Testimony from June 16, 1999

Prepared Testimony from James Morgan, Applied Materials

Applied Materials is the world's largest maker of semiconductor manufacturing equipment.   We develop and manufacture the multi-million-dollar sophisticated systems that are used around the world to produce semiconductor chips.   These systems take thin wafers of silicon and perform the complex processes and steps necessary to create the millions of microscopic structures that make up semiconductors.  These wafers are then sliced up into small pieces to become individual semiconductor chips.  We conduct nearly all of our R&D and manufacturing here in the United States — and export about two-thirds of everything we make.

At Applied Materials, our business involves complex processes like epitaxial deposition, chemical vapor deposition, dry plasma etching and a host of other processes whose names you've probably never heard of.  Our systems perform delicate recipes in strictly controlled environments, some at 2,000  Celsius others at deep-space vacuum, all of them pushing the limits of physics, chemistry, materials science and the toughest subjects they offer at MIT, Cornell and Berkeley.

For our purposes here, it's easier to remember that Applied Materials makes the systems, that make the chips, that make the products, that change the world.  Nearly every chip in the world passes through a piece of Applied Materials equipment during the manufacturing process, so you can say that every time you log onto a computer, surf the web or place a call from a cellular telephone, you benefit from technology created by Applied Materials.  Without the advances in chip technology over the decades, many of the conveniences we take for granted today, like buying baseball cards on eBay or connecting Silicon Valley and Washington by video conference, just would not be possible or practical.
By providing key enabling technology, Applied Materials has figured in some of the most significant breakthroughs of the Information Age.  Aided by Applied Materials' achievements in process technology, Moore's Law of doubling chip capacity has held true for decades.  The microprocessor alone has improved its performance 7,000 times in 25 years.

Right now, we are working on the manufacturing solutions that the world's leading chipmakers will put into practice several years from now.  Just this past week, you might have heard of the latest generational change that our industry is launching.  For the past half-dozen years, the standard for chipmaking has been a 200mm silicon wafer.  Hundreds of fabs around the world are processing thousands of these wafers even as we speak to make the logic and memory chips that drive Information Age products from coffee pots to supercomputers.  Now the standard is shifting to a 300mm wafer.  Basically the whole industry will advance from a salad plate to a dinner plate-sized silicon wafer.  Why do it?  Basic economics.  You can get two and a half times the chips on the bigger wafer.  What do you have to change on the technology side?  Just about everything.  At Applied Materials, we have been working for several years in our own labs and with our customers to develop a full line of 300mm systems that will allow our customers to switch rapidly and confidently to the new larger wafers.  It took a massive investment in R&D from us — last year alone we spent over a half billion dollars — and we are only one company.  And what will be the result for you and me?  Cheaper, more powerful chips that can be more efficiently manufactured by American companies like Intel, Motorola, IBM and Micron.  This is merely one example of the kinds of transformational change that takes place all the time in the semiconductor industry.

Which of Applied Materials' current breakthroughs will open the door to the future?  No one knows for sure, but by leading the industry in the development of critical new capabilities such as 300mm wafer processing, 0.18 micron technology for making tiny circuit lines hundreds of time finer than a human hair, and developing integratable process solutions to make chip manufacturing more cost-effective, Applied Materials remains clearly focused on the future.  What will be the technology that launches the next revolution?  Will it be an aid to multi- layer devices, or copper deposition for speed or system-level integration of memory and CPU?  No one can know for sure, but at Applied Materials, we have teams that dedicate their time every day to dream these dreams.

In technology, progress is a process of connecting known things to one another to achieve new outcomes, and the semiconductor itself is the child of many innovations.  So is the Internet.  The Internet is a technology of technologies.  As the product of everything we have been working on in Silicon Valley for the past 30 years, the Internet stands as the culmination of a generation's worth of work in high technology up and down the food chain Ñ from Yahoo to Cisco, from Intel to Applied Materials.  Thanks to the Internet and its derivatives, our global economy is changing.  There is no regional advantage, no time-zone edge, no intellectual leg-up any more.  In this new world, where capital, information and goods flow more rapidly, the old rules of the physical economy apply less and less.

What does it take to succeed in this environment?  Being a global leader of change, not a follower.  And in a world being transformed, change comes in many forms:  emerging technologies, evolving business practices, and new relationships with customers, suppliers, employees and the community.

Leading with Technology
First, we must lead with superior technology.  As the world's industrial and developing economies gear up to compete in the Internet economy, competitiveness will depend more and more on the ability to capitalize on innovation.  Over the past two decades, a new generation of semiconductor chops has been created every two to three years.  To remain the leader, America must be at the forefront of developing technologies to create these chips.  I can tell you, even for a company whose business is built on speed and adaptability, this is a relentless task.  It requires anticipating new technologies before they arrive and working closely with customers to drive innovations.  Maintaining a competitive advantage in the Information Age requires a strong commitment to research and development, and we must encourage basic research and private R&D investment through tax, accounting and regulatory policy.  The Internet that we take for granted today is based on government investments that go back decades.  Let's make certain that our national investment priorities share that same sense of vision.  And as technology advances, government leaders need to fully understand the trade-off between export controls and export opportunities.  The U.S. had little monopoly on technology, so we must select the few areas of technology that are critical for national defense and let the others develop into open commercial applications.

Global Infrastructure and Open Access
Second, we must capitalize on global infrastructure.  One of the most enduring — and often most forgotten Ð lessons of the digital age is that technology is not enough.  Companies must be structured to deal with the full implications of doing business in a worldwide marketplace, including a multi-ethnic workforce, variable laws and governments, and diverse local cultures.  Information Age companies must invest in creating the global infrastructure needed to respond quickly to customer requirements around the world.  Here in the U.S., access to the best talent from around the world is a critical component for our future competitiveness and long-term global success.  Because the speed of introduction of new products is essential in an environment where product life-cycles are measured in months, we must insist on clear access in all key economies so that new products can get to the global market quickly and effective protection of intellectual property once they get there.

Flexible Regulatory Environment That Enables Change
Finally, the new economy demands a new millennium company.  In the years ahead, you'll want to work for, partner with and invest in companies with the ability to change, adapt and grow Ñ leveraging their fundamental strengths to take advantage of the new economy. Leadership companies in the new millennium will take everything we already know about business and speed it up.  These companies will succeed because they foster a culture of resilience and reward success.   To be global leaders, we need a regulatory environment that allows for us to keep pace with the changing workplace, to attract, retain and compensate employees, and to compete with companies around the world.

As we approach a new century, change is the only constant.  At Applied Materials, we believe that change is the medium of opportunity and growth.  We manage change first by anticipating it, then by leading with superior technology, by building a global infrastructure to support customers and by making a strong commitment to employees, communities and the environment.  As we look toward the future, the rate of change is expected to accelerate, and the challenges and opportunities will be great.  The new economy offers our companies both unparalleled market opportunity and risk.  As Asia's boom and gloom have shown us, the global market can be rich and volatile.  Driven by the instant information of the Internet, the global economy rewards speed, resilience, and most of all courage.  I hope this summit is a positive step that helps to prepare ourselves, our economy and our nation to meet the challenges and leverage the opportunities offered by the Information Age well into the next century.

Thank you.