Flanders, N.J.-based Rudolph Technologies, Inc., (RTEC), is an original equipment manufacturer (OEM) of semiconductor manufacturing process diagnostics and control (PDC) equipment, specifically, thin film metrology (measurement) tools that are used by semiconductor manufacturers. These measurement tools are used during various steps throughout the front-end of the semiconductor fabrication process, for measuring the thickness of various materials used to make integrated circuits (ICs).
The front-end process begins with device formation. This process begins with a wafer (usually made of silicon) having a layer of photoresist (a chemical that hardens when exposed to an ultraviolet light source) spin-coated onto the surface in liquid form to drive off the excess solvent, and then "soft-baked" or cured. A photomask is then loaded into the lithography system. Photomasks, also called masks or reticles (if the mask is "stepped" across the wafer), are high-purity quartz or glass plates containing precise microscopic images that are used by a photolithography tool, also known as a stepper. An excimer laser is then passed over the photomask and through a reduction lens system that exposes the desired areas of photoresist, which is then subsequently removed, permitting deposition to the surface of the wafer. A strip system is utilized to remove the photoresist or other chemical residues following diffusion processing or film deposition. Thin layers of dopants are then grown or deposited in a precise pattern within the wafer using various chemical, vapor or ion implant techniques. The deposition process alters the atomic structure of the material, and therefore, necessarily, the electronic properties of the material. Further into the wafer fabrication process, a series of metallization steps are executed, in which conducting materials, that interconnect the semiconductor devices, are deposited. Multiple layers of conducting, semiconducting and insulating materials are constructed on and within the wafer via successive steps of lithography, etching and deposition, utilizing unique masks for each layer. Depending on the geometry and the device, anywhere from 35 to 45 unique masks are used in the device formation process, with 10 to 100 layers (or more for microprocessors) being constructed. Typically, the outcome is a wafer with multi-layered semiconducting devices, known as transistors. The transistors are interconnected with conducting materials, and insulating materials are used to electronically isolate the active components. The net result is a silicon wafer that contains multiple copies of integrated circuit devices.
Rudolph historically competed only in the transparent thin film metrology sub-segment of the PDC market. In 1997, the firm introduced an opaque thin film metrology product organically augmenting the product portfolio. In September 2002, RTEC acquired Yield Metrology Group, an OEM of macro-defect inspection tools for lithography and chemical mechanical planarization (CMP) processes. This gave rise to the present three main product lines: transparent thin film metrology, opaque (metal) thin film metrology, and macro-defect inspection. The company's products are all built on the VANGUARD automation platform that provides a common software system, user interface and hardware base.
The PDC market is characterized as being highly fragmented with a few dominant players and many specialized smaller companies such as RTEC. PDC firms tend to be less cyclical than typical semiconductor manufacturing equipment suppliers, since PDC equipment increases fab (fabrication) line efficiencies, and sales are made to both new fabs and existing ones that are upgrading. Smaller companies like RTEC tend to have more volatile stock prices. The percentage of revenue spent on PDC equipment has been increasing at a greater rate than overall semiconductor production equipment expenditures, driven by the demand from larger wafer (300mm) fabs employing smaller design (90nm to 130nm) geometries, or nodes. Rudolph is estimated to be the second largest supplier, behind KLA-Tencor and ahead of Veeco in the overall thin film metrology market, and is the monopoly supplier in the opaque market.
Rudolph is the pioneer and currently the largest producer of ellipsometers. This patented technology consists of four lasers in different locations and operating at four different wavelengths, that in conjunction, measure the thickness and properties of transparent thin films applied to wafers during the device formation process. Some films require a broader spectral coverage, which can be achieved with an ellipsometry tool, in combination with a white or ultraviolet light source that utilizes the reflectometry process. The S-Ultra tool has been shipped to 50 different customers. Recently, the company unveiled the S-Ultra II tool. The market size for this tool is expected to reach $100 million in two years.
In 1997, Rudolph introduced the first opaque metrology tool, MetaPULSE. The tool uses an ultra-fast laser that generates sound waves to measure thickness, density and other process-critical parameters of up to six opaque layers by using these acoustic pulses. This tool, (along with the second-generation version MetaPULSE II in some cases), is installed in over 200 semiconductor fabrication facilities worldwide and remains the dominant tool in the opaque thin film category. Over two-thirds of these systems are being deployed in copper interconnect applications.
Rudolph announced a multi-million dollar order for the newly introduced WaferView 320 Turbo macrodefect inspection tool. This high-throughput tool is used to inspect large format wafers (300mm) for micro defects down to 20 m and automated indexing of the results after the lithography, CMP and etch processes. The macro-defect (large wafer format) line is beginning to show traction with customers.
The company's dielectric thin film metrology business accounts for 27% of sales, the metal metrology business segment accounts for 52% and macro-defect inspection accounts for 2%. Rudolph Technologies has a very concentrated customer base. Intel accounted for 23% of sales, Taiwan Semiconductor Manufacturing Corp. (TSMC) 22% and Tokyo Electron Ltd. (TEL) 5.8%. The company directly competes against KLA-Tencor and Therma-Wave in the metal metrology segment.
The Sweet Spot
The semiconductor PDC equipment market is expected to grow at a rate of 40-50% this year. Metrology and inspection tools are expected to take an increasing amount of the capital equipment budget in the newer fabs, moving from 10% to 15%. Capital spending will be stronger in 2007 and managers will emphasize new leading-edge 300mm technology rather than legacy 200mm capacity expansion. In the past quarter approximately 67% of revenue was from 300mm. Rudolph Technologies' products cater to one of the relatively more stable sections of the semiconductor equipment market. The company has maintained a steady order flow.
Copper is the Future
RTEC's recent product introductions are strongly positioned in 300mm and copper metallization that should make a meaningful revenue contribution in 2007. Since the company works closely with its customers to develop products and prices to suit their needs, adoption rates of its new products are normally quite high. Although copper has technological advantages, its industry adoption is growing at a very slow pace, due in part to yield issues (especially in the 130nm to 90nm transition phase). Currently, approximately 10% of industry capacity uses 90nm and lower process technologies. Copper is still being used on less than 10% of all wafers. Some of the major memory manufacturers are planning to adopt copper for use in memory devices. The WaferView macro-defect inspection tools are beginning to gain traction, as major wins were announced this past quarter in both front-end lithography and back-end bump applications. The company has a fair amount of leverage in its operating model, and management expects revenue growth to improve profitability in the ensuing quarters.
The company is seeing strength in memory and early signs of optimism from foundry customers in Taiwan. DRAM and flash memory companies accounted for 43% of all capital spending in 2006, making them the biggest customer of chip equipment makers, according to market research firm Strategic Marketing Associates (SMA). Furthermore, the firm said that memory manufacturers' share of capital spending will be even higher in the coming year. Announced capital spending plans of the top memory makers are up by almost $4 billion, even including Samsung's small cutback.
RTEC's new macro-defect inspection tools continue to gain acceptance in the marketplace to the point where, for the fifth quarter in a row, inspection products accounted for over 20% of the company's revenues.
August Technologies Merger
On February 24, 2006 Rudolph announced it will pay an aggregate of approximately $37.2 million in cash and issue an aggregate of approximately 11.3 million shares of its common stock to former August Technology shareholders.
Strategically, the acquisition makes perfect sense for both firms. Products include macro defect inspection (front-end), wafer bump/probe inspection (back-end), yield data management and review systems. August currently owns the number two market position in automated defect detection and review systems. Rudolph has the number two market position in front-end thin film metrology tools.
August s product line is heavily weighted to back-end metrology tools and is complementary to Rudolph's front-end metrology tools focus. August's trailing twelve-month sales were $70.5 million, which essentially doubles the size of Rudolph.
Well Rounded Revenue Base
The addition of the August merger has allowed the company to diversify its revenue base. RTEC's revenue is now spread among back-end and front-end equipment as well as across market segments such as inspection and metrology.
Orders fell sharply in the second quarter as firms probably pushed orders out. The company does an excellent job of quickly cutting costs in these times. Management has breakeven headed below $30 million.