the official party line from captain morgan ...
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Applied Materials (AMAT) Chairman and CEO James Morgan says the company's business is up in every geographic industry
- 02/17/99 -
CNBC - SQUAWK BOX
INTERVIEW WITH APPLIED MATERIALS (AMAT) CEO JAMES MORGAN
FEBUARY 16, 1999
SUMMARY: Morgan says Applied Materials is in the early stages of an upturn. He believes smaller line widths are driving the upturn.
Mark: Applied materials may be proving that the semiconductor industry is on the road to recovery. After the bell yesterday, the world's largest maker of semiconductor equipment reported a first-quarter profit of 11 cents a share. That's down from 52 cents a year ago.
But it's a nickel better than analyst estimates. AMAT also surprised the street with strong sequential growth in new orders. 1.03 billion, up from 684 million in the fourth quarter. Ahead of the news, AMAT closed up 1 3/8, at a new 52-week high of 68. The low is 21. Joining us now to tell us more about his business is James Morgan, chairman and CEO at Applied Materials. Good morning, Mr. Morgan.
Mark: Nice to see you again.
Good morning, Mark.
Mark: Let me ask you since the numbers are obvious and I don't know of anyone who doesn't argue the trough is behind you, let me ask you to characterize this upturn. Is it in your veteran of all of the cycles of your business, is this about average, stronger than you've seen in the past, weaker? Characterize it for us, the cycles?
I think we're in the early stages of an upturn. I'm really proud of the job the applied team did, because this isn't just something that happens in six weeks. It's a six-year project putting in the right technology, building close and strong capability distribution system close to the customers around the world. So, as the customers have begun to just start their investment in the next generation of smaller line widths for the next generation of semiconductors, clearly they've selected Applied's products as a product of choice.
Mark: Okay, but my question was how would you characterize this upturn?
I think it's just starting. And I don't think we know the extent of it until we kind of see how the economy develops over the next year.
Mark: Okay. What is driving this upturn? There are a number offers in your business. I think many people who follow your business are aware of 300-millimeter wafers, which have been very, very slow to come. Smaller and smaller line widths, which requires new material. Something called Lo-K, which I don't understand at all. What's driving it this time.
It's not the 300 millimeter, because that hasn't started yet, but it is the smaller line widths as the customers are trying to get the next generation across in all product areas: logic, microprocessors, and d-rams. They're trying to move to the technologies that take them to the next line widths. And our full line of products, which we provide a total solution for some of these integrated processes, has enabled them to begin to buy just beginning sets of our products.
Mark: One of the -- Another change coming along. The lines, of course, on the chip today are made from aluminum, vaporized aluminum, but it's aluminum. And now people are talking about switching to copper. How much of a factor is that in your business so far, the switch to copper?
Well, the switch to copper is really just beginning. And that will develop over the next two to five years, but fortunately, again, our... we announced a few months ago our equipment process integration center or epic center. In that we have a full line of our products developing, copper processes. So, our customers can come in and test our copper approaches on this line. And that's been quite popular this last couple months. The orders for that will come more strongly over the next year or two.
Mr. Morgan, take us on a road tour, if you will, of your foreign markets. How is Europe looking right now? How is Asia looking right now?
Well, of course, as you know, the semiconductor industry, is a global industry. So it's driven by global demand. What we're seeing though is in each geographic region our business is up. Partially that's due to gaining share and partially that's due to customers beginning to make the advance technology capacity buys. People get very confused about capacity in this industry, because of the total capacity, but what is usually short is the capacity for the next generation of chips. And that's what the customers are beginning to buy early production lines for.
What about price stability for chips, what are your, buyers, customers telling you?
Generally their prices are firming across the board.
Mark: the last time we talked to you, you had recently returned from Japan. Of course, Japan, home to many of your customers, and you were quite. . . I think fair to say, you described it as being quite downbeat about what you had seen. You were impressed with how bad things were, so to speak. The government was not doing what needed to be done and that, of course, translates to weaker customers. Tell us what your view of Japan is today, where you think. . . have they gotten anywhere? Where are they going?
I think Japan is still struggling. Most of the customers are losing money in various areas of their businesses. A lot of our conglomerates. That's causing them to be cautious. Our forecast for our own business is improving there, partially due to some of them beginning to make technology investments and the other part is gaining market share in the Japanese Market.
Mark: Who is strongest in the far east, Korea and Taiwan?
Actually they're all buying early stages of the next-generation technologies.
Mark: Among them though, Korea? Taiwan?
I think they're kind of equipment they're all starting to buy?
Mark: Are we saying and maybe you wouldn't -- oh, yeah, would you have to deliver the equipment so, would you know.
Are we seeing at this stage mostly updating of existing fabs or are we seeing new capacity?
Well, it's all. . . what they're trying to do is to either update new fabs or older fabs with newer equipment or they're beginning to putty equipment in shells where they have the buildings and the land, but they haven't bought the equipment.
Mark: Are you seeing when we talk about the customers who are buying, what I'm trying to get at is I'm wondering who is strongest among the chipmakers. Is it CPU makers, memory makers or DSP and the people who make chips that can go into appliances, you know, we're told one day chips will be in everything.
Right. It's a pretty. . .almost all the technologies, even consumer. . . like games and other products, are beginning to require more and more advanced types of chips. So, as a result of that, almost everyone is beginning to buy the new processing technology to get to the smaller line widths.
Mark: Mr. Morgan, thanks a lot. Always enlightening to hear what you have to say.
Thank you, Mark.
Mark: Thanks to James Morgan, chairman and CEO at Applied Materials.
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