Applied Cutting Staff as Demand Improves
Applied Materials CEO Mike Splinter said the company remains cautious about the recovery, amid improved orders for the fiscal fourth quarter.. The company will cut staff by 10-12%, depend more on suppliers, and build more equipment in Singapore and Tainan, China, Splinter said following release of its fiscal fourth quarter financial results.
David Lammers, News Editor -- Semiconductor International, 11/12/2009
Applied Materials Inc. (Santa Clara, Calif.) executives said they remain cautious about next year, despite turning in better-than-expected quarterly results. Revenues were $1.53B in the fourth fiscal quarter, up 35% from the previous quarter.
However, long-term changes in the industry, including a shutdown of many 200 mm fabs, a shift to Asian manufacturing, and consolidation of the customer base, is behind a restructuring move that includes axing another 1300-1500 employees over the next 18 months — a 10-12% reduction in staff following similar levels of employee cuts over the past year.
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Applied remains in cost-cutting mode after a challenging fiscal 2009. |
Applied CEO Mike Splinter told analysts following the release of financial results Wednesday that all signs are pointing to a strong rebound in wafer fab equipment (WFE) spending next year, with industry-wide WFE spending in the $18B-$20B range, up from $13B-$14B this year. In displays, LCD television demand remains strong, particularly in China, and display makers are moving to 8.5-Gen substrates and new large-format equipment. Solar presents a complex market outlook, but Splinter said it represents "a key growth opportunity" for Applied.
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Strong semiconductor equipment sales to foundries drove Applied's fiscal fourth quarter. |
With so much positive news, one analyst asked Splinter, "Why such a defensive posture, cutting heads and costs?" He answered that Applied's management had taken a broad look at its business during the downturn. "Our view of the future is different," he said, noting that although the world economy is doing better "it is not fully recovered yet."
Applied's customer base is "consolidating substantially," he said, with ~80% of new wafer starts in Asia. Applied is seeing its services and spares business change, an area where many of the layoffs are expected to occur. About 25% of the 200 mm capacity is "gone," Splinter said, adding, "We have to be realistic about the markets we are serving."
In 2010, most chipmakers will be filling up existing fabs. "We want to see new buildings" before declaring the industry fully healthy again, he said, adding that new fab construction could pick up steam late in 2010. While only three semiconductor companies spent a billion dollars or more in 2009, Applied expects eight of its customers to have capex budgets exceeding the billion-dollar level in 2010.
Applied is developing a base of suppliers that can take on more of the manufacturing role, reducing the vertical integration of tools within Applied itself. More semiconductor equipment will be built in Singapore, and more large-format equipment for LCDs and solar panels in Tainan, China. "We are moving to more variable costs, not less," Splinter said.
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Four-fifths of new wafer starts are in the Asia region. (Source: Applied Materials) |
Asked if the staff reductions will impact Applied's ability to quickly respond to customer orders, Splinter said 61% of orders in the fiscal fourth quarter came during the quarter itself, and yet Applied was able to respond quickly. Looking to a continuing shift to Asia, Splinter said, "We will go through every aspect of the way we are doing things. We want to make sure we are doing things in the right place, and how to get to the right place."
Applied spent ~$900M in R&D in its fiscal 2009, ended Oct. 25, on sales of $5.1B. That effort will result in "new products in every area of our business" over the coming year, Splinter said. In a year when world GDP shrank for the first time since 1946, the company incurred a relatively small net loss of $305M for its fiscal 2009, due in part to aggressive cost-cutting that took out $460M in operating costs.
Splinter said some of that R&D spending went into developing equipment targeted to LED production. "Our customers are evaluating tools that are out there. We want to participate in that market on a meaningful basis."
DRAM capacity rebound
Foundries accounted for 37% of sales by the Silicon Systems Group in the fiscal fourth quarter, with logic accounting for another 26%. However, DRAM manufacturers are investing again as memory prices rebound strongly, presenting the liveliest market in the calendar-year first quarter. DRAM makers are converting to copper interconnects, and quickly scaling transistors, with technology transitions accounting for the vast majority of spending. When DRAM makers start adding new capacity, that will signal a full-blown recovery.
"DRAM will be the big driver in the first quarter, but we would like to see a little more continuity in the economic recovery. We will be more confident when DRAM bit growth exceeds 50%, which will depend in part on the adoption of the Windows 7 operating system. In NAND, we really need to see bit growth exceed 100% in order to get substantial investments in new capacity, which will depend on the sales of smart phones and MP3 players. We don't think SSDs [solid-state disk drives] will be that big of a factor next year, but SSDs may get moving later, maybe in 2011," Splinter said.
"Today we are looking at a technology transition, with about a million memory wafers moving to the next technology generation, from one node to the next. Only about 10% of wafer fab equipment purchases are for capacity additions. We need to see bit growth improve before we can expect to see additional capacity expansions."
The Applied CEO said copper interconnects for memories, wafer-level packaging, 3-D memory cells, and 22 nm design rules will help drive the semiconductor equipment business next year.
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Tainan, China shall be Tainan, Taiwan; I do not recall any Tainan in China
Iain Wang - 1/21/2010 10:01:20 AM CST -
I was assimilated to Applied when Schlumberger got bought out and towards the end of my career I was also associated with Metron (So I have met Joe). The pattern of mediocracy and wasting money on acquisitions and big bonuses is part of corporate America. Now I am back to working with smaller more efficient companies. See ya wouldn't want to be ya!!!
dyno dave - 12/12/2009 8:50:14 PM CST -
I will be very upset if Mike Splinter and his exec's get a bonus after laying off many employees just to show a profit.
Employee - 11/25/2009 7:23:18 PM CST -
Splinter DID something spectacular: he made $46 Million during his 'tenure' in salary, bonuses, options, etc. while practically driving the company into the ground. Firing employees is his only way to increase the stock value for a couple of days... And amazingly he still gets away with it!
Sandy Lu - 11/13/2009 4:11:51 AM CST -
he's done nothing spectacular since taking over -- very defensive positions from buying back shares with all the cash to boost his bonus to killing any consolidation where he dumped $250M in the Metron debacle. Time for new leadership...
Joe Metron - 11/12/2009 3:56:41 PM CST
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