Applied Materials chief backs industry growth forecast
By Daniel Sorid
NEW YORK, July 22 (Reuters) - Sales of tools used to build and test microchips should grow nearly 30 percent next year as pressure builds on corporations to upgrade aging computers, the head of the industry's dominant player, Applied Materials Inc., said on Monday.
"Almost every CEO I talk to has the same challenges," Applied Materials (Nasdaq:AMAT - News) Chief Executive James Morgan told Reuters in an interview. "The new applications of video, voice and data -- which increase your productivity substantially -- are really putting pressure on technology infrastructure."
Speaking after the company's analyst meeting at a trade show in San Francisco, Morgan said industry forecasts for 2003 sales growth of 29 percent sales growth next year and 23 percent growth in 2004 should be appropriate.
Morgan also addressed the growing debate about corporate accounting of stock options, saying calls for changing the rules to require companies to count the cost of stock options as an expense could backfire on the economy.
"I think to tinker with that just because there's been some abuse I think may do more harm than good," he said. "There's been a lot of profits and jobs and opportunities generated from the stock option process."
He said Applied Material's use of stock options has worked well for both employees and shareholders. The top five executives at the company hold about 3 percent of the total options granted, he said, with the remainder spread among the broad employee base.
There has been speculation on Wall Street that companies may soon be required to treat options -- used heavily by technology companies to lure new workers and give them incentives to work hard -- as an expense like any other.
Coca-Cola Co. (NYSE:KO - News) earlier this month said it would begin to expense the cost of stock options beginning in the fourth quarter. Such moves have been praised by billionaire investor Warren Buffett and others, who say options have hid from investors the true cost of employee compensation.
RECOVERY AFTER TUMBLE
Sales of equipment used to build, test, and assemble microchips are expected to tumble 19 percent this year to $22.8 billion. The decline has been brought on by weak corporate technology spending and a glut of unused electronics on warehouse shelves, which in turn have led chip makers to cut back plans to expand or upgrade their chip factories.
A recent industry survey showed optimism for a return to strong growth in the next two years. Applied Materials has called 2002 a transition year, and is banking on hopes that results from its hefty research and development budget will pay off when capital spending improves.
"As companies get some confidence, one of their first investments will be information technology infrastructure," Morgan said.
He pointed to an array of consumer electronics that will utilize more powerful chips to allow such tasks as high-speed communication and more powerful computing.
In their presentation to analysts, Applied Materials' executives said the company planned to hold a dominant position in the fast-emerging Chinese market.
Chief Financial Officer Joseph Bronson also said he believed the company was at the right size for the current diminished level of business, and added the company would not stray from its focus on the bottom line.
"We're prepared to do whatever we need to keep putting up some decent numbers irrespective of where the business goes," he said. Applied Materials will report earnings for its fiscal third quarter on August 13. The company declined on Monday to update its business projections for the quarter. |
