Mike Splinter, executive chairman of Applied Materials, made his first transistor — the on-off switches of digital electronics — when he was 18 years old. Now he makes them by the billions on a single semiconductor chip. That’s a testament to a career spent on furthering Moore’s Law, the foundation of the $1 trillion electronics sector and the promise that the number of transistors would double every couple of years.
Splinter received the chip industry’s highest honor, the 2013 Robert N. Noyce award, last week at the Semiconductor Industry Association’s annual award dinner. His company makes the manufacturing equipment that goes into multibillion-dollar factories such as those built by Intel. After a decade at the head of Applied, Splinter gave up the chief executive title in September. But he is going out with a bang. He helped orchestrate the purchase of Japan’s Tokyo Electronic, the No. 2 chip equipment maker, in a deal that will create a $29 billion industry giant.
We caught up with him last week. Here’s an edited transcript of our interview.
VentureBeat: I take it you’re active. You’re not retiring just yet.
Mike Splinter: [laughs] No, I’m not.
VB: You have a pretty big undertaking right now, the merger with Tokyo Electron.
Splinter: Yeah, we do. But most of the recipients—I think they gave this to Rich Templeton and to John Kelly as well. They’re still both alive and actively working.
VB: What do you view as some of your accomplishments, especially the kind that you think may have led to this recognition?
Splinter: Seriously, longevity has to be one of those. [laughs] When I look back on a long period in history—In the ‘90s, when I was running Intel manufacturing, we really pressed the whole “copy exactly” idea. Most fabs weren’t thought of as “let’s try to be modular and incrementally add.” We changed that way of thinking during the early and middle ‘90s. And then certainly being able to have the opportunity to lead Applied Materials over the last 10 years to growth and some new endeavors. Seeing how the company has progressed is quite pleasing.
VB: I noticed Intel’s market cap was $120 billion and Applied’s is about $20 billion. Do you feel like that’s grossly unfair?
Splinter: [laughs] Well, the revenue ratio is about 10:1 or 9:1, so we’re not doing badly if market cap is 6:1. If you think about the electronics industry as a whole and you look at the profitability stack, I do think that there is a lot of work for equipment suppliers to do to improve their portion of the overall profitability. Today it’s about two percent of the total of that stack.
I think that when you assess the contributions that are truly enabling, what Applied Materials does and is going to do in the future is that we emphasize precision materials engineering. There’s an opportunity to expand that, our share of the overall profitability in the supply chain.
VB: It almost seems like there might be an underappreciation of what Applied does. Do you try to get that across to people in some way when they don’t understand?
Splinter: We certainly talk a lot about it internally. I do think that there is not an appreciation. As you move further away from the basics of the electronics, up into the device makers and those people who are providing the devices for this mobility revolution, it’s less and less appreciated, where a good share of that technology to reduce power and improve performance and enable the capabilities that the industry enjoys today comes from. We try to talk about those things on our analyst days, certainly with our customers, and an awful lot internally. How do we capture the real value that we’re delivering to our customers?
VB: You mentioned a couple of milestones at Intel. Do you feel like you’ve been through a couple of milestones at Applied as well?
Splinter: I think so. We’ve had a lot of different milestones. If I work backward from today, getting this merger announced, I don’t think there’s any bigger milestone in the history of Applied. This is one that changes the shape of the industry. Between the Tokyo Electron executives and Gary and myself, we worked hand in hand to accomplish this. If we’re able to get approval and execute this merger, it will be a huge positive.
One of the things I look back on as a real roller coaster is our decision to go into solar. It’s had great years and very tough years in a market that I don’t think anybody could have predicted. One of the things I always emphasize is that you have to have courage and be willing to take a risk. This risk was worthwhile to take. The scope and the status of the current market feels pretty bad, but we had some great years in solar.
Ultimately, you have to say, “Does Applied Materials have the ability to move into new markets? Do we have the courage and understanding of how to move our core engineering, our precision materials engineering into other fields?” At a very fundamental level in the company, we have that capability today.
Even the Tokyo Electron merger is about capabilities that we’ve built up over a period of time to be able to even consider doing a merger of this magnitude. We’ve acquired quite a number of companies over the last 10 years, the largest of which was Varian. The integration of Varian and Applied Materials couldn’t have done any better than it was done. Having Gary end up as the CEO is a testament to how well that has gone through.
VB: You mentioned taking some risks there. Would you relate that back to Bob Noyce in some way, lessons from working for folks like that at Intel?
Splinter: I only knew Bob cursorily at Intel. I worked a lot more closely with Andy Grove and Craig Barrett. That willingness to take risks was a hallmark of Intel’s success, but it’s certainly been a hallmark of Applied Materials’ success over the years as well, with the new products we’ve been able to introduce and the history of moving into new markets. It’s very fundamental, in an industry that has as much change as ours. If you’re not out there willing to take a risk and willing to venture investment in R&D, you can’t move forward. It’s critically important to have plans on how you retire that risk and look at risk appropriately so that you don’t take imprudent risks along the way.
VB: It’s interesting that Jim Morgan, your predecessor at Applied, also got this award.
Splinter: I believe so. [laughs] Jim was a pioneer. He led Applied Materials for so many years – 27 years as CEO and then five years as chairman. He’s been one of my role models and somebody I owe a lot of my success to over the years.
VB: You mentioned that it’s a tough year. Without going into your financials, what’s your outlook for the industry, your optimism level for the chip industry in general?
Splinter: I’d say a couple of things along those lines. If we just think about Applied Materials, the market we’re in, we’re projecting that next year is going to be reasonably good, with wafer fab equipment grown in the 10 to 20 percent range. If you think more broadly about the opportunities in this industry, I think they’re endless.
I’m excited about the next phase of what smartphones and mobility are going to do. Tablets are really not very good yet — they need a couple more generations to get there – but they’re already selling 200 million units. I’m excited about the possibilities there. By “not very good,” I mean that it’s still very hard to create on a tablet, unless you’re using a drawing program. But I think those things are going to change over the next couple of generations very quickly.
The thing about smartphones that’s so exciting is that—You saw it with what Apple did in the 5S. They put an applications processor in the phone. This is just a harbinger of what’s going to come in the future. There’s going to be a much better applications processor in the future, one that can sense and control many things in the environment around you. We’re calling it the “internet of things.” These can be sensors, devices, wearables. Your smartphone is going to control all these devices. The ability to do many more functions, especially around health care and education and perhaps transportation, is just enormous. We’re going to see some dramatically increased function in the next few generations.
Some people want to think of the smartphone revolution as reaching the top of the curve. I feel the other way around. We’re just starting to reach the potential of what these devices can do for us.
VB: As for the equipment industry, I was talking to Dan Hutcheson of VLSI Research a little bit. He was saying that maybe some of the motivator for Applied and Intel was the 450-millimeter transition coming up. I said, “Oh, when is that coming?” He goes, “Oh, maybe 2020.” That sounds far away, but is that part of your thinking too? Do you see that as a big part of the future for the equipment industry?
Splinter: I’m not sure when that transition will take place. Dan is a good predictor, so he’s probably got a better date than I do. There’s a number of trends that have been going on in the overall semiconductor industry. Our customer base is very dramatically consolidated. They have a lot of money to spend on R&D. They want to move faster on these next generations of technology. For us in the equipment industry, we can’t afford to have so much duplication. We have to get ourselves focused on what the elements of those next generations of are going to be.
As we look at the future, we’ve thought that it’s precision materials engineering and patterning. When you look at Applied Materials and Tokyo Electron, you bring those fundamental skills together. If you could do that merger, it was the ideal—Really, the technology and the value to the customers is what drove the merger thinking. If you extend that thinking to 450 millimeters, it certainly makes sense. Let’s develop one set of factory interfaces, one set of software, one set of robotics, one set of platforms, and then get as many of the engineers from our companies together to think about those high-value problems that our customers need us to solve in these next generations of technology, as we move to FinFETs or whatever the next generation of transistors is going to be. We’re going to see many more three-dimensional structures in the future.
VB: I saw very little overlap between the different divisions of the companies.
Splinter: Yeah, there’s not a lot of overlap between us and Tokyo Electron. But when you start thinking about the technologies they have that we don’t have, and that we have and they don’t, I can’t wait to see our engineers get together and start comparing ideas about what new applications and technology we can create for our customers.
VB: How are you feeling about the future of Moore’s Law?
Splinter: [laughs] Moore’s Law is going to continue on for a long time. If we just think linearly, maybe in the nest 10 or 15 years we’ll run into some physical limits. But I don’t think that’s how it’s going to go. There are so many engineers out there with creative ideas for new materials and new structures. We’re going to see a huge amount of imagination go into Moore’s Law.
If you think about it, the world needs to continue to increase the density of computing and reduce the cost of computing. When there’s that kind of demand out there, the brilliant engineers we have in this industry are going to continue to find a way to keep Moore’s Law going far into the future. It may not be in the way we think about it today, but we’ll keep increasing the density of computing and reducing the cost of those functions by something like 50 percent every two years, as we’ve been doing for the last 40-some years now.
VB: Is there anything else you’d like to mention?
Splinter: The one thing I’d say that has always amazed me about this industry is that everything is made better with an integrated circuit, or by having its functions transformed into an integrated circuit. This industry still has incredible opportunity in the future. Maybe it’s the only industry that has an infinite number of applications. It’s not as new as it was 40 years ago, but when you start thinking about the possibilities of the future, it’s as exciting as ever.
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