James Morgan, Applied Materials

The Forward Thinker

He doesn't have William H. Gates III's notoriety or Lawrence J. Ellison's swagger, but Morgan has them beat when it comes to tenure. He is perhaps the longest-serving CEO in Silicon Valley (25 years, to be exact). Although his southern Indiana drawl brings to mind a quiet afternoon on the farm and he likes to talk about spending time with his family, Morgan is hardly some quaint throwback. He hasn't lasted this long without taking major risks at what seem the most inopportune times.

Morgan, 64, has been through serious downturns before, and that experience is helping him manage the semiconductor-equipment maker today at a time when demand for its products, as measured by revenue, dropped 23% last year. Things aren't looking up for the immediate future, either. Morgan recently told analysts that a chip-industry recovery is stalling and that Applied Materials (AMAT ) expects to see its orders fall as much as 15% in the quarter ending in October, from the previous period. That explains why the stock is off more than 50% from its 52-week high in April, to about $13.

But in the past, it has often been Morgan's boldness during the industry's slow periods that has set up Applied Materials for big market-share gains and revenue growth. Such forward thinking has helped Morgan oversee the growth of the company to $7.3 billion in annual sales in 2001, well ahead of its nearest rival (and onetime industry leader) Tokyo Electron Ltd.'s $4 billion. It's also helped Applied Materials' stock appreciate more than 5,600% since 1983, compared with a 500% rise in the Standard & Poor's 500-stock index.

Amid a heap of scorn, Morgan charged into developing Asian markets in the 1980s, long before most U.S. companies saw the potential rewards. "We've always been a little early on everything," says Morgan. "That has really paid off for us over the years." During the past decade, he has been cultivating contacts and engineering talent in China, a challenging market with a huge potential. Morgan even knew President Jiang Zemin back when he was the vice-minister of electronics in the early 1980s. Applied's competitors entered the Chinese market more than 10 years later and have yet to make much headway there. Last year, however, Applied won a $200 million order from a Chinese company for foundry equipment and expects to get at least 5% of its revenues from China by 2005.

Now Morgan has opened that new research facility, even though it meant more layoffs and less cash on hand. And Applied Materials is already testing equipment for making chips that won't be out until 2007. "We try to anticipate the next change, because change is the medium of opportunity," Morgan says.

By Nanette Byrnes, with John A. Byrne in NewYork, Cliff Edwards and Louise Lee in San Mateo, Calif., Stanley Holmes in Seattle, and Joann Muller in Milwaukee

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