CNBC- SQUAWK BOX
INTERVIEW WITH APPLIED MATERIALS CHAIRMAN AND CEO JAMES MORGAN
JULY 13, 1999
SUMMARY: Morgan believes Asia is slowly getting better. Morgan comments on the company's gain of marketshare.
Mark: One focus at the show is sure to be new technology and the use of the copper instead of aluminum in computer chips. Two companies battling it out on the copper front are Applied Materials and Novellus, both competing for new customers. Joining us now to tell us about his products and his business is James Morgan, Chairman and CEO at Applied Materials. Good morning, Mr. Morgan. Good to see you again.
Good morning, Mark.
Mark: It has done some time since the trof, if one goes simply by the interviews we have had with you. I think the bottom may have been nine months ago now. Is the trend continuing? Are you satisfied that we are, what inning are we in in the new cycle, so to speak?
I think we are in the early phases, Mark. Sort of a three wave activity going on here. There is a move to the new technologies that we talked about where they are trying to get much smaller line widths to .18 what we call it in or jargon. That is the first wave, and that's started now. Then there's a major change in the next three years, which is copper, processes like that. And then a wave to 300 millimeter, which is large plait size waivers that have several hundred chips on them. So, those three careful waves should be very beneficial to our industry.
Mark: Each of those is going to require a new generation of machines?
Right. The new processes, for this current technology generation will take a set of machines and then for the first time in the industries for many years, there is a major material shift with things like low K and different processes.
Mark: Let me interrupt you and ask you this. It seems, I'm in the in your business, but it seems to me if I'm in a business and looking at three different technology shifts that will hit me in the next three years, I might hold back from buying this until all of this is in place.
You would miss the window.
Mark: Then I would be out of business, right?
You would be out of business.
Mark: So, the customers have to buy each of these.
If you don't pay, you don't play.
Mark: Fair enough. What about the Asian situation, Japan, an area you visit frequently. The last time we talked, you are a little bit happier about Japan, but never really happy. What is going on now?
It is clearly getting slowly better. Japan is taking the steps to begin the change. I have never seen as much change taking place in Japan in my 20-some years of visiting many times a year. So, clearly they are beginning to move, but it takes a while before the effect comes through. Our business is clearly up and I would guess we would have record business in Japan this year. Mainly because we are gaining market share with our products and we had more product areas. For us, fortunately, we have kind of a base business where we have large market shares and we're gaining share in those. And then on top of that, we have entered about four new market areas, sub markets, of this waiver market. So we believe that we have a good opportunity to grow our business in Japan and elsewhere in the world.
Pat Bolland: Pat Bolland here. You talk about the base operation and memory chip prices haven't necessarily been as robust as some of the other sectors. Overall, they are on a down swing as it stands currently. Could you address that, how long it will last and how long and how long will it take before those three waves as you speak of them start to contribute to the bottom line?
They are already started to contribute to the bottom line. Our last quarter, our revenues moved up substantially. The d-ram prices have firmed a little in the last few days, whether that will stay, I'm not positive. But in the early part of next year, our guess is there will be a shortage of d-ram capacity in the advanced technology area like you see here in the booth behind me. So, we think that they will buy the latter part of this year and early next year.
Mark: I'm sorry, go ahead, Pat.
Pat Bolland: As far as the R&D contribution to these new advances, how much are you spending in that area?
We spend maybe six or seven hundred million dollars a year, so it's a major business. But as the leader in the industry, we've spent very aggressively, even during the downturn, so we seem to have the broad product of choice that the customers want. For example, here in this room where I am, we have virtually all the machines to make the new copper processes, and so we believe that we'll maintain our leadership in this metalization area because of the broad products we have. We introduced the last two in April, I think we talked about it at the last quarterly discussion. The CMP, chemical mechanical polishing and electric plating tool. Both of those seem to be well received, so that rounds out the product line of seven different machines and we are the only company that provide all those machines and can provide them to the customer.
Mark: Are you providing a lot of financing for your customers?
They tend to pay directly or third party leasing.
Mark: It occurred to me, if we have the waves that we know will come, these machines are very expensive, you might be straining the cap ex budgets of a lot of your customers.
That is true, but the other side of that is the new machines enable you to reduce the cost per function substantially. So, the paybacks are very quick if they are properly implemented. Really, the customer look to someone like Applied who has the best global distribution system to help them ramp the production. So the key is having the right product at the right time and getting it installed and ramp the production.
Mark: A dollar spent at Applied is a dollar well spent, right?
That's right.
Mark: Mr. Morgan, thanks. Appreciate you taking the time.
Thanks. It is a great show here.
Mark: Thanks to James Morgan, Chairman and CEO at Applied Materials. He joined us from the Semicon West in San Francisco.
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