We all know how dependent the PC industry is on Microsoft and Intel. The continued health and growth of even the largest PC vendors are subject to the launch of new generations of faster chips and upgraded systems and applications that take advantage of the increased speed. But did you know that Bill and Andy are in turn equally dependent on the launch of Jim's upgrades?
That's Jim Morgan of Applied Materials. To understand why and who, recall the old nursery rhyme, "This is the House that Jack Built." Then consider that the personal computer industry comprises those businesses that use the software, that runs on the PC, that is powered by the chip, that was made by the manufacturing equipment that Applied Materials' Jim Morgan built.
Sound a bit sophomoric? Then listen to ChipInvestors.com's Manoj Nadkarni, a respected semiconductor analyst. He recently said, "Without doubt, the two most influential and important people in the semiconductor business during the past 30 years have been Andy Grove and Jim Morgan."
Like Microsoft's Bill Gates, Intel's Grove needs no introduction, yet few outside the chip industry have heard of Jim Morgan, 61, head of the world's largest manufacturer of chip-making equipment. He took over Applied Materials in 1976, when it was a technology jack of all trades, eking out sales of $17 million. Today, Applied dominates the chip equipment industry with revenues of over $4 billion.
Last October, Morgan visited Japan to celebrate the 20th anniversary of Applied Materials Japan. AMJ made history in 1983 by becoming the first foreign company to secure a loan from the Japan Development Bank. The $3.2 million loan was used to build AMJ's test center in Narita used by customers to evaluate AMJ's equipment.
Given Japan's disdain for things foreign in the '80s, especially chip-related, Applied pulled off quite a coup. You can learn more by reading Cracking the Japanese Market, by Jim Morgan and his son Jeffrey (Free Press, 1991).
Nevertheless, Applied, like much of the semiconductor industry, has been squeezed of late by the Asian economic crises and glut of DRAM memories. The result has been cutbacks in memory production and subsequent cancellation of new chip-making equipment orders.
Another challenge Applied faces is the shake-out taking place in the industry as chip makers pull out of some segments and look for partners to help cut costs by sharing resources. NEC and Hitachi's recent tie-up follows alliances between Toshiba and Fujitsu, and between Mitsubishi Electric and Matsushita. The result is fewer orders for Applied and competitors like Japan's Tokyo Electron.
Applied's '98 revenues were down over 97's. But more significantly, Japan's decline in global semiconductor markets over the past decade is underscored by AMJ contributing just 17% to Applied's revenues last year, compared to 40% in 1989.
Yet Morgan is upbeat about the near and long-term future of the industry here and abroad. He sees new demand being generated by several major trends. As a board member of networking leader Cisco Systems, he says telecommunications bandwidth will continues to scale upwards and one day "will almost be freely available." Then there's Moore's Law, which continues to see chip capacity double every 18 months, while costs decline by half.
And then we have the relentless spread of chip-based technology as seen in the latest MP3 music players, IC audio recorders, set-top boxes and upcoming digital TVs. AMJ also got a boost from the announcement of Sony's PlayStation 2, which has Sony and partners like Toshiba spending around $1 billion on building new chips for the game console.
To meet the downscaling required by Moore's Law, chip manufacturers must continually upgrade equipment to produce ever smaller circuit geometries, which are now edging towards 0.18 microns (with 0.13 already in the planning stages at NEC).
New materials like the replacement of aluminum chip wiring with copper in IBM's PowerPC microprocessors, not only help boost processing speed, but they also require new process equipment that Applied is only too willing to supply. What's more, the size of silicon wafers is due to expand from the current 200 to 300mm, a move that will more than double chip yield, but which will also require another round of equipment upgrades.
So despite the challenges, analysts are estimating Applied's revenues will soar 50% over 1998 sales, to $6.6 billion next year, while Morgan believes revenues could hit $12 billion by 2003, should the IT industry indeed grow as he's predicting. If he's correct, maybe then we won't have to ask "Jim who?"
If you're still asking "John who?" John says please don't bother writing to
boyd@gol.com.
