Applied Materials Learns from Japan and Outstrips 'Teacher'
February 13, 2001 (TOKYO) -- U.S.-based Applied Materials Inc. (AMAT), a producer of microchip-manufacturing equipment, has achieved miraculous growth in recent years.
It boasts the world's highest sales of semiconductor-manufacturing equipment, maintains the greatest share in the market of sputtering systems and related products, and increased its stock value by 150 times in the past 15 years.
In the business year ended Oct. 31, 2000, AMAT posted record-high sales of US$9,564.41 million, or up 1.88 times from the previous year. Its operating profits registered US$2,747.05 million, posting a year-on-year increase of 290 percent. The firm's net profits amounted to US$2,063.55 million, or 2.76 times higher than a year earlier.
AMAT says that it has acquired the strong competitive power thanks to the customer-oriented strategy it learned from Japan. The company plans to list its stock on the Nasdaq Japan market before the end this year.
AMAT aims to grow further, based on its vigorous entrepreneurial spirit, by trying to avoid the same mistakes of Japan, its former teacher.
'Process for Victory' to Be Attained Only by Top Manufacturer
AMAT has held the world's top position in sales of semiconductor-manufacturing equipment since 1991. It outperformed two Japanese competitors that placed in the first and second positions in the world's sales ranking of semiconductor-manufacturing equipment up until 1990, namely Tokyo Electron Ltd. and Nikon Corp. AMAT enjoys a dominant share of the world market in four areas, including several types of sputtering systems for manufacturing chips, and rapid thermal processing (RTP). Also, it ranks high in the areas of other main types of semiconductor-manufacturing equipment.
AMAT experienced difficulties in 1997. A serious downturn in the semiconductor market forced many semiconductor manufacturers to drastically cut their investments in plants and equipment. For this reason, the number of orders placed with AMAT dropped sharply. Its net profit for the 1997 business year fell 17 percent from a year earlier, and its net profit fell 54 percent in the 1998 business year. AMAT was forced to lay off about 10 percent of its workforce at that time.
Despite such a difficult situation, James C. Morgan, AMAT's CEO and chairman, said the company would push its sales to nearly US$10 billion by its 2000 business year. He achieved that goal last year.
Although the semiconductor industry has a unique business cycle that shows ups and downs in a period of three or four years, AMAT's growth last year was "faster" than that of the recovery of demand for semiconductors, which was brought about by this business cycle.
The company's remarkable recovery was realized on the strength of its business strategy to solve technological problems, which emerged in the process of developing integrated circuits with a greater degree of integration, and its starting of commercial production of cutting-edge semiconductor-manufacturing equipment earlier than other competitors.
AMAT achieved this goal by making an enormous investment in research and development. The percentage of R&D investment as a portion of the company's total sales is about 15 percent on average. Even in 2000, when the company's sales soared, the percentage reached 11.6 percent.
A company that maintains the largest market share is able to obtain the newest customer information at all times. The company set a strategy to develop equipment in a new technological field on the basis of the customer information, or various types of demand from customers, faster than any other manufacturers. It did this by taking advantage of its ample research and development investments.
To secure the top position by expanding its product line-up based on the state-of-art technology was also part of its strategy. This strategy, however, works only if pursued by a top-ranking company. But AMAT was not the leading company from the beginning.
How did the firm acquire the chance to become the dominant company? "The key for the success was Japan," said chairman Morgan.
AMAT Learned from Japan 'Radically' and 'Thoroughly'
AMAT learned from Japan in a "radical and thorough way." It established Applied Materials Japan Inc. (AMJ) in 1979. The management suspended their daily business work for as many as 10 days, and traveled to Japan. Not only did they inspect Japan's manufacturers, such as Komatsu Ltd. and Honda Motor Co., Ltd., but they also made efforts to understand the fundamentals of Japanese culture by, for example, seeing Kabuki theatrical plays.
Since then, Morgan has instructed AMAT employees to thoroughly investigate what Japanese manufacturers -- who are AMAT's customers -- wished to obtain. As soon as he judged that the employees' understanding of Japan was insufficient, he had the AMAT president carry out his duties in Japan, to make the employees think of Japan everyday when they contacted the president. While looking back over those days when he learned the totally customer-oriented strategy, President Dan Maydan said that the demands from customers would be reflected in the products and that the company would expand its service to win a favorable reputation from customers. These were the main points of the strategy.
AMJ introduced to its plant for producing custom-made semiconductor-manufacturing equipment, the AMAT-style Lean Manufacturing System, which is based on Toyota Motor Corp.'s manufacturing system. Production of semiconductor-manufacturing equipment is generally conducted in the same workshop, from the first process to the last. AMJ, however, changed this to the assembly-line system. Parts and components needed for the production were delivered to the plant in accordance with the just-in-time delivery system everyday. On the walls of the hall of the plant, posters carrying a slogan of "Kaizen (improvement)" and reports on improvement efforts made by each team of workers were put up.
In 1987, AMAT developed the most-advanced-type chemical sputtering system, called chemical vapor deposition (CVD), after achieving a form technological innovation. Its annual sales for the 1988 business year posted a two-fold year-on-year increase. Sales in the Japanese market were especially brisk, and AMJ's annual sales jumped by about three times. Since then, AMAT has continued developing new semiconductor-manufacturing equipment by introducing innovative technology, and it overwhelmed its competitors. At present, AMAT proposes that various types of equipment be used in all production processes of semiconductors, and by doing so, it is widening the gap with other manufacturers.
AMAT Forms Tie-Ups With Korean, Taiwanese Makers Before Competitors
With the semiconductor manufacturers in Korea gathering strength in the last half of 1980's, AMAT built up close cooperative relationships with them.
Furthermore, the company strengthened its ties with U.S. semiconductor manufacturers, such as Intel Corp., which grew sharply by producing microprocessors for PCs. In the latter half of the 1990's, AMAT stepped up its business cooperation with Taiwanese manufacturers, which achieved steep business growth on the back of the foundry system, in which they received orders from other firms and manufactured semiconductors on behalf of the customers.
With this move, AMAT gained the upper hand over its Japanese counterparts, which adhered to their traditional policy of cooperating with Japanese semiconductor-manufacturing equipment makers.
Senior Vice President David Wang said the Japanese manufacturers could not believe that the Korean and Taiwanese makers achieved sharp growth, and they had the perception that the Japanese makers still maintained a higher technological level. He went on to say that AMAT, however, moved into the fast-growing markets and tried to acquire the local manufacturers' technology and develop new equipment using such state-of-the-art technology that matched the needs of the times. This policy stemmed from what AMAT learned from Japan, he said.
AMAT Makes Efforts to Maintain Entrepreneurial Spirit
AMAT continues to make efforts to maintain high entrepreneurial spirits among employees at all times. Its policy is to provide its employees with the educational training for developing entrepreneurial spirit on a companywide basis. When a project team is organized to launch a new business, it will be provided with a very humble office that looks like a "hut." The team, therefore, must secure a space for the development of new products and an office by its own efforts, after the team begins gaining profits from the new products.
Masayuki Morita, president of AMJ, is one of those who have gone through such an experience. When he launched the PVD business, "I was forced to move from a division which had generated the largest profits in the company until the day before the transfer, to a prefabricated hut with no air conditioner. We had to procure even the equipment for the development of new products on our own."
AMAT aims to maintain its employees' spirit and aggressive attitude, by forcing them to overcome such difficulties, and to urge them to display their entrepreneurial spirits in the process of developing new equipment, which may become a hit product.
Graphs
Note: Data prior to FY2000 has not been restated to reflect the acquisition of ETEC.
Footnotes:
1* Includes equity in net loss of joint venture, $3189m
2* Net income includes gain from accounting adjustment, $7mm.
3* Results include a restructuring charges, $25.1m or $0.09 per share.
4* EPS includes various non-recurring items resulting in an approximate loss of $6.8m, or $0.07 per share. Excluding these items EPS was $1.39.
5* EPS adjusted to exclude a loss of $0.06 from discontinued operations.
EPS includes various non-recurring items, $0.43 diluted. Excluding these items diluted EPS was, $1.10. 6* Data prior to FY2000 has not been restated to reflect the acquisition of ETEC.
Data source: Bloomberg
(Tadahisa Mikawa, Staff Editor, Nikkei Business)
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