Engineers test equipment at Applied Materials' R&D center in Xi'an. Provided to China Daily

US and China form a perfect match in global manufacturing supply chain

The United States and China have formed a win-win partnership in the global supply chain for high-tech manufacturing. US companies, such as Applied Materials Inc of Santa Clara, California, the world's biggest producer of semiconductor-making equipment, benefit greatly from their growing clientele in the Chinese market.

Despite its US base, 81 percent of Applied Materials' net sales in 2011 were from abroad. In China, the company's sales more than doubled from $639 million in 2009 to $1.5 billion in 2010, and the figure further rose to last year's $2.5 billion. China is also the largest contributor to Applied Materials' overseas growth, reaching about 25 percent in 2011 (and about 45 percent including sales from Taiwan).

At its annual investor meeting in New York in late March, the company predicted that emerging markets, particularly China and India, will drive huge demand for mobile displays and traditional LCD TVs - one of Applied Materials' core businesses - in coming years and will remain major sources of its sales growth.

"China is absolutely the major driver of the growth for the television industry. Unit volumes for televisions in China continue to grow dramatically," says Tom Edman, vice-president and general manager of Applied Materials' display business.

Applied Materials supplies equipment used in producing displays for TVs, tablets and smartphones. China's growing demand for these products has boosted the US company's display business, pushing the net sales in China from $502 million in 2009 to $699 million in 2011.

"The (global) cellphone market is dominated by China," Edman told China Daily after the investor meeting. "China has become the most important element for smartphone consumption and it will become an important component of the growth."

China, which already leads the world in Internet users, reached 1 billion in cellphone users early this year. With its 1.3 billion population and growing middle class, the country still has plenty of room to grow in smartphone usage, analysts say.

Although the company's major customers are non-Chinese companies, such as South Korean electronics manufacturers Samsung and LG, these companies' biggest demand comes from China, making it the biggest market through the global supply chain for years to come.

US companies such as Apple Inc covet the Chinese market for further growth. In March, the iPad maker's CEO, Tim Cook, visited China and met with Vice-Premier Li Keqiang to discuss intellectual property issues and greater cooperation.

China, the second-biggest market for Apple after the US, contributed more than 16 percent, or about $4.5 billion, to the company's earnings in the fourth quarter last year.

Apple isn't a direct customer of Applied Materials but through the supply chain, it does business with companies that are. So when Apple's worldwide sales go up, they bring Applied Materials' business along for the ride.

As China's home-grown producers of flat screens for televisions and mobile devices start to catch up, their success will create even more opportunities in the Chinese market, Edman says.

"China is the largest market for flat TVs and it will be the largest market for our equipment. Because of the major unit volume that goes into the market, our customers have to invest there," he says.

Edman believes Chinese brands, such as TCL, should "strengthen" themselves to move into the international market.

"I know there will be a major (Chinese) brand for television in the next five years, and that will be good for our business," an executive of Applied Materials says.

Founded in 1967, Applied Materials is now the world's No 1 maker of gear for producing microchips, as well as displays and photovoltaic panels. The company set up shop in China 28 years ago and started with a representative office in Beijing, and over the years has expanded to 12 cities, including Beijing, Shanghai, Wuxi and Xi'an, employing 1,300 people.

Its increased focus on equipment that produces solar photovoltaic panels for renewable energy also exemplifies the role of Applied Materials in the global supply chain.

With the great potential for solar power in China, Applied Materials entered the market in 2006 and immediately built a global development center - a $250 million project in Xi'an, a northwest city with a few dozen higher-education institutions focused on science and technology.

The 400,000 square-feet R&D center, including laboratories and offices, is the largest privately funded solar-energy research facility in the world.

"It's important for us to have a presence in China, and Xi'an is a great central place, which is close to other major cities," says Charles Gay, president of Applied Solar, a subsidiary of Applied Materials.

Gay says more than 90 percent of his company's entire solar business comes from China.

"It's a very substantial commitment (from China) and it works nicely into the 12th Five-Year plan - the goals that China has for expanding the role of clean-energy use in the country," Gay says.

With more than 200 clients - all major players, including Suntech, JA Solar, Yingli, Trina Solar and Tianwei - in China, the company has received a number of supplier awards from its Chinese customers.

"Our key equipment suppliers, including US-based companies (such as Applied Materials) play an important role and help Suntech improve the efficiency of our manufacturing. Ultimately, it drives down the cost of solar panels for consumers of the world," says Walker Frost, spokesman for solar panel producer Suntech in San Francisco.

"The US supplies China with billions of dollars of (solar) equipment. That is a key contribution to the global solar supply chain," he adds.

In late 2005, when Wuxi-based Suntech listed on the New York Stock Exchange, several other industry players from China followed suit to market them internationally.

"Since 2005, the (solar) industry has been growing fast in China. Most of that has been the direct result of the ability of companies in China to scale rapidly to build their brands, to market and to expand their sales channels globally," Gay says.

Rural areas of China that don't have electricity or phones constitute growth opportunities for the solar-energy business. Applied Solar could collaborate with Trina, Yingli or other Chinese solar companies in drawing business from developing areas where solar power is much cheaper than diesel fuel, Gay says.

Turning sales channels into market opportunities is one of the strongest developments for US and Chinese companies' collaboration in this field, he adds.

Recently, Trina, an Applied Materials client, donated 300 photovoltaic solar panels - worth about $75,000 - to Haiti for a charitable project initiated by the Clinton Global Initiative and New Jersey-based NRG Energy.

"It won't get 300 PV panels for that price without the network of a global supply chain that includes (collaboration between) US and Chinese companies," says Mark Kingsley, Trina's chief commercial officer, after he visited the solar-panel installation sites in Haiti.

Trina buys equipment from the US and manufactures the final product at its Changzhou headquarters. One manufacturing job Trina has in Changzhou helps create as many as four jobs in the US, Kingsley says.

yuweizhang@chinadailyusa.com