CNBC- SQUAWK BOX
APPLIED MATERIALS (AMAT) CHAIRMAN AND CEO JAMES MORGAN ON THE COMPANY'S EARNINGS
AUGUST 10, 2000
SUMMARY: Morgan discusses why AMAT's stock price isn't performing as well as the company. Morgan comments on the wireless devices market for the company. Morgan says the whole information age and the Internet will continue to drive chip demand on a global basis.
Mark: After the close yesterday, Applied Materials posted better than expected results for its third quarter. But, before we get to the interview let's take a closer look at the company. Applied Materials wants its investors to be fabulous. The company is the number one maker of semiconductor manufacturing equipment used in chip fabrication plants. Based in Southern California AMAT also has facilities in Israel, Europe and Japan. CEO James Morgan has been with AMAT since 1976 and at helm since '77. He has an MBA from Cornell and is co-author of the book "Cracking The Japanese Market." The stock has a 52-week range of 31 to 115, currently trading about in the middle at the low 70s. But it is still outperforming 90% of the peers and analysts like it. 19 have a strong buy, 14 have a buy and only one has a hold. In 1999, the company earned 92 cents a share. And new orders broke 5 1/2 billion. Revenue grew to a total of 4.9 billion. The company is looking to beat this year's second quarter posting of 53 cents per share. Profits for the number one maker of semiconductor equipment more than doubled in the quarter to $604 million or 70 cents a share. That's up form 31 cents in the year ago period. Sales jumped to $2.7 billion. Let's find out what is going on and if it can continue. Joining us from Stanford, California is James Morgan. He is Chairman and CEO of Applied Materials. Mr. Morgan, good to see you again.
Good morning.
Mark: The numbers look good. I am puzzled, and in suspect you may be puzzled, by what is going on with your stock. As we've discussed this earlier. There are really three main drivers going on here that will propel the business in the future. The 300 millimeter waves, the copper, the lower micron sizes and I guess you might throw in that, what, low-k or whatever it is too. There is all of this going on. We seem to be relatively early in the cycle, according to you, and yet your stock languishes. Do you have an explanation?
I get paid to build a great global company. I don't know about the stock market.
I think what we see out there is, you know the team just did an outstanding job this past quarter with record earnings and record revenues. And what is more important; record bookings. We broke 3 million for the first time in the history of the company. If you look around the world, there is huge demand as this Internet and information age starts. It is really just in its beginnings. So, we see, you know, a decade of opportunity ahead of us. And so, yes it does puzzle us.
Mark: Well, let's talk about what might be a problem. I don't know. That is why we have you here to talk to. We've seen some indications of perhaps uncertainty in the wireless arena. Some cell phone makers may be indicating things might not be going too smoothly and they are a big consumer of chips.
Is that on your horizon at all?
They are just one of the many consumers but even in that category, if you think of, that only about 7% of the world's population have a cell phone today. And as one of my board members reminded us at the last board meeting, cell phones are probably obsolete every two years. And we just talked to one of our Japanese executives last night and he indicated that a lot of them are moving to these new color displays, flat liquid crystal displays. And that takes three times as many chips to work. So, we think the demand for chips in the wireless over time will be great.
Mark: Mr. Morgan, has this whole area of photonics kicked in yet for you all? Are you seeing demand for equipment to supply this change that is going to take place on the distribution mechanisms for the Internet?
Well, of course the Internet is probably about one way or another, effects about a third of the semiconductor sales in the world.
And my guess is that over time, that will grow to about 50%. So, the whole information age in the Internet will drive a huge demand for growth on a global basis.
Mark: Are you ready for the day, though? When the chips will be moving photons instead of electrons?
I think that is a long way out and several of these areas don't tend to materialize. But we of course, keep a research tracking of kind of everything that is occurring.
Mark: Are you ready for the day you might have to make chips out of salmon DNA. I am sure you saw that story? That is fascinating stuff. How far in the future is that?
Well, it is pretty far out there. They make a lot of progress in different types of chips today in terms of the technology. And there are so many people working on it around the world that there is a lot of improvements yet to be made. So, we see we are able to continue down the mores curve for the foreseeable future.
Mark: In terms of your company, your revenues, you still think we are in the early innings of the cycle here?
Yeah, we think over time we have an opportunity, as kind of our next possibility is to move to about a $20 billion company. And the team, you know, if you think about it, we are really the key to the infrastructure for the information age. And so that is, I think, one of the reasons we have been a core holding for this new economy.
Mark: Mr. Morgan, thank you very much for the update, we appreciate it.
Thank you.
Mark: James Morgan is the chairman and CEO of Applied Materials. |
