World's largest chip maker asks employees to take Fridays off without pay

BY THERESE POLETTI Mercury News Applied Materials Inc., the world's largest chip equipment maker, has asked its U.S. employees to take most Fridays off without pay, at least until the end of April, as part of efforts to cut costs, according to industry sources.

The shortened work week is just one of several cost-reduction measures the Santa Clara company is expected to discuss with investors Tuesday, when it releases its fiscal first-quarter earnings. Amid a downturn in the chip industry, Applied is also reducing the number of temporary workers at its Austin manufacturing plant, freezing regular hiring and cutting salaries for top executives by 5 percent to 10 percent, said the industry sources.

Applied spokesman Jeff Lettes said the company is ``implementing certain cost-containment measures.'' But Lettes said he couldn't comment any further because the company is in a ``quiet period'' before the earnings announcement.

Applied employs about 7,000 people in the Bay Area and 22,000 worldwide.

Late last month, the company warned that its first-quarter earnings and revenues will be below Wall Street's expectations, as demand for semiconductors slowed late in the fourth quarter of 2000. Applied is the biggest maker of the hefty, multimillion-dollar machines that chip makers use, so when business slows among semiconductor companies, one of the first places they cut their spending is in capital equipment.

The industry sources, who asked not to be identified, said the company is starting a series of ``work stoppage'' days, in which most of Applied's U.S. employees will take a Friday off without pay.

Applied and other Silicon Valley companies used a similar approach to cut costs in previous industry downturns. Applied most recently told employees to take some Fridays off in the 1998 chip downturn.

The company is also expected to announce cutbacks in the number of temporary workers it uses at a big manufacturing site in Austin. One analyst estimated that Applied has a total of 5,000 permanent and temporary workers in Austin, but it's unclear how many people will lose their jobs.

Sue Billat, an analyst at Robertson Stephens, said most capital-equipment companies are trimming expenses any way they can, so it makes sense for Applied to do it, too. ``I would not be surprised to see them doing the usual cost-cutting, watching-the-penny measures.''

Online broker Charles Schwab Corp. recently required many employees to take Fridays off without pay, although the San Francisco-based firm later made the time off voluntary amid possible legal questions.

Staffers at Silicon Valley firms with more cyclical businesses are more accepting of such measures because they are meant to avoid layoffs. Employees at Hewlett-Packard Co. are seeing their pay raises deferred for three months, and top executives there have given up some of their bonuses, as the sluggish economy hits computer sales.

``Anything you can shave off the expenses certainly helps,'' said Robert Maire, an analyst at Bear Stearns & Co. ``Applied has done a good job in the last up cycle, watching expenses, so in this down cycle, I'd expect them to shed expenses faster than in previous downturns.''

Analysts said that because Applied is the bellwether for the chip equipment industry, it is likely that other chip equipment makers will follow suit, with the goal being to cut expenses as much as possible before having to resort to layoffs of permanent staffers.

Still, analysts said that some layoffs are likely to ensue at some companies.

The $43 billion chip equipment industry, which grew an astonishing 90 percent in 2000, is now expected to grow about 5 percent in 2001, according to VLSI Research Inc. in San Jose.

``These are cyclical businesses,'' said Billat. ``It's not like the dot-coms, where they woke up one morning and found not everything was right in the world. Most of them have plans in place to cut expenses.''

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-- Martin Thompson (mthom1927@aol.com), February 08, 2001