Applied Materials Inc. today shuffled its top management, with Michael Splinter moving from an executive VP position at Intel Corp. to replace James Morgan as Applied's CEO.
 
Splinter, a 20-year veteran of Intel, has also been named president of the company, succeeding Dan Maydan, who continues as president emeritus and director. Morgan retains the chairman position.

Applied also appointed Sass Somekh, executive VP and chairman of its global executive committee, to serve on the company board of directors. Somekh's appointment is effective immediately.

The executive reorganization caught analysts by surprise, even though the company has undergone a period of restructuring, including layoffs, as it suffers from uninspiring financial results in the downturn.

On a conference call with analysts today, Morgan said his decision to step down as CEO was a strategic move, and part of a plan to position the company in readiness for an economic upturn.

According to Morgan, Splinter’s key capability is his knowledge of the semiconductor industry and more specifically, his knowledge of Applied’s business from his previous position as a customer of Applied. Morgan said Applied needed an executive who had a grasp of its customers and their customers.

“The big challenge is how to get Applied back to growth and how to grow within a market that is pretty difficult at this period of time,” Splinter said on the call.

Splinter said his initial focus would be on what products to align with what markets, aiming to create new opportunities for the company.

The timing of the management changes perhaps makes sense as Applied attempts to return to profitability in a difficult marketplace.

Although it has managed the downturn better than many, if not most of its smaller brethren, the world's largest equipment company has struggled along with the rest of the industry to remain in the black.

At the company's annual shareholders meeting in March, both Morgan and Maydan discussed how the industry is changing. The industry is no longer technology driven but application driven, they said. And this is happening at a time when the cost of production per transistor is plummeting. What is the driver behind that phenomenon? In short, consumer demand for electronics now drives the industry.

This discussion came on the heels of Applied's announcement of a major initiative to align its cost structure with the current scope of business, including further job cuts. Thus it is perhaps logical, with all these changes occurring at the company, to institute changes in leadership.

Applied is an 800-pound gorilla that its smaller competitors love to pick on. Some within the industry hold up Applied as example of what they would like their company to achieve; others question the business practices and ethics of the No. 1 player, much like others do with Intel Corp. or Microsoft.

In any event, it is hard to argue with Applied's track record during Morgan's tenure, and Splinter will obviously have some big shoes to fill. Even though he will still be involved with Applied as board chairman, Morgan stepping down marks the end of an era, and is certainly a sign of the times within the semiconductor industry.

In a time when it seems many high-tech companies have a revolving door in the offices of their senior management, Jim Morgan has been at the helm of Applied as CEO since 1977, having spent a year before that as its president. At the time, the company's annual revenue was around $29 million, and it was flirting with bankruptcy. One of the first things Morgan did was axe all of the company's businesses not related to semiconductors.

Needless to say, it was a strategy that paid off. Today Applied is nearly twice as large as its next largest competitor, Tokyo Electron Ltd., seeing $3.7 billion in revenue last year. Back in 2000 it was flirting with the $10 billion mark. Today, Applied operates to some degree in practically every area of process technology and equipment. Although it is fighting uphill battles against entrenched competitors in some market segments, such as metrology, Applied has often come to dominate the market segments it has chosen to enter.

Under Morgan and his management team's tutelage, Applied has also grown to become a darling of Wall Street. Now considered a bellwether because of its size and exposure in so many different parts of the equipment market, in the 1990s Applied stock went nuclear: it grew an astonishing 3,100 percent between 1992 and 1999.

Morgan has also led the company in expanding globally, often beating the semiconductor crowd to new market ground. Applied's presence in Japan is a prime example. A strong presence in Japan might not seem such a dramatic today, when the Japanese economy has suffered for so long, and Japan Inc. is rethinking how it does business, particularly with the outside world.

But Applied’s Japanese subsidiary has been in business since 1980, back when everyone including the Japanese thought Japan would usurp technology leadership from the United States. In fact, in 1983 Applied Materials Japan was the first foreign-owned business to receive a loan from the Japan Development Bank. Applied used the $3.2 million to establish an equipment evaluation center in Narita, Japan, where customers could come to test equipment.

Morgan turned his experiences in the world of Japanese business into a 1991 book coauthored with his son, Jeffrey, titled Cracking the Japanese Market.

Of course today, the geographical market buzz emanates from China. Applied has been established there with mainland operations since 1984. Although early investment in places like China hasn’t always proved successful in terms of cash flow, at least initially, once again Applied is poised to be competitive in, if not to dominate, an emerging market.

By: DocMemory
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