these slower periods to introduce new families of products.
And so, we've introduced a large number of products in the last 12
months. And fortunately, those are gaining market share essentially in
every product area we have.
SCHACKNOW: Assess for me, if you would, semiconductor industry
fundamentals as they relate to you. Certainly, new product upgrades
and technology upgrades aside, you're still dependent on what's been a
very cyclical industry over the years.
MORGAN: Well, I think you have to -- that can be misleading because
the underlying cycular trend has been for the industry -- has been
around 20 percent.
SCHACKNOW: Sure.
MORGAN: And applied materials in the last 20 years since I joined the
company has grown at over 30 percent on a compounded rate. Not
evenly each year but over that period of time.
So clearly, this is a growth industry. We're just at the beginning of the information age as it develops.
And if you think about the people who are going to be successful in this phase, clearly we're one of the majors along with people like Microsoft (MSFT) and Intel (INTC).
SCHACKNOW: I want to give you a chance to talk about a milestone
that your company recently celebrated with the 5,000th multi-chamber
system. You made a pretty big deal of that. It is significant. Tell me why it's so significant and why you attach so much importance to it?
MORGAN: Well, it changed the architecture for manufacturing in the
semi-conductor industry and in our industry normally a few hundred
systems makes a significant business. With over 5,000 of these at
several million dollars a piece, it represents a significant investment.
In fact, it represents about 90 percent of the multi-chamber, single wafer systems that are in place in the world.
MORGAN: So we have a major responsibility as a company and an
opportunity to upgrade these systems to meet newer technologies and
to provide supplemental technologies that'll help our customers meet the demand for semiconductors in this next decade or so.
SCHACKNOW: We're always interested in how new acquisitions are
being folded into the company. In January you completed the
acquisitions of Opal Incorporated and Orbit Instruments. Tell me about
the progress in folding those in and getting them to provide what you
acquired them to provide.
MORGAN: Well, we've been very pleased with -- as we spent more time
with them, the opportunities actually seem to be expanding over our
original forecasts and the management teams have joined together with
our teams to take advantage of what we saw as an opportunity to take
two very outstanding technologies and introduce those to a global
marketplace. So we should be able to significantly grow the $100 million or so a year in sales that they did last year, considering it's about $1 1/2 billion going to $3 billion business. It's a big opportunity for Applied.
SCHACKNOW: No acquisition strategy of course stays static. Right
now, how do you regard the acquisition market. What do you look for
when an opportunity comes up.
MORGAN: Well, I think we have one fundamental consideration is that
we have significant growth within our core business activities in etch, chemical vapor deposition, physical vapor deposition and our thermal and implant groups. Each of those groups are either $1 billion and growing or in the case of Thermal has about $1/2 billion which could grow to more than $1 billion. So those areas will grow significantly so our acquisition strategy is to acquire specific technologies that fit in for in our new market segments such as we did with the Opal or bought acquisition enable us to get into the diagnostics and metrology business.
SCHACKNOW: We've been giving the CEOs we've talked to here on
PFN the chance to highlight their Web sites and how they use them.
Yours is www.appliedmaterials.com. How do you use that and how
might you expand its use in the future.
MORGAN: Well, we clearly use that to both to inform our customers.
We use to inform our investors and we use it to inform employees
around the world. So since we're a global company, clearly this offers an opportunity for us to communicate more effectively 24 hours a day.
SCHACKNOW: With all your acquisitions and expansion, it's hard to
highlight just one product line, but it's just about the year anniversary, a little past when you launched the metal edged DPS centura(ph) and Centura HDDCBD lines. Tell me if those have fulfilled your expectations in the year or so since their official introduction.
MORGAN: Right, well, they've actually seemed to do better than we
expected even. Clearly we've gained market share and on most of the
runoffs against competitors over the past three months, we've had very
successful closure on orders. So we see those as really growing our
market share in those very significant markets.
SCHACKNOW: Do you think the proportion of where your revenues
come from will change in any radical way, this year, last year, fiscal '96, 31 percent North America, 24 percent was Japan, the second biggest contributor. Do you see those proportions changing in any radical way this year.
MORGAN: I don't think it'll change too much. Clearly Asia is most
rapidly growing area and of course we have very strong positions having had our own company in Japan since the '70s, having started early in places like Korea, Taiwan, Southeast Asia and China. We see as, since our customers trust us I mean you know we do business with the great companies of the world, the people like NEC and Toshiba, Samsung, people like Seamons, Intel (INTC), TI (TXN), Motorola (MOT).
MORGAN: All these companies are major customers of ours, and so we
see a responsibility to protect their investment and the major billions of dollars they've made in equipment and production facilities. And so we see them expanding in to the international marketplace, and we clearly have the broadest distribution system of any corporation in our industry, of course, as the leader of the industry.
SCHACKNOW: And I have one final question for you. Are you
comfortable at the current level of long-term debt of the company? It's not the highest it's ever been, but on a historical basis, it's relatively high for Applied Materials.
MORGAN: Well, I think if you look carefully at our last quarter, we
bought 2 companies for about $240 million.
SCHACKNOW: Right.
MORGAN: We paid off about $70 to $90 million in debt, and we had a
billion dollars in cash at the end of the -- our year. And then at the end of the first quarter, we still had a billion dollars in cash. So I think the team has done a good job of management, of financial management with their assets and during a tough time.
SCHACKNOW: OK. We do appreciate your taking the time to join us
today, and it's always a pleasure to talk to you.
MORGAN: Good. Thank you, Peter.
SCHACKNOW: James Morgan is chief executive officer of Applied
Materials. He joined us from NBC affiliate KRON in San Francisco.
I'm Peter Schacknow, and you're watching NBC Private Financial
Network.
END
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