COMMENTARY--Applied Materials wants to become a household name. I'm still trying to figure out why.
Applied Materials (Nasdaq: AMAT) wants Information for Everyone to become as well-known as Where Do You Want To Go Today? and Intel Inside. The maker of chip-manufacturing equipment will spend $30 million on media advertising over the next seven months, according to an article in Monday's Wall Street Journal. An Applied news release declares:
"The campaign, which points to the ubiquity of semiconductor chips in daily life, is a move by the company to expand awareness among the general public of the benefits brought about through the chips produced by customers using Applied Materials' equipment."
The corporate benefits escape me.
This isn't about promoting electronics sales, but about stamping Applied's brand in the minds of consumers. Tom Hayes, Applied's managing director of global corporate affairs, told the Journal:
"No company, even if it's one step removed from the consumer, can afford to be Brand X today...It opens up options. You don't know today what will be necessary in five years from a capabilities standpoint including the kind of equity you need in your brand."
Can't disagree with that statement. We don't know what will happen in five, four, three, even two years.
The United States could find its energy crisis ballooning to epic proportions. Perhaps Russian President Vladimir Putin will go insane and start nuclear war. The Buffalo Bills might win the Super Bowl.
Yet I doubt Applied will spend $30 million on advanced manufacturing for vacuum tubes resistant to electromagnetic pulses or research for solar-powered capital equipment or Las Vegas bets on the margin of Buffalo's victory.
Marketing dollars have their place in every business. But why advertise to a segment that will never see your product, let alone buy it? What's the point of building mind share with consumers if your whole business revolves around million-dollar machines for factories?
Some tech companies don't seem to have been successful in using consumer demand to spur companies to use their products.
Intel Inside didn't stop major PC vendors from adding Advanced Micro Devices (NYSE: AMD) processors to their lineup, with a resulting loss of market share for Intel. Cisco Systems hasn't gained market leadership in optical networking despite many hours of TV channels showing children reciting "Are You Ready?" around the world.
Some folks would point out that Intel and Cisco helped their overall industries, and thus themselves. Cisco helped boost enthusiasm about the Internet, which spurs network expansion, and thus sales of Cisco routers and switches. Intel was even more direct; the Intel Inside program included money for PC makers' own advertising campaigns.
And you could argue consumer advertising prevented further market erosion for Intel. Given the chipmaker's dominance, it was bound to lose share eventually, says Rashi Glazer, a professor of marketing at the University of California at Berkeley, and co-director of the school's Center for Marketing & Technology.
"Intel still commands premium prices," notes Glazer, who studies marketing at high-tech firms. "It's of incredible value. The economic value of the Intel Inside campaign has been estimated in the tens of billions in total dollars. There's no equivocation about this."
You have to wonder how much of that would work with Applied, though. Hayes says companies "one step removed" from consumers can't afford to go unrecognized, but capital equipment makers are two steps away. Applied has no more reason for consumer marketing than vendors of automation equipment for carmakers.
"I agree there's a little bit more of a stretch with Applied Materials," Glazer says. "But if I were them, this is exactly what I would be doing...These technology industries are so fluid, and companies move up and down the value chain all the time. The one thing that's important is that your brand gets really well-known."
There's that argument again: You just don't know what Applied will be doing in the future, so you might as well build the brand just in case you'll need it. And again, it's an argument that could be made for just about anything, so why bother with TV ads?
Even sophisticated buyers of capital equipment are susceptible to going with familiar brands, Glazer says.
"Engineers will do all their due diligence," he says. "But at the end of the day, when they go home, it goes back to the old saying: 'No one ever got fired for buying IBM or something like that.' And this is industrial buying."
But isn't Applied Materials already in that position in the chip-equipment industry? It already holds far and away the largest market share. I'd like to think chip companies' buyers wouldn't be swayed by TV ads.
I suppose for $30 million--or less than 4 cents per share over the next couple of quarters--you can't go wrong. One or two equipment contracts would probably pay for it. Still, that's money that could go for employees, research or shareholders.
Actually, Wall Street might be a prime target for this campaign. Although Applied's first ads will appear in Asia, the TV schedule eventually calls for CNN and Fox News, the sort of channels that managers and financial types would be watching.
"The other target for the campaign is definitely Wall Street and the financial community," Glazer says.
Viewed in that light, investors probably won't complain at all. 22GO>