C O N F I D E N T I A L

Randy BaneManaging Director

Corporate MarketingApplied Materials

CSIS/US-Taiwan Business Council Conference

May 27, 2004

China and Global Semiconductor Industry Update and Outlook

C O N F I D E N T I A L

1

23456789101112131415

4,789.4

3,290.81,757.01,346.01,269.11,174.91,124.2

966.6925.1810.1748.4733.1681.3604.4471.9

Applied Materials

Tokyo Electron Ltd.ASMLNikon CorporationKLA-TencorCanon Inc.AdvantestDainippon ScreenNovellus SystemsHitachi High-TechnologiesLam ResearchTeradyneAgilent TechnologiesASM InternationalYokogawa Electric Corporation

CY2003Sales ($M)*

2003 RankCompany

(Sorted by 2003 Revenues)

Top 15 Worldwide Semiconductor Equipment Manufacturers

* Includes service and sparesSource: VLSI Research 2/04

C O N F I D E N T I A LSources: Applied Materials China

Applied Materials Success in ChinaExplosive Revenue Growth: 75% CAGR (’98-’03); 6% of TotalAMAT Revenues in FY2003

0

50

100

150

200

250

300

350

400

450

500

'84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04F

AM

C T

otal

Rev

enue

Nor

mal

ized

to 1

985

= 1 ?

Tipping Point-Market Upturn-20 yrs of ‘extended‘ partnership

C O N F I D E N T I A L

2010F2003

Semiconductor Production$331.3 Billion

22.5% of Electronics

Production Equip.$50.4 Billion

15.2% of Semiconductor

Electronics Production$1,475.5 Billion

3.5% of Worldwide GDP

Semiconductor Production$169.8 Billion

14.6% of Electronics

Production Equip.$22.1 Billion

13.5% of Semiconductor

Materials$25.6Billion

Electronics Production$1,026.0 Billion

3.0% of Worldwide GDP

The Worldwide Semiconductor Industry

Sources: Dataquest, Applied Materials CorporateMarketing estimates 3/04, WSTS, SEMI.

1.4x

2.0x

2.3x

2.2xGrowthMaterials

$57.0Billion

C O N F I D E N T I A L

15

17

19

21

23

25

27

Q1'

00Q

2'00

Q3'

00Q

4'00

Q1'

01Q

2'01

Q3'

01Q

4'01

Q1'

02Q

2'02

Q3'

02Q

4'02

Q1'

03Q

2'03

Q3'

03Q

4'03

Q1'

04

IC U

nit

s S

hip

ped (

B)

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

IC R

even

ues

$B

Sources: SICAS, WSTS, IC Insights

New Era of Unit Shipments

Prior Unit Peak

>30% Revenue Growth in Q1’04 over Q1’03

Units

Revenues

C O N F I D E N T I A LSource: IDC

Mainframes

DesktopComputing

Mill

ions

of U

sers

1970 1980 1990 2000 2010

10

100

1,000

Convergence of Computing, Communications and Consumer

Shifting Markets for Semiconductors

Digital Consumer Appliances

C O N F I D E N T I A LSource: EMC Wireless, IDC

Expanding Global MarketsSignificant Opportunities Ahead

0

20

40

60

80

100

0 20 40 60Internet Usage Penetration (%)

Mob

ile P

enet

ratio

n (%

)

Wired Societies~625 M

Sweden Norway

Denmark

Finland

Best ofBoth Worlds

~25 M

Emerging Markets~4.5 BPoland

Latin AmericaSerbia

ChinaIndia Russia

Spain

Portugal

. Republic

Hong Kong

Greece

TaiwanItaly

Cz

WirelessSocieties

~1 B

US

Germany

UKBelgium

France

Japan

Singapore

S. Korea

World

World 1995

C O N F I D E N T I A L

2010F2003

Production Equip.$8.2 Billion

35.1% of SemiProduction

Electronics Production$242.6 Billion10.3% of GDP

Semiconductor Consumption$14.6 Billion, 13.5% of Electronics

Production Equip.$1.4 Billion

55.0% of Semi Production

Materials$1.5

Billion

Electronics Production$108.0 Billion7.9% of GDP

Materials$9.8

Billion

China Semiconductor Industry

Semiconductor Production$2.5Billion

Semiconductor Production$23.4 Billion

Semiconductor Consumption$53.6Billion, 22.1% of Electronics**

** Assuming China is in par with the world at 22.1% of semiconductor content in electronics

Sources: Dataquest, Applied Materials CorporateMarketing estimates, WSTS, SEMI

2.2x

3.7x

5.9x

6.5x

9.4x

Growth

C O N F I D E N T I A L

China’s Grows its Dominance of Asia Pacific’s Electronic Equipment Production

2003E

Taiwan14%

South Korea19%

Malaysia11%

Rest of A/P11%

China39%

Singapore6%

2010F

Taiwan14%

South Korea20%

Malaysia7%

Rest of A/P8%

Singapore5%

China46%

Source: Gartner Dataquest, Applied MaterialsCorp. Marketing estimates

$361B $636B

C O N F I D E N T I A LSources: WSTS, Applied Materials

North America

37%

Japan31%

Europe14%

Asia-Pacific

17%

1985 2000 2010F

$28B $209B $327B

Asia-Pacific

23%

Europe15% Japan

20%

North America

35%North America

49%Japan38%

Europe12%

Asia-Pacific

1%

China0.5%

China7%

Semiconductor SalesBy Region of Production

C O N F I D E N T I A L

MotorolaUS

A New Customer LandscapeShifting Centers of Influence

Asia-Pacific

PSC

IBMUS

NanYa

Europe

Note: () indicates 2001~2003 CAPEX*: Circle indicates major member companies

Infineon

Philips

STM

Elpida

NEC

Toshiba

Japan

90nm Alliance

SMIC

TIUS

TSMC

Renesas

Chartered

AMDUS

Sony

($12B, 13%)

Samsung($8B, 8%)

Intel ($16B, 17%)

Fujitsu

($14B, 15%)

($4B, 4%)

($2B, 2%)

MatsushitaInoter

a($4B, 4%)

ASPLA*($15B, 15%)

C O N F I D E N T I A L

2004 Top 10 Semiconductor Capital Spending

45%14,707 21,391 Total8%1,300 1,400IBM10

37%1,0551,450 Micron9156%5861,500AMD8131%6701,551 SMIC7

56%1,0001,563 Infineon633%1,2001,600ST585%1,0822,000 TSMC4

187%7392,120UMC33%3,700 3,800 Intel2

31%3,375 4,407Samsung1

2004/2003 % Change

2003 Capex($M)

2004E Capex ($M)Company

2004Rank

Sources: IC Insights, Equity Analyst Reports, Company Reports, Applied Materials estimates

C O N F I D E N T I A L

2004 Black2004 Black--Book Capital SpendingBook Capital Spending

Sources: SEMI Fab Database, Company Announcements, Applied Materials estimates

North America Europe Japan Taiwan Korea China SEA

$8.8B22%

$4.7B12%

$9.2B23%

$5.4B13%

$40B

$3.2B8%

$5.4B14%

$3.3B8%

C O N F I D E N T I A L

China Semiconductor Consumption Outpaces Domestic Production: Can Supply only 22% of Demand by 2005

Source: Gartner Dataquest, Applied Materials Corporate Marketing Estimates, CCID (China Center for Information Industry Development)

22%

6%

0

5

10

15

20

25

30

35

2002 2005

Bill

ions

of U

S$

0%

10%

20%

30%

40%

50%

60%

Perc

ent D

eman

d Sa

tisfie

d by

Dom

estic

Pro

duct

ion

Consumption

Production

Percent Demand Satisfied byDomestic Production

C O N F I D E N T I A L

China Fabs and Location

JSMCPJMC

SGNEC

SMIC,GSMCTSMC, HeJianHHNEC, ASMC

CSMCHua JingPrima

ShengzhenPotentialCustomer

ChengduPotentialCustomer

SINOCNMC

Fab 1

Fab 2

Shanghai

SMIC

C O N F I D E N T I A L

Source: Company Reports, Analyst Reports, Corporate Marketing Estimates

*China foundry’s capacity includes DRAM capacity that do not compete with existing Taiwan foundry’s capacity

** Taiwan’s Foundries’ Capacity consists of only TSMC and UMC

0

100

200

300

400

500

600

700

800

900

2003 2004 2005

Waf

er S

tart

s (8

" E

quiv

.)

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

Chin

a Ca

paci

ty a

s a

% o

f Ta

iwan

Fou

ndry

's C

apac

ity**

China’s Capacity to Become an Important Foundry Alternative in the Next 2 Years

Taiwan

China

18%

33%

48%

Note: 8” and Above Fabs Only

C O N F I D E N T I A L

Establishing a Complementary Industrial Strategy

Maximizing the Semiconductor

Food Chain

China

Silicon Valley

Taiwan

Three Regional Centers, together, growingthe overall size of the pie

Advanced IC manufacturingVibrant Entrepreneurial and Capital Markets

Technology InnovationEntrepreneurial with strong linkages to Capital Markets

Vast Markets Abundant ResourcesRegional DistributionLow Cost Manufacturing

C O N F I D E N T I A L

Summary Integration

End markets shift to lower cost consumer products

Global partnerships drive future of technology and shifting manufacturing base

Foundry proven model stimulates further stratification of markets

Regions segmenting around core capabilities, infrastructure/cluster success, cost and incentives