Applied Materials Inc (AMAT) CEO Gary Dickerson Presents at 2020 Bernstein Strategic Decisions Conference (Transcript)

May 30, 2020 1:22 AM ETApplied Materials, Inc. (AMAT)
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Applied Materials Inc (NASDAQ:AMAT) 2020 Bernstein Strategic Decisions Conference May 27, 2020 2:30 PM ET

Company Participants

Gary Dickerson - President and Chief Executive Officer

Dan Durn - Senior Vice President, Chief Financial Officer

Conference Call Participants

Stacy Rasgon - Senior Analyst, U.S. Semiconductors, Bernstein

Stacy Rasgon

Good afternoon, everyone. I'm Stacy Rasgon, I am Bernstein's senior research analyst for the U.S. semiconductor space. Before we begin, I'd like to say a word on how our interactive Q&A is going to work during the session. We're using a service called Pigeonhole. There's a link on the left side of your screen to access Pigeonhole. When you click on that link, it will open up a new window in your browser and the video will continue in your prior browser. You'll be able to submit your own questions during the session in the box at the top, and you can vote on questions that have already been submitted by pressing the up triangle next to any of the questions. So please go ahead and click on that Pigeonhole link. Hopefully everyone has now done that. You can submit questions for AMAT beginning right now. And at any time during the presentation, we will leave on room, if need be for Q&A at the end.

Also working with our partner, Procensus, to do live polling on the presentation after the session ends, a link to the Procensus pole is also on the left of your screen. Again, this will be a live poll with immediate access to results and sentiment on AMAT for those who choose to submit. So do please take the 60 seconds it will take to fill out afterwards. With the logistics out of the way now, I can't express what an honor it is to have our guests, plural, here today, Gary Dickerson, the President and CEO; and Gary Dickerson, CFO of Applied Materials. Now the semiconductor capital equipment industry has been enjoying a bit of a renaissance over the last several years. And even given some of the current conditions, I'd say total WFE spend remains very strong compared to prior peak trough behavior. I'd say the much anticipated end of Moore's Law far from reducing the need for customers to spend on equipment seems to have in fact made the contributions from companies like AMAT more important than ever as materials driven innovation moves to the forefront of process technology development.

Now, obviously, in the current environment, there are some near-term controversies around the trajectory for the wafer fab equipment spending, given the current COVID situation and some of the geopolitical issues. But over the longer term, I think controversies around the changing dynamics that could allow the industry over that long term to remain a secular rather than cyclical grower, new opportunities and new applications for leading-edge growth, consequences of the shifts with China and everything else. I think these are the primary controversies. And then many investors are focused on these things. And to answer these and other questions, it gives me great pleasure to welcome Gary and Dan with us today. Guys, thank you so much for being with us today.

Gary Dickerson

Well, thank you for inviting us, Stacy, and best wishes to you and your family and everyone that's on the call today.

Question-And-Answer Session

Q - StacyRasgon

Thank you. Thank you. Now, Gary in this format I’d like to stay away from the near term stuff. Today just given what's going on, I'm not sure I'm going to be able to avoid it. But before we go down that rabbit hole, I do want to start higher level and more open ended. I mean, again, consistent with some of my earlier comments, near term cyclicality and virus aside, I mean the structural attractiveness of the semi cap industry has, at least to my eyes, greatly improved over the last decade plus. I mean, the contributions and value that the sector is adding to semis especially as Moore’s Law gets ever more difficult to be growing every year. Cyclicality is still there, but it seems to be reduced. The semi cap companies are now profitable I believe -- well, very profitable I believe even at the trough of the cycle. The magnitude is very big or bigger. I mean even trough levels of WFE spend today seem to be decently above where the historical peaks sat. So I was just hoping you could give us just a minute or two of your thoughts on where you kind of see semi cap is broadly, kind of obviously you've been in the industry for a long, long time, where you see it going? And at least at the high level for the moment, how you think AMAT fits into that story?

Gary Dickerson

Well, thanks. Thanks for the question, Stacy. So, we look at this near-term challenge that we're facing. Technology is going to transform every industry and we see that every day in this current situation. E-commerce certainly has been accelerated. I have 10 year old twins, a little boy, little girl. They get up every morning and do their remote school, their remote learning, every -- again, all of these changes are going to be the most profound that we've ever seen over the next decade. And it's all accelerating in this current environment. And I can talk later about how Applied and how we will work different going forward based on technology. But if you go back over many years, you went from mainframe to PC, PC to mobile social media with a camera and computer in your pocket. And now we have AI big data transforming every aspect of our lives, a trillion connected devices over the next decade and generating all of that data, storing, processing, connecting all of that data, biggest opportunity of our lifetimes. At the same time, you talked about Moore's Law slowing down. I think it's very evident. You look at the rate of technology transitions are much longer and much more difficult. And our customers care about performance, power, area, cost and time. So PPACAT as the big driver. And when you think about the infrastructure for these trillion connected devices on the edge or the cloud and the power and performance that you need to enable that future data economy, you cannot scale what exists today. You have to innovate. And the innovation is not going to be just shrinking in two dimensions. Again, you'll see many, many people talking about new architectures, new device architectures, new structures, new ways to shrink, new ways to connect devices together, new materials.

Those five drivers you see repeated by a number of different people in enabling the future and Applied is in the best position we've ever been in because we have the broadest portfolio to create, shape, modify, analyze and connect structures and devices. So our relationships with our customers have never been better. You have the biggest inflection of our lifetimes at the same time that you can't scale what exists today and enable that future. So that's a tremendous, tremendous driver for us. We've talked about the next few quarters and this year seeing strong double-digit growth. So even in this current environment, applied is extremely well positioned. And I would say over the long-term, we've never been in a better position than where we're at today. I don't know, Dan, if you want to add anything to that.

Dan Durn

Yes, I couldn't agree more. Gary. The megatrends that are shaping semis and by implication, semi cap equipment industry are firmly intact, and I would argue they are even stronger today than they were maybe six months ago. And as you take a look at what's happening, work from home, school from home. Companies are thinking about how they're going to optimize their operational footprint and flexibility, how they're going to build that into the system. When you think about localization of supply chains, whether it's geopolitical or COVID related, localization of supply chains, There is going to be a stronger demand for automation and intelligence into those supply chains. And all of those come together, I think, to make those megatrends that shape our industry even stronger today than they were six months ago. So I couldn't agree more with where Gary is going and the opportunity set in front of us. It's never looked this good.

StacyRasgon

Thank you. That’s I think a good way to sort of set the stage for today's discussion. If I were to dive into those next couple of quarters, though, Gary, as you mentioned, just to look at it, you didn't give official guidance. You did, however, give a view of where you thought things might go. You talked about with the $650 million of potential push outs that you say get satisfied in the second half. And it does really seem like we see overall the demand situation staying very robust within that kind of soft guidance you've given for Q3 and Q4 for kind of continued growth. Can you just talk a little more about the different dynamics that you're seeing maybe by region or any of the other differences across your customer base? And what are the different things that can potentially swing this positively or negatively? Over the next couple of years?

Gary Dickerson

Yes. So when we think about the overall market, when we think about the overall market, we've talked about foundry/logic continuing to show signs of strength in this environment. And when we think about what we're seeing, it's multiple customers and it's multiple nodes. I don't think you can narrowly look at what's happening in foundry/logic today through the lens of a single customer and what that investment profile looks like for them. I think there's a broader story playing out, multiple customers, multiple nodes, and we see that in our business. We gave some insight into what we think for the rest of our fiscal year. And then from a memory standpoint, what we see is continued investment in technology roadmaps. And we’ve talked about the second half of the calendar year being a bit of the swing factor in terms of what happens to wafer starts per month in that industry to really dial in bit supply to meet end market demand. And 2019 is a good baseline and benchmark to think about the memory industry. WFE, the overall market size was $51.5 billion. Memory was 40% of that, foundry/logic was 60%. And there is balance between device types within memory, roughly equally weighted DRAM and NAND. And that was an investment year in just technology roadmaps where you actually saw wafer starts per month in each of those industries come down year-over-year. And I think that's the first time in history we've seen that dynamic.

We see a similar thing playing out in 2020, strong investments from a technology roadmap standpoint. And I think the big question in the back half of the year is where our customers dial in wafer starts per month. Do they let it fall for a second year in a row? Do they add some incremental greenfield capacity to bring it back up to where we exited 2019? Or do they grow it a little bit off of those 2019 levels year-over- year? I think that's the question mark right now. And the answer to that is, it certainly going to be a function of the offsetting pushes and pulls we see in the market. Cloud, PC, infrastructure, comm infrastructure, showing signs of strength; consumer-oriented devices, automotive, industrial, some pockets of weakness; and ultimately how the consumer responds to containment actions that governments are taking around the globe and what that means to the shape of the recovery. V shape, U shape, elongated U, W, fishhook. There's a lot of different sort of descriptors of how things could play out. They'll dial in that capacity statement to make sure bit supply meets true end market demand. And I think that'll be the swing factor on what we see this year.

Stacy Rasgon

If I take what you just said and I sort of extend on it a little bit, the argument to me that you just made was for continued increase potentially in capital intensity. I mean, you talked about like wafer starts coming down, but still a very strong kind of overall market with the technology investment. The technology investment doesn't stop. We're just getting started. Like what are your thoughts on capital intensity trends, both in memory as well as logic? I mean we see memory capital intensity go up multiples, for example, in the last few years. We've got more layers and everything else coming on top of that. And so I'd love to get your point of view on, I guess, within the framework you just said, how you see capital intensity across both of those on end markets, memory, logic playing? Because with what you said, it really does seem to sort of fuel that kind of thesis.

Gary Dickerson

Yes, I think if you look, Stacy, at memory, I think it was maybe 2013 investor meeting, we talked about the shift from 2D to 3D NAND. So, that was a major shift. At the time we first started talking about that, it was still very early relative to that transition, but a tremendous change in term shift from the 2D scaling to 3D scaling. And we see that continuing. If you look at the memory market, people are going to higher stacks, multiple stacks, different technologies for the peripheral areas of those types of devices. And so all of that is …..

Stacy Rasgon

Memory…

Gary Dickerson

Pardon me?

Stacy Rasgon

You don't think that asymptotes in memory is like you went from 32 layers to 64, you're doubling, right?

Gary Dickerson

There is going to be tremendous innovation, Stacy, and memory technologies. And certainly, I think the NAND technologies, they're going to continue to drive forward. It's all about materials. It's how high can I build the skyscraper? And you go with different materials. That's an area. That's an opportunity for Applied that try to make those materials thinner or different types of materials. And there will be tremendous innovation. In DRAM, you see that is very difficult. Adding letters to the technology nodes, many, many letters. I think that's an indication people are having a really hard time scaling the current type of device. You see a lot of innovation around high speed memory. So that's where they're adding processes like high-k/metal gate. That's also very good for Applied. It's similar to 28 nanometer foundry. And so you're adding those kinds of technologies because the input/output speed, the bandwidth is very, very important for many of those memory devices. So that is continuing to increase. I would say on the -- and you will see tremendous innovation going forward, not just incremental innovation, if you look out over a period of three to five years in terms of those memory technologies. And of course, customers are investing and working on those future structures today.

In foundry/logic, it's really all about power, performance, area and cost. And so when you think about, again, the trillion connected devices and you have devices on the edge or in the cloud and we're working all the way to some of those big systems companies relative to their strategies and what they're deploying and that whole continuum from the edge to near the edge, to the cloud, their power consumption is enormously important. If you look at all of the data that you're processing from an application focus and application specific type of a device, power consumption is tremendously important. Latency and bandwidth is tremendously important.

So what we see going forward is a tremendous focus around structures, tremendous focus around materials, tremendous focus around how you connect those chips together. I don't want to talk about everything we see from a competitive standpoint, but absolutely, that is really the nature of the competition for all of those different customers. And we're deeply, deeply, deeply connected to all of those leading companies. I'm on the phone many times a week with all of the R&D leaders, CEOs of many of our leading customers driving those technology roadmaps.

Stacy Rasgon

So I guess to build on that, I mean, if you're focusing on performance and power and the area and cost, and time, those are the variables. What are the technology inflections that you think are most critical in order to support and drive those requirements. And like where is AMAT like placing their bets in order to attack it? What are the key areas that you guys are focusing on from a technology standpoint to do that?

Gary Dickerson

So near term, you have the transistor technologies. One of the things I talked about 18 months ago was an approach that can improve gate leakage by 1,000 times. And really what I described there was an ability to bring together different technologies in a single platform. As you're building any of these different devices, all of those interfaces, Stacy, now you have 1,000 steps as you go to build up all of those different structures, those interfaces are very, very critical for electrical performance. So combining some of these technologies under vacuum, very high vacuum, so you're not oxidizing or damaging those interfaces, incredibly, incredibly important. So within Applied we added new capabilities in the company to understand all of those structures and integration. We have deep, deep, deep engagements with our customers around the transistor. I talked about that one particular technology. The focus there is to improve drive current 10% to 15%, which is huge. And then also in interconnect all of the wiring in the chips. That's also a major technology challenge for our customers. You can make it faster, but if you lose it all in resistance and the wiring, obviously that impacts your system. And so those are areas, Stacy, where we have tremendous technologies and capabilities to create, shape, modify, analyze and connect those structures and devices. And I would say the other one is how you connect chips together. There's tremendous innovation that's happening there. You can see some systems going to market that are 3 times faster and 50% lower power just in how you connect the chips together. So those are big, big areas of focus for Applied in engagements with customers.

Stacy Rasgon

Now can you talk a little more about some of the scaling techniques that AMAT is most excited about? So, for example, you talked about like selective action in the past, you talked about cobalt. I think you're looking at things like selective deposition now. Like what are the areas do you think where AMAT is like truly differentiated and what are the problems that those things are solving?

Gary Dickerson

Yes, I think that it really comes back to creating, shaping, modifying, analyzing and connecting devices and structures. So if you look at Applied, again, you look at interconnect. How do I build those future high speed, low power transistors or how do I wire all of those transistors together? And then how do I connect that into a system in the future? So for us, it really is all of our deposition technologies. We had a great year last year relative to growth around those different technologies epi, PVD, ALD, CVD, a number of different areas where we have tremendous strength. We have strength in removal. Our etch business, certainly we've grown conductor etch to over 30%, mostly in memory. We have tremendous growth in foundry/logic, tremendous momentum, significant growth from node to node. We have the selective removal technologies where we can remove one material selectively, 1,000 to 1 or 10,000 to 1 to any other materials that are around it. That allows you to build structures in a completely different way. And then in the modification area, there are a number of areas where we're modifying those materials, we're modifying those structures.

And then the last one, I would say, Stacy, where we have momentum, we had record performance in our inspection and measurement business in the first half of the year. We have always had strength in electron beam. We have new capabilities there that are 50% higher resolution than any technology that exists today. So if you think about building some of these structures, if I want to build a nanosheet or a gate all around, seeing that structure is very, very, very critical to speed of innovation. And we have a new optical inspection system, too, that we'll be announcing soon. So we have tremendous strength and that's one of the fastest growing parts of our business today. But the other thing, Stacy, I would say, besides those individual technologies, it's really connecting those technologies together that will become more and more important in the future. So having that broad portfolio of technologies and competencies, really -- relative to enabling those future structures is really important. And the gate leakage example I gave is one example of many where we're deeply engaged with customers.

Stacy Rasgon

What does EUV mean to you as nodes progress? I mean you talked about increasing opportunity for note to node. But EUV is also gaining more and more use node to node. And presumably that's taking some way. What does that interplay look like to you?

Gary Dickerson

Yes. So if you look at last year, EUV certainly right now is at the highest. If you look at the rate of growth, last year was high. We gained share overall even in a year where EUV penetration was increasing. We've talked about strong double-digit growth this year and another year where the rate of change is very high. So really, again, I deeply believe -- and I believe this is going to be more important in the future than it is today, relative to the five drivers of the technology that I talked about, new architectures. The short term will improve the transistors, will improve the interconnect. Longer term, you'll have analog computing, in-memory computing, more 3D devices, tremendous innovation from a device structure standpoint, tremendous innovation from a material standpoint, a tremendous innovation from connecting all of these devices together. So that really is the future. And again, last year, we gained share in the area where the rate of EUV penetration was high. This year, we're gaining share. We are also working on innovative patterning technologies.

One of the things I think we talked about two quarters ago was a new technique for multiple patterning that reduces the number of steps, 30%, improves the edge placement. So we're definitely also very focused on patterning EUV coming in. Those steps were not Applied steps in the past. And so those are other areas for us from a growth perspective. And I also talked about significant growth in foundry/logic in our etch business from node to node. So those are all drivers. I don't know, Dan, if you want to add anything to any of that yet.

Dan Durn

Yes, no, I think that was really well said, Gary. I really don't have anything to ad.

Stacy Rasgon

Okay. So overall, do you think that semi cap outgrow semis, do you think the capital intensity of the industry overall continues to go up, plus it sounds like you think you continue to take share. Would you agree with both of those statements?

Dan Durn

I would agree with both of them, Stacy. But I'm always wary of creating an argument that says our industry is great if capital intensity increases. That's a true statement. But I don't think you need to buy into capital intensity improving. I think there's a strong argument that it would over time. And Gary mentioned a lot of things that would drive that. But if you look at the last 40 years of our industry, I think the average WFE divided by semiconductor revenue, I think it's about 11.5% on average over four plus decades of industry history. You know what it was over the last five years? 11.5% on average. And I do think that there is a dynamic that says it grows over time. If you look at 28 nanometer, about $9 billion to $10 billion to build a 100,000 wafer start a month factory, just the factory floor equipment. 7 and 5 nanometers, which are being invested in today, are 50% to 70% higher from a capital intensity standpoint than we saw just a few years ago at 28 nanometer. It would suggest over time that there's an upward bias. Gary talked about transistor techniques on the periphery of DRAM to get faster IO speeds. We really like that development. We were foundational in driving high-k/metal gate into foundry at the 28 nanometer node. And it's great for our leadership businesses, epi, PVD, thermals, implant, really good technology inflection. And I think you alluded to it in one of your earlier questions. In NAND, $1 billion of investment is yielding lower bit growth than it was in the past.

32 to 64 is 100% growth. 128 from 96 is 30% growth. And so you've got a bit of a math problem which creates incremental investment is lower utility from a bit growth standpoint. And so I think the setup in the industry would suggest that, yes, capital intensity rises off of what we've seen in the past. But I don't think you need to believe that argument to think that this is going to be a nice growth industry over time as semiconductors punch through 500 billion, on their way to 750 billion, on their way to $1 trillion as the data economy cuts in.

Stacy Rasgon

Got it. I think that's a good view of kind of like how you're operating. I want to shift the discussion a little bit to what you're operating within right now, in particular China and some of the new regulatory and geopolitical risks that seem to be out there. First, I want to ask you about some of the new commerce department rules, in particular the military end user restrictions. The first time I've ever seen the commerce department ever explicitly mention semiconductor capital equipment directly the press release. That does seem to be a strategic area that the administration is now starting to focus on. What is the impact of some of these new regulations on your business? How do you see that playing out?

Gary Dickerson

Yes, relative to the military end use, we talked about that on the earnings call. Basically, we believe that we'll be able to comply within this time period and we don't see a significant impact on our business. So -- and I would say that since our call, we're definitely aligned with that, maybe even a stronger understanding relative to minimal impact to our business. We do have, and we talked about that on the call, significant flexibility from a geographic footprint perspective. I think many investors know we have large operations in Singapore. We have large operations and Austin. In many cases we’re dual building products between those two operations. That really helps us also from a business continuity perspective, whether it's COVID-19 or any other type of situation. But again, Stacy, what we've communicated on the call is still the case. We believe that we'll be able to comply with minimal impact on our business. And then Dan, I don’t know if you want to talk about the other regulation that came out after our call?

Dan Durn

Yes. So the second of the two, as it relates to Huawei, is not necessarily -- have implications for us, but certainly our customers will have to apply for a license. And again, based on interactions with government officials, senior level advisors who used to be senior levels official in the government, and because this is a rule targeted at our customers for compliance, certainly there's a lot of interaction throughout the combined ecosystem. When we net all of that together, based on what's written today and we're still in the comment period, the final rules will be promulgated in a couple months. But at least what's written today in interactions with advisors, ecosystem government officials, we think there's a path forward where there's not a need to reprofile our expectations for the balance of the year. And so based on our understanding of what’s written today, we feel pretty good about our path forward to have compliance within the industry that doesn't significantly impact the business.

Stacy Rasgon

I mean, for the rest of the year, is that just a statement of kind of like a four month waiting period that's there now, or is that a statement on demand at one customer shifting to another customer, like what gives you that kind of confidence?

Dan Durn

Yes. And so it was less time bounded other than for the fact that we gave insight around how we see our business unfolding over the next couple of quarters. But our point of view of this impact isn't trying to thread a needle that says in the near-term it's not impacted, but there's longer term. We think there's a path forward on this based on our discussions with the ecosystem where it doesn't impact our expectations around the business. And so it's a much broader statement on what we think the ultimate impact is, again, based on what’s written. The only reason for time bounding it was connecting it back to the earnings call and what we said around our Q3, Q4. But we've got more line of sight on this issue over a longer period of time based on metrics.

Stacy Rasgon

I wouldn’t think you have this like over -- not just like the next couple of quarters but over the next like several years, I mean it seems to me -- I'd like to be hopeful, but at the same time, it seems to me that the geopolitical environment is getting worse, not better. And we are already seeing just because of the trade stuff, we're seeing supply chain start to move and everything else. What does it mean for you in terms of like China's move towards self-sufficiency? An, we've already seen smaller semi cap companies at least try to take like little niche bits and pieces out there. What does that mean if I'm thinking longer term, five years, 10 years? Is there a bifurcation of the supply chain, of the manufacturing? Is this a positive because there's more inefficiencies and therefore you need more equipment or the negative because like China can build their own. Like how does this play out if we're thinking out long-term strategically? You have to still -- you have to be thinking about this like longer term presumably.

Gary Dickerson

Oh! For sure. Yes, definitely thinking about that. I would say that relative to the overall electronics ecosystem, if you look at the interconnection across the whole ecosystem, it's pretty significant. And if you think about Stacy, what we talked about earlier relative to the data economy and 1 trillion connected devices and generating, storing, processing, connecting all of that information and that infrastructure, there are different parts of the world where you have leaders and different kinds of sensors or you have leaders and different types of memory devices, and leaders and different types of processing or connecting the device together, whether it's 5G or 6G or any of those different technologies for the future. So the global electronics ecosystem is very interconnected and our view is certainly that we believe in free and fair trade and intellectual property, and it's in everyone's best interest to have a constructive environment going forward for the future.

So that's -- I believe that there's such a deep interconnection across that whole ecosystem that there's a lot of good reasons why it would be good to come up with a constructive solution. Relative to our view, I still look at the next desk decade, Stacy. That technology is going to transform every industry. And as I talked about earlier, COVID-19, we see that now accelerating across many, many parts of our lives. So we still see that. And as I've talked to some of the CEOs recently of some of our largest customers and we've talked about this specific topic, these trends are tremendous waves that will drive their business and will drive our business. And so that demand is going to be there, no matter how this plays out. And I think certainly that ending up in a more constructive place relative to employment growth, economic growth, all of those things, I think from a global perspective, a constructive solution is going to be the optimum outcome. But again, longer term, these trends are inevitable and are going to be really great drivers for our business. And if you think about TSMC, the TSMC announcement here recently and certainly I've been encouraging them to make that move. And as though -- any of those customers move to new geographic locations, away from their centers of talent, from a technology perspective, that does create an opportunity for us. And certainly and I've said that Applied will do everything we can to support success and that type of strategy. And certainly there's a potential we'll see more of that in this environment. But I would go back to, it's in everyone's best interest to have a constructive outcome from the entire electronics ecosystem.

Stacy Rasgon

Yes, I am going to ask a question from the Pigeonhole. We've got a number of votes wanting to know about the prospect for your customers, Pigeonholes I think. But Ross said from your -- for your customers to potentially try to diversify their equipment supply out of you like some -- is that something that is practical? Like how do you judge that risk?

Gary Dickerson

Well, yes, maybe the other aspect of your previous question was, are suppliers going to emerge in different parts of the world? I would say that is extremely difficult. If you look at -- and you talked about it earlier, the technology roadmaps are very complex. They're very difficult. And it's all about competing on power, performance, area and cost. And so our customers are driving those roadmaps. It's life and death for them relative to how fast they drive those roadmaps, how fast they drive the innovation and Applied has never been in a better position than today, enabling power, performance, area and cost. We have tremendous deep engagements with our customers. We are absolutely essential relative to those foundational structures, materials, all of those drivers for future innovation. And I would also say our technology pipeline of products and capabilities has also never been better. And you'll see more of that as we go forward over the next months. But very, very, very strong position. And I would also say you have to look forward, not back. You can't scale the infrastructures effectively today for this future data economy. You're going to have to drive tremendous innovation.

So I think just scaling what exists today is not a winning strategy. We have to innovate. And also for Applied I would say we're driving our innovation faster today than we ever have. I have a goal inside the company to go 10x faster and better, not 10% better. So, again, I believe that we've never been in a better position relative to the whole ecosystem within Applied Materials.

Stacy Rasgon

So I guess along those lines then, like how is that ecosystem changing? What are you doing differently with companies and customers like today that things may be change that didn't work in the past that you're doing now? How are you helping them address problems, frankly, that they may not even know that they have today, let alone know how to address them? Like what are you doing differently today than that you were doing five years ago or?

Gary Dickerson

Yes, I think that a couple of things I would say. One is, really looking at the combinations of technologies. So the creating, shaping, modifying, analyzing, connecting and bringing those technologies together, I've done maybe a 100 products in my life and I believe you can't survey innovation. So really approaching the problem, Stacy, and fundamentally a different way is what we've been driving over the last two or three years, bringing in different kinds of talent from this -- from a standpoint of materials to systems, understanding all of the steps necessary to get to a disruptive edge device or a cloud data center, those types of things. So I would say we've made tremendous progress in terms of the talent, the technologies, restructuring the organization and driving that type of initiative. The other one that we've been focused on and I've been personally focused on over the last 18 months is really changing how we work. And so, really thinking about how do we reengineer our process development, how we connect with customers in the field and certainly with COVID-19, we're all faced with how do we work from a remote perspective. And I would say we're doing a fantastic job in our labs, they're all up and running. We're driving innovation. But we're working in a smart way where we're managing social distancing. We're connecting remotely to many of those products. We may have someone in there loading wafers or unloading waivers, but even running the tools from outside the lab. And so, more of those types of technologies. There's going to be tremendous innovation in terms of the speed of R&D. How we help our customers ramp these multibillion dollar factories. How we connect to maximize yield output and cost in high volume manufacturing.

Applied has thousands of tools in the field that are already connected remotely outside of those factories. So if you think about it, if you have eyes and brains and new sensor technologies that you're implementing into these systems, and if we can connect with the best expert anywhere in the world in a very safe, IP protected way, it's enormously impactful, and speed and effectiveness for Applied inside our labs and also connecting with our customers. And certainly we already have thousands of tools connected in this environment. Every customer is looking at how can they work better and faster. And so, I think it's just a tremendous opportunity for us to reengineer how we work.

Stacy Rasgon

So I guess along those lines, as we think through the pandemic, you expect your priorities to shift at all, especially as they relate -- whether it's increasing levels of investments in certain things or cutting costs. Like how do you expect your priorities to shift as we look through this?

Gary Dickerson

I would say that this creates an opportunity for us, Stacy. It forces you to rethink how you work and what you do. And I -- again, I had already been very focused on driving the R&D acceleration. That's really been a tremendous focus. We've had significant progress in terms of the technologies that we're driving. That pipeline is extremely strong. But we're rethinking everything we do in the company and how we work across the entire company. Dan's group is driving agile finance and it really gets back to reducing or eliminating some of the things that are not creating tremendous value and reengineering many significant parts of our company. I think it's an enormous opportunity for us to work better and faster and more productively and more efficiently. I don’t know, Dan, if you want to add anything on that?

Dan Durn

I think that's exactly right, Gary. And I think most companies on the planet are reflecting on this. But we certainly are in a very, very deep way how we organize, how we're structured, to how we do more from an efficiency standpoint, from an agility standpoint. You see it in the way that we're connecting with customers and tools out in the field without physical presence. The way we're connecting without the physical presence in our labs to accelerate those roadmaps.

I would also say as we look at our infrastructure and Gary has talked about the flexible operating footprint, I think all companies are thinking how they become more flexible and more agile and more efficient from an operating footprint standpoint and why we're highly fungible within our site in Austin and within our site in Singapore and across those two sites. There are opportunities to do that even more and be better. And this is a perfect opportunity for us to engage with our footprint and think about how we drive to an even more efficient and agile footprint, adopting things like more insight into data on our business and more real time understanding of the business. So now we're operating on a time scale where we can control outcomes as opposed to just reporting the weather, actually start controlling the weather along the way. Super important operating principle and we're driving on all of those fronts.

And then as you think about taking those best known methods in terms of how we're operating and driving and then translating that into our supply partners and driving into their footprints to create that resiliency across the globe so that we can withstand and better withstand and risk mitigate unexpected global events, I think there's a real opportunity here to take a step function, increase in the resiliency and efficiency and agility, not only in a bar business, but the important suppliers that are going to come along with us for the journey.

Stacy Rasgon

So there's another change, another opportunity that's potentially coming up. Tell us about Kokusai?

Dan Durn

So great, great company, long history and tradition. A great team, great technology. It's an asset we picked up at a great price. The fundamental difference between the two: We're an industry leader in single wafer processing and Kokusai has got great technology batch processing where they process multiple wafers at the same time. Combination of those two technologies I think creates some interesting opportunities to continue to drive innovation for customers. And when you think about our installed base, industry largest, 40,000 tools, over 150,000 chambers in the industry today, this is a company that's got an installed base of over 10,000 tools. So it increases our installed base by 25%, which creates a nice opportunity over time to take the strategy and execution that we've been driving into our service business and now have a larger installed base to execute against.

When we take a step back and we think about the benefits from a customer standpoint, broad customer support for what we're doing, we're encouraged by the progress we've made to-date from a regulatory standpoint. We now have five of six approvals and I think that's a testament to the broad-based support we see from customers. One geography that's left, China. We're constructively engaged there. We announced this transaction in the summer -- middle of the summer in 2019, and we said approximately 12 months. So we're still working towards that original timeline and we're optimistic about where things stand. So we'll continue to engage constructively. But we like the progress to-date. And it's going to be a fantastic transaction for the company.

Stacy Rasgon

So at the moment you don't think that any of the -- I guess the geopolitical issues have increased the risk of closing the deal by the summer at this point?

Dan Durn

Yes, it's hard to comment on the sort of geopolitical tensions. What I would say is, is there's actions we take, constructively engaged with the regulators and we really like the nature of the dialog that's ongoing. And so we're optimistic about continuing to march to our timeline based on the engagements we've had. And we'll just keep engaging constructively and monitoring it over time. But that's all we can do.

Stacy Rasgon

Okay, great. Another question on the Pigeonhole on the display business. Question is, why stay in display, why is this a good business to be in?

Gary Dickerson

Yes, so thanks for the question. Display is a really good adjacent market for Applied Materials. If you think about all of the technologies that we have inside Applied, we're basically taking that from a wafer to a panel. And that business has -- it grew about 5x over a period of five or six years. What we see going forward is significant challenges in terms of the introduction of new technologies. As you're going to the new technologies, whether it's for a mobile handset or a TV, you see an increase in terms of the materials intensity, the number of steps, the capital intensity. And so that's good for us.

Now, right now, we're bouncing along a bottom. The business is still very profitable, but we're deeply engaged with many of those leading system companies, those companies that are producing consumer devices. The visual experience is a key differentiator for many of those devices. And again, there's significant innovation that's still happening there, just like we see in semiconductor. There is going to be higher capital intensity when that business picks up again. There's a really good opportunity. And of course, we're focused on the key challenges in enabling those future technology inflections. So put that all together, we see that as a good opportunity going forward. Certainly, it's a good adjacent market for us. And longer term, we think that business can be very healthy from a growth and overall operating profit percentage standpoint.

Stacy Rasgon

Got it, got it. One more question from the audience and actually it may apply to display as well as semis. But they'd like to know what percent of your sales are the local Chinese customers, I guess memory, display, foundry? And any point of view on how competitive, especially in memory the Chinese players are versus the U.S. and the South Koreans?

Dan Durn

So let's take them in order. So when we think about our revenue, let's go back to 2019, we were 14.6 billion of revenue in 2019, 29% of it went into China. But if we disaggregate that, that help create a framework of how to think about the business. So we do display business and semiconductor business, semi systems and service. So when you think about 29% going into China, the vast, vast majority of display goes into China. It's important to note that none of the display equipment is picked up in the ECCN list. And so, we don't see that business impacted but vast, vast majority. And we did 1.65 billion of display business in 2019. So when you take that out of the mix, you end up with something that's leftover in the high teens, semiconductor business into China. When we break it out in service and semi systems, think of it as roughly the corporate average, 70% systems, 30% service. That gives you a sense of the semi systems going into China, which is low to mid teens if you do that math correctly. We service both multinationals and domestic China customers with the semi systems that go into China. Think of it as roughly 65% domestic, 35% multinational. You do that math right, you get a single-digit number of our revenue, which is semi systems going into China. And then it breaks out across foundry/logic, NAND and DRAM. And all of that is trailing node geometries that drive the demand from domestic China. There several nodes behind from foundry/logic, from DRAM.

Stacy Rasgon

Do you think they're credible on the memory front, though, the local Chinese?

Dan Durn

I think what we see today are high quality efforts to be very strategic about an industry and build it in a slow, disciplined way over time. We don't see hockey sticks of capacity deployment. We don't see overspending. What we see is a slow, steady, disciplined way of building an ecosystem. We see investments today predominantly around ecosystem building, technology roadmaps with some capacity additions. But even if you look at the incremental spend that we see coming into 2020 out of domestic China, we said initially an incremental 2 to 3. SMIC came out with their announcement. So now we're at the high end of that range.

And if you think about the rough split, maybe it's 30%, 200 millimeter of that incremental spend, 30% memory, 40% trailing node foundry/logic. The 30% that's memory spend is split between NAND and DRAM. But 30% of that 3 billion number, 900 million or whatever it happens to be, when you think about investments in technology and capacity. You're not seeing a lot of capacity coming online, which still fits with what we're saying. I think they're serious. I think there's quality companies pursuing roadmaps, but they're doing it in a slow, methodical, disciplined way in building that ecosystem over time. So I don't think you'll see the supply demand balance change meaningfully in the near term based on these types of capacity adds. And we've got in DRAM 1.3 million wafer starts per month globally. And in NAND you've got 1.4 million wafer starts per month globally. When you're adding 900 million to the memory mix, it's just very small incremental stuff on the margin. And what I see longer term is actually a smart disciplined way of building the ecosystem as opposed to trying to get out in front of technology roadmaps or a quality set of environmentals and infrastructure to put capacity online that's not productive. And so I continue to see disciplined behavior.

Stacy Rasgon

Great. We're over time. But Gary, I want to give you just your 30 seconds, please, 30 seconds so fast. Why should investors buy Applied Materials stock?

Gary Dickerson

Thanks, Stacy. Look, I think there's never been a better time for Applied Materials. Our markets are better than ever. We've talked about technology transforming every industry. And if we think about the infrastructure for those big inflections, Applied, creating, shaping, modifying, analyzing, connecting devices and structures, we've never been in a better position.

Stacy Rasgon

Got it. To the audience, as a reminder, we're doing live polling with our partner Procensus. If you wouldn't mind, please click on the link on the left side of your screen now. You should see the window pop up with a short poll that'll take you 60 seconds. You'll benefit from real time tracking of investor sentiment on Applied Materials. And with that, I think we're going to close it up. Gary, again, thank you so much for being with us today.

Gary Dickerson

Thank you, Stacy.

Dan Durn

Thank you, Stacy. Take care.

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