Applied Materials' hiring of Mike Splinter as its new president and CEO last April took many by surprise. But it was a shrewd move: what better way to get closer to your customers than to hire away one of their best to run your company. The former Intel executive wasted little time in putting his mark on Applied, flattening hierarchies and tightening corporate structures, bringing a new focus and determination to the equipment giant. Splinter has also emerged as an industry voice, speaking from his unique perspective of having worked "both sides of the fence" about the need to bring chipmakers and their suppliers closer together, improve forecasting and roadmapping, and drive cycle times down.

I interviewed Splinter at the Industry Strategy Symposium in Pebble Beach, CA, in January, where the executive delivered one of the keynote addresses. We had actually talked at the same location four years earlier, when the industry veteran was senior vice president and general manager in charge of Intel's worldwide technology and manufacturing group, an interview that ran in MICRO's March 2000 issue. This time, the conversation ranged from Splinter's evolving industry and professional perspectives, to his reorganization of Applied, the changing role of the Maydan Center, and the state of e-diagnostics.— TC

MICRO: How has your view of Applied and of the equipment side of the industry changed since you've started at the company?

SPLINTER: Any time you come into a company, there's an awful lot to learn, and even though I've been involved in this industry for a lot of years, you get a different perspective when you're looking at it from the equipment side. Getting the rhythm and timing of our business in line with the cycles of the business is a really important factor for our company and for the equipment industry as a whole.

MICRO: What were some other adjustments you've had to make in terms of how you approach your job?

SPLINTER: I think more of the adjustments were becoming CEO rather than industry or specific company adjustments, because there's really no training ground to be CEO. These are jobs where you certainly have the ability and requirement to set direction with the company, but I think you also have, in this industry, in this job, the ability and requirement to set some direction for the industry. I have in the past run big operations, worldwide operations, so that was really the easy part. I'm pretty familiar with that. The difficulty is understanding the requirements of running a corporation.

MICRO: What are some of the surprises, things you didn't know about Applied that you've discovered since starting there?

SPLINTER: (laughs) The thing that struck me when I joined Applied was, (although) I'd known a lot of people at Applied, I didn't really understand the technical depth and the technical capability of the company. I think that was a very positive surprise. The capability of the company and the individuals in the company when you look inside the technology units and the product units is really spectacular. Our technical staff will compete well against anyone's technical staff. It's difficult from the outside to understand the depth of the technological capability.

MICRO: One of the things you did pretty early on is reorganize the organizational chart into seven product groups. Has that gone through any more changes, or is it more just a question of implementing the new chart?

SPLINTER: It's really implementing this chart (since) we're going to keep the basic structure of this chart. The reason for describing it in the way I did is that it sends a message both to employees and the public about how we're organized. We're organized along product business lines and we have a number of corporate functions that support those businesses. I don't know what product groups we'll have five years from now. But the basic part of the organization structure will stay the same.

MICRO: There was one group that seemed a little bit of a catchall to me—the seventh one. It included ETEC and PDC and other new business stuff.

SPLINTER: The idea with the new business and new products group is that it is really our incubation cell. As groups get critical mass, they'll move up to the business unit line or be combined with other business units if that would make sense. So I'm expecting that there'll be, over a period of time, more small business units that are in the new business and new products group, and over a period of time, they'll grow up and be big businesses.

MICRO: The recent news of hiring Mark Pinto seems to tie into that, because part of what I read to be his job description is obviously new business. So is that unit his baby, so to speak?

SPLINTER: That's his baby, yes.

MICRO: Given your background, given his background, it's a significant hire, someone else from the device side coming over to the tool side. So is that something you want to try and do: build out the management team with a few more people from the device side?

SPLINTER: I want to have some balance in the company. In this new business and new products group, I think you have to have a customer view to be able to know where the business is going and where the future of technology is going. Mark has a very deep background there and so I think he's a very excellent fit for that position. I want to make a general statement: I want to have balance and organization, and I want to have the best people managing the groups that we can find to manage them.

MICRO: I want to go in a slightly different direction now. What steps are you taking to try to partner with your customers in order to shorten the cycle, and how are those customers responding to your pleas?

SPLINTER: The first thing we have to do is look inside the company and make sure that we're doing the necessary work to reduce our cycle times. We have a strong effort going and I think you always have to lead by example in these cases. Many of our customers have a similar motivation to reduce the cycle time of their processes, and we're working with several of them. I'm working on reducing the time where we share interaction—where we install a piece of equipment in their fab and start it up, and they test it and get into production. We're working with several customers to find ways to reduce that time.

MICRO: Obviously there's a lot of focus on the 300-mm side and on your first-tier or advanced customers. Do you see any issues with how you're going to be able to deal with your second- and third-tier customers, given how much effort you're putting into the leaders from Intel on down?

SPLINTER: No. When you look at the semiconductor industry, there are not that many companies. We can certainly cover those customers, understand their needs, and reflect them in our organization. Do bigger customers get more mind share than smaller customers? Sure. That's pretty much always the case, but we try to make sure we're listening to all our customers. It's one of the key strategies that I have for the company: to be the supplier our customers want to do business with. And that's not just the top five or top ten customers—that's all the customers.

MICRO: Do you see any possible change in the competitive landscape where maybe some of the other companies might look at those so-called second- or third-tier customers and say, "That's where we can put a niche focus and maybe offer them a more consistent approach than the bigger players like Applied Materials, whose mindshare is going more toward their bigger customers?"

SPLINTER: I don't. I actually see that issue more with bigger customers than with smaller customers. It's very hard, I think . . . and I'm not sure exactly who you're thinking of to really supply that market. Those companies have to rely on getting machines that are going to help them be competitive.

MICRO: Some of the mid-sized and smaller equipment suppliers made a decision to focus on niches that have more to do with technology. They have less to do with the size of the customer. Let's say they went into MEMS, went into compound, advanced packaging kinds of things, and made good little businesses. . . . relative to you guys, little businesses.

SPLINTER: Well, a niche strategy can always work, depending on what position the company is in and where you want to go with it, you can concentrate some place and see if you can build a company that way. . . . But as a general point, I think we can support and listen and care for all the customers that we have.

MICRO: I want to ask you about the Maydan Center, one of your crown jewels. No other company has an integration center quite as large and deep and sophisticated as you guys do. What changes in philosophy or strategy for the use of the Maydan Center have you tried to bring to the table?

SPLINTER: Here's the major change: The previous approach was to determine whether we could sell modules as a prime focus of that organization, so to sell and get revenue for a specific module, whatever that part of the process was. How I've changed the direction here is to really focus on integrating the processes of our equipment together so our equipment runs best with other pieces of Applied equipment. It gives us a tremendous ability to test out films, test out properties of films, and improve the performance of the first tools that we deliver to the customer.

But what we're trying to do is sell tools. That's the endgame here, and getting customers to work in the Maydan Center, to utilize the Maydan Center for customer wafers and then for integrating our tools together so they work best with one another, so that we have a legitimate argument that says, "Buy Applied Materials tools and, by the way, if you buy this film, it will etch best with this etcher." It still gives the customers a choice, but we really do the work that hopefully makes it a real value to the customers.

MICRO: Do you think you're using it more to help allow the customers to improve their yields or, in another case, maybe come through the APC and productivity door in terms of some of the changes you've made?

SPLINTER: It will help us deliver products that will create high yields for our customers, but I think the thing you have to realize, and part of the reason that I made the direction that I made here, is that every customer's process is different. And so, specifically what they might do on yield or particles or on film quality is different for every customer. So we accommodate as much of that as we can, but most of that kind of work happens at the customer site. There's no substitute here for having qualified engineers, technologists at the customer's site, working with alpha or beta tools that are there now. If we did our job right at the Maydan Technology Center, those tools are pretty good by the time they get to the customer, so we can move more quickly, get them into production with more certainty.

MICRO:What are some of the things you're hearing from the customer in terms of wish list or hot-button items that they would like to see from your toolsets, with some particular examples, things where they want to see improvements, or other areas.

SPLINTER: There's technological capability, which we're constantly working on. A couple of those areas: lithography is always a big issue and you wonder, well, Applied Materials doesn't actually play in the lithography field. In fact, we polish films, and the variability in those films, the reflective properties of those films, the hard-mask properties of those films, are incredibly important to how lithography is done on the wafer. It's not just whether it's exposed and developed in a certain way. So that's an area where we see a lot of growth and a lot of interest from our customers to ensure that the films we polish are flatter, smoother, more uniform. The new hard-mask films that we're depositing have the right reflective properties to ensure that the lithography can be done in a particular way.

As we move into the future, as people start thinking about how to improve the transistor again, we're starting to do work with a number of companies on high-k dielectrics and metal gates. This is another area where the interest is starting to increase, but these are areas we have to be selective and cautious about, because we know they will happen, but managing the investment and getting the right capability in place versus when they are actually going to move into production is, I think, quite a balancing act. . . . We can continue to do research, but we do it at the right level where we aren't cranking up to think that a particular tool is going to be in production in six months when it's going to be two and a half years.

MICRO: Do you see an increasing role for basic research done in conjunction with universities and consortia, the real root-cause stuff?

SPLINTER: I see an increased role in doing the selection and reduction of variables, because the number of possibilities is increasing, not decreasing. We get over the fear of having copper in the fab and it opens the door to every element on the periodic table. And that's an issue, so, I think, there's a great role for Sematech, IMEC, these kinds of consortia, to help narrow the field so that equipment suppliers can actually make machines that are going to be production worthy, not research tools that can handle 25 different chemicals.

MICRO: In the new ITRS, they pushed the two-year [cycle] out to three years again, yet six or eight of the top ten are still on a two-year [plan]: Intel, IBM, TI, Samsung, ST, for example. So when you heard the roadmap was going to be extended, obviously you knew that, well, that's just the roadmap, and corporate roadmaps are still what they were before. Do you see that offering any relief in terms of the cycles?

SPLINTER: I don't think so, if you think about it as a distribution. So let's say people are going to be between the two; some, the leading-edge people, are going to be on the two-year roadmap; the lagging-edge people are going to be on the three-year roadmap. So when do we have to be ready with the new tools? We have to be ready when the first guy is ready and wants to move.

I think this distribution is interesting. Let's say there is a group of players at two years and there is a group of players at three years. Over two or three generations of technology, does this mean that the three-year players are three years behind? Is that what it means? It can happen, and maybe it has happened to the degree that various previously vertically integrated semiconductor companies have dropped out of making semiconductors.

So maybe this has been happening in the past and maybe it's a symbol of what's going to happen in the future that maybe there'll be some more that fall off, but my observation is that for every one that falls off, there's some new guy that comes in. We get Elpida, or we get ProMos or Powerchip or SMIC or Grace, and you start thinking about it, and the number of customers hasn't really diminished much, so maybe some more are going to fall out of the semiconductor manufacturing game. . . .

MICRO: And you get the combinations—Renesas, that's a pretty heavy-hitting combination. . . .

SPLINTER: That's right. And I think that we should expect more semiconductor companies in China, not less.

MICRO: China! Thank you for getting there. They're starting their 300-mm cycle now. . . at least the plans are on the table. Seems like SMIC especially is the most aggressive company, at least from my perspective. But still, there's a large part of the market over there that isn't even new tools. I know you recently announced the center with Meidensha that you're establishing in Shanghai. So there's that balance between the high end of the Chinese market and the mainstream part of it. Again we come to the two tracks. Could talk about that a little bit, first, some specifics about the joint venture, too, and then what you expect from that and hope to achieve.

SPLINTER: The Meidensha venture is part of an overall strategy on having the capability to refurbish used tools. It's a way to extend the life of 200-mm operations without facing the cost of buying 300-mm tools that are downgraded to 200-mm tools.

MICRO: Any 150-mm stuff in there, or is it all 200?

SPLINTER: There's some, but most of it is 200. There are some different motivations that are going on, but we have a capability in Austin to do refurbished tools. We also have a capability in Europe to do that. And we needed to have an operation in Asia. We've had dealings with Meidensha, a Japanese company, for a number of years, and so this extended our relationship to China and the countries around China. So I think this is a good relationship. I think what we're going to see in the used tool market, though, over a period of time, is this market will peak relatively soon because, as you move, there are no used 300-mm tools, and it's unlikely that there will be for the foreseeable future. People are going to be ramping up these new fabs, maybe if we have a huge downturn there'll be some excess tools, but we'll see how that goes. If people manage capacity properly and we get continued volume growth, there won't be too many. . . .

MICRO: And you're not going to have a huge downturn, right?

SPLINTER: (laughs) Who knows? So this is part of an overall strategy. Now what's happening over in China. . . I think there are a number of motivations. One is the motivation on labor costs that people move older factories to China. There's also another motive for them to move factories to China and that I think everybody is clear that there's going to be a strong market in China. Learning how to do business in China is not straightforward. It's getting more straightforward every year as the economy opens up and the government loosens regulations, but it's still complex.

Whenever you move into a new region, you try to establish infrastructure, learn how to hire people, get managers trained and capable. So much of that activity, while I think it has an economic foundation, is also a look to the future to establish a capability and infrastructure there so they can build on that in the future. It depends on how the controlled country rules evolve, how trading of the yuan changes over the period of time. All these things. I think you'll see these smaller operations be springboards to much bigger operations for multinational companies in China.

MICRO: So the refurb plan is obviously a first step, and then down the line you'd be looking at the possibility of building new equipment there if things changed in such a way to permit that.

SPLINTER: That's a decision we have to take at the appropriate time, but we're expecting China to be a good market for us. We expect it to grow. It's the next phase in an industry that has evolved over time from, in the 1970s, primarily the U.S. and Europe to a strong Japanese industry to a strong Korean industry to a strong Taiwanese industry, and now this industry's growing in China.

MICRO: I want to talk to you about something you mentioned in a talk a few years ago when you were with Intel—the whole e-diagnostics thing. Are the customers any more trusting of e-diagnostics and remote monitoring and things of that nature?

SPLINTER: Some are, some aren't, but on the whole I think the movement has been small. And, I think, in part we really have to work on this trust factor and assure our customers that there's no possibility of loss of information. But having the ability to access experts internationally or wherever the expert is, as opposed to having to have them get on a plane and travel 12 hours is a huge, huge benefit. And that's just one element of the capability.

Also having an escalation structure, if you will, that the person on the floor, first of all, should be able to get more information at the tool level. That's important factor number one. They have better diagnostics at the tool level, they'll fix it faster, the cost of service will go down, there will be a huge benefit there at that time. And that's, I think, the most critical and highest cost leverage. The next levels moving up in the structure are important, but not as important as having great diagnostics on the tool when it's being installed, when it's being started up, when it's running in production.

MICRO: With 300 mm though, it seems that the need and the demand for APC capability has definitely increased because you're talking fully automated fabs, for instance. I mean, that's a large driver. Certainly the Intel people have embraced it at 300 mm.

SPLINTER: Simply because of the amount of revenue you have on one wafer, losing a wafer is a bigger and bigger deal, and losing multiple wafers is obviously an even bigger deal, so ensuring the process is in control and being adjusted to produce the best results on every wafer... there's real momentum there.

MICRO: One final question: If you had known what you know now from the vendor's side, when you were at Intel, what might you have done differently, or at least how might your perspective have changed?

SPLINTER: I don't know that I would have done a lot differently.

MICRO: It's kinda "woulda, coulda, shoulda," I know.

SPLINTER: It is, and I'm just thinking through a number of elements. One of the dichotomies of the semiconductor industry versus the equipment industry is the semiconductor industry wants to do everything possible to lower capital equipment cost. It is to their benefit in the thought process to say, well, the biggest part of our cost is capital equipment depreciation. Gee, if we could cut that in half, we'd make, you know, a huge amount, our gross margin would go up.

The capital equipment suppliers want to have maximized capital equipment spending and minimize all other [spending]; we have the same objective in having wafer costs be minimized because if wafer cost isn't minimized, then you limit the amount of profit that our customers make, and therefore limit the amount of investment capability. You've got to keep the industry growing, so wafer costs we want to keep generally the same. I think we're similar on that. But their priority is to reduce depreciation, and our priority is to increase depreciation. And that is a big dichotomy, that is the fundamental disagreement between the companies. So it's in their best interest to commoditize us and it's in our best interest to resist commoditization at all costs.

MICRO: So have you gone back to your former employer and asked, "Could you be a little gentler with us? Now that I'm on this side, I understand them a little bit better?"

SPLINTER: (laughs) I'm simply trying to do a good job for them and for all our customers.