Varian Semiconductor Equipment Associates (VSEA)

VSEA » Topics » Overview

This excerpt taken from the VSEA DEF 14A filed Dec 16, 2009.

Overview

The Compensation Committee is responsible for determining compensation for our executive officers. The Compensation Committee’s goal is to ensure that executive officers are paid for performance and that their total compensation is competitive when compared to the compensation paid to executive officers of a group of peer companies, which we refer to as the Executive and Director Compensation Peer Group. Total compensation is paid at competitive levels, provided that our financial and non-financial performance is comparable to or better than that of a group of competitor companies, which we refer to as the Competitor Group. Performance metrics measured against this Competitor Group include, but are not limited to, revenue and earnings growth, gross and operating profits vs. targets, market share, new customer account penetrations, new product success and customer satisfaction. The performance metrics may be weighted differently each year, and sometimes the weights also vary by individual, depending on the specific company focus for the respective year.

The Compensation Committee maintains two separate and distinct peer groups to achieve recruitment and retention goals, while monitoring company performance. The peer groups were established by the Compensation Committee after review by and input from our Compensation and Benefits Group, senior management and the independent consulting firm of FW Cook. The Executive and Director Compensation Peer Group is important for both recruitment and retention of executive officers and benchmarking of director compensation. Companies included in the Executive and Director Compensation Peer Group are generally companies with which we may compete for executive level talent. The Competitor Group is more focused on companies with which we can easily compare financial performance due to similar business models. The Competitor Group and the Executive and Director Compensation Peer Group may be modified from year to year based on the following criteria.

The Competitor Group is selected based on specific business characteristics which may include the following items: ion implanter competition; “best-in-class” semiconductor or semiconductor capital equipment manufacturer; similar in size to us with respect to market capitalization and semiconductor revenue. The fiscal year 2009 Competitor Group includes the following 12 companies:

 

Applied Materials, Inc.

   Lam Research Corporation

Axcelis Technologies, Inc.

   MKS Instruments, Inc.

Brooks Automation, Inc.

   Nissin Ion Equipment Co., Ltd. *

Cymer, Inc.

   SEN Corporation *

Entegris, Inc.

   Novellus Systems, Inc.

KLA-Tencor Corporation

   Teradyne Inc.

 

* Limited financial information is available. These companies are included in the Competitor Group primarily for market share comparisons.

 

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Although Nissin Ion Equipment Co., Ltd. and SEN Corporation manufacture ion implanters and compete with us, we do not include these companies in our Executive and Director Compensation Peer Group because neither company is required to make filings with the U.S. Securities and Exchange Commission, or SEC, so there is insufficient information available on the executive compensation paid by these companies. Applied Materials, Inc. is excluded because it is a substantially larger company than Varian Semiconductor. However, market share information, a key metric for us and our competitive positioning, is available via a third party on an annual basis for all of the excluded companies.

The Executive and Director Compensation Peer Group consists of companies generally comparable to us in terms of industry, core technology, revenue and market capitalization size and overall financial performance. The fiscal year 2009 Executive and Director Compensation Peer Group includes the following 13 companies:

 

Analog Devices, Inc.

   Lam Research Corporation

Axcelis Technologies, Inc.

   MEMC Electronic Materials, Inc.

Brooks Automation, Inc.

   Micron Technology, Inc.

Cymer, Inc.

   MKS Instruments, Inc.

Entegris, Inc.

   Novellus Systems, Inc.

Fairchild Semiconductor International, Inc.

   Teradyne Inc.

KLA-Tencor Corporation

  

Our Competitor Group, excluding the exceptions noted above, is the basis for our Executive and Director Compensation Peer Group. We then added four companies (i.e. Analog Devices, Inc., Fairchild Semiconductor International, Inc., MEMC Electronic Materials, Inc. and Micron Technology, Inc.) in order to increase the sample size of companies and thereby improve the meaningfulness of the compensation data that we use for comparisons. We chose these four additional companies because they are in our industry and have market capitalization, revenue, profitability, and certain other metrics approximating ours; however, they are less direct business competitors in ion implanter processes. In fiscal year 2009, we modified the composition of our Executive and Director Compensation Peer Group for purposes of setting fiscal year 2010 target compensation. This modification was in response to changes in size and performance of peer group companies.

When the Compensation Committee reviews the competitive findings, it places the most weight on comparisons to KLA-Tencor Corporation, Lam Research Corporation and Novellus Systems, Inc. The operations of these three companies are considered most similar to us in that they directly compete in the semiconductor capital equipment market in process steps like that of ion implant, have a similar customer base and the level of technology required to produce their products and maintain their competitive edge is comparable to us.

Our competitive philosophy is generally for total direct compensation to be positioned between the median and 75th percentile of the Executive and Director Compensation Peer Group, taking into account individual and company performance. In fiscal year 2009, total direct target compensation was within this range or above the 75th percentile, depending on the executive, of the Executive and Director Compensation Peer Group. However, a majority of the named executive officers were below the median when compared to the three companies we place additional weight on (i.e. KLA-Tencor Corporation, Lam Research Corporation and Novellus Systems, Inc.).

This excerpt taken from the VSEA 10-Q filed May 13, 2009.

Overview

We are the leading supplier of ion implantation equipment used in the fabrication of semiconductor chips. We design, manufacture, market and service semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the world. The VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. We have shipped more than 4,000 systems worldwide.

We provide support, training, and after-market products and services that help our customers obtain high utilization and productivity, reduce operating costs and extend capital productivity of investments through multiple product generations. In fiscal year 2008, we were ranked number one in customer satisfaction in VLSI Research Inc.’s customer survey for all large suppliers of wafer processing equipment, an honor received in eleven of the past twelve years.

Our industry is cyclical. The business depends upon semiconductor manufacturers’ expectations and resulting capacity investments for future integrated circuit demand. Historically, our business has experienced significant volatility and we believe the semiconductor capital equipment business will continue to be volatile, largely due to fluctuations in the level of investment by memory manufacturers. During the second quarter of fiscal year 2009, we experienced a significant drop in business compared to the first quarter of fiscal year 2009. This decline is in addition to a decline of approximately 21% in revenue from fiscal year 2007 to fiscal year 2008. We believe that overcapacity in the memory market was the primary driver for the decline in business from fiscal year 2007 to fiscal year 2008. We also believe that continued overcapacity in the memory markets, along with the global credit crisis and the decline in end-user demand for semiconductors has resulted in the rapid decline in revenue during the first six months of fiscal year 2009. These factors are expected to continue to negatively impact our business through at least the remaining quarters of fiscal year 2009. Our revenue has historically been derived from a limited number of customers, some of which require financing to continue upgrade and/or expansion plans that require the purchase of our tools. Our after-market business has also been adversely affected as fabs are running at lower utilization levels, thus requiring fewer parts, upgrades and services.

We believe that our management team has the industry experience to quickly and effectively react to sizing adjustments required by the volatility in the market. As such, we began resizing our business in fiscal year 2008 and continued through the first six months of fiscal year 2009. We expect to continue to closely monitor the industry and may incur additional restructuring charges in subsequent quarters.

 

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We believe that we have the financial strength and liquidity to continue investing in product development such that we can continue to maintain our leading industry position. As of April 3, 2009, we had $307.2 million in cash and investments and approximately $2.5 million in debt. Furthermore, despite the year to date loss, we generated approximately $32.5 million in cash from operations during the first six months of fiscal year 2009.

Our business is tied closely to our market share and the total available market for ion implanters. Calendar year 2008 semiconductor capital expenditure reports show that the total available market for ion implanters decreased by approximately 40% versus calendar year 2007. In addition, based mainly on references to leading industry analyst reports and current customer buying patterns, we believe that semiconductor capital equipment spending will significantly decline in 2009 from 2008.

Wafer size and market. Most advanced devices below 90nm are produced on 300mm wafers. Memory manufacturers typically produce integrated circuits used for flash and dynamic random access memory, or DRAM, which store and retrieve information, while logic manufacturers typically produce integrated circuits used to process data. Foundry manufacturers have the capability to produce both memory and logic wafers.

Market Share and Total Available Market. The table below shows our calendar year 2008 and 2007 market share, as reported by Gartner Dataquest in April 2009 and April 2008, respectively. Market share estimates are calculated on a subset of revenue, and information reported by Gartner Dataquest may not be consistent on a company by company basis. The table below also shows the total available market for ion implanter sales in calendar years 2008 and 2007, also reported by Gartner Dataquest in April 2009 and April 2008, respectively. The total available market represents estimated worldwide total revenue for ion implanters sold during each of the calendar years.

 

     Market Share
Calendar Year Ended
    Total Available Market
Calendar Year Ended
     December 31,
2008
    December 31,
2007
    December 31,
2008
   December 31,
2007
      (Amounts in millions)

By market

         

Medium current

   41.5 %   56.6 %   $ 281    $ 454

High current

   78.1 %   77.8 %     371      672

High energy

   22.8 %   12.8 %     79      147

Ultra high dose

   100.0 %   100.0 %     67      64
                 

Overall

   61.5 %   64.5 %   $ 798    $ 1,337
                 

Market share and total available market research data is also published by VLSI Research Inc. In May 2009, VLSI Research Inc. reported that our overall market share was 65% and that the total available market was $757.8 million for calendar year 2008.

We estimate our market share on a regular basis. We do so based on extensive information, including our own revenues, competitor orders and other key information such as tool move-ins at the fabs. Our market share estimates are usually closely aligned with those of Gartner Dataquest. Revenue recognition disparities do not normally cause significant swings in calculations of market share. However, we believe the significant decline in semiconductor capital equipment business in 2008 caused revenue recognition delays from 2007 shipments to distort 2008 market share metrics. Our information indicates that based on a competitor’s delayed revenue recognition, a significant portion of their medium current tool shipments in 2007 was not recognized as revenue until 2008. As such, we believe our 2008 medium current market share, if normalized for these shipments, would be approximately flat from 2007 and our overall 2008 market share would be several percentage points higher than our overall 2007 market share. Since 2007 we have not lost a medium current customer. Our high current market share is a result of the industry shift to single wafer implanters at advanced technology nodes (65nm and below). We began developing single wafer high current tools in 1994 and are currently the industry leader. The increase in high energy market share is primarily related to customer mix in the total available market for high energy tools. Our position in the ultra high-dose market has resulted from the success of our new plasma doping tool, known as the VIISta PLAD, which is currently used by memory manufacturers.

 

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This excerpt taken from the VSEA 10-Q filed Feb 10, 2009.

Overview

We are the leading supplier of ion implantation equipment used in the fabrication of semiconductor chips. We design, manufacture, market and service semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the world. The VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. We have shipped more than 4,000 systems worldwide.

We provide support, training, and after-market products and services that help our customers obtain high utilization and productivity, reduce operating costs and extend capital productivity of investments through multiple product generations. In fiscal year 2008, we were ranked number one in customer satisfaction in VLSI Research Inc.’s customer survey for all large suppliers of wafer processing equipment, an honor received in eleven of the past twelve years.

Our industry is cyclical. The business depends upon semiconductor manufacturers’ expectations and resulting capacity investments for future integrated circuit demand. Historically, our business has experienced significant volatility and we believe the semiconductor capital equipment business will continue to be volatile, largely due to fluctuations in the level of investment by memory manufacturers. During the first quarter of fiscal year 2009, we experienced a significant drop in business compared to the fourth quarter of fiscal year 2008. We are currently predicting the second quarter of fiscal year 2009 to decline further. These declines are in addition to a decline of approximately 21% in revenues from fiscal year 2007 to fiscal year 2008. We believe that overcapacity in the memory market was the primary driver for the decline in business from fiscal year 2007 to fiscal year 2008. We also believe that continued overcapacity in the memory markets, along with the global credit crisis and the decline in end-user demand for semiconductors has resulted in the rapid declines in revenue during fiscal year 2009. Our revenues have historically been derived from a limited number of customers, some of which require financing to continue upgrade and/or expansion plans that require the purchase of our tools. Our after-market business has also been adversely affected, as fabs are running at lower utilization levels, thus requiring fewer parts, upgrades and services.

We believe that our management team has the industry experience to quickly and effectively react to sizing adjustments required by the volatility in the market. As such, we began resizing our business in fiscal year 2008, continued through the first quarter of fiscal year 2009 and we expect to continue to closely monitor the industry and incur additional restructuring charges in subsequent quarters. During the first quarter of fiscal year 2009, we incurred $6.2 million in restructuring charges, primarily related to a reduction in force.

 

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We believe that we have the financial strength and liquidity to continue investing in product development such that we can continue to maintain our leading industry position. As of January 2, 2009, we had $283.9 million in cash and investments, approximately $2.6 million in debt, and access to greater than $100 million in lines of credit. Furthermore, despite the current quarter loss, we generated approximately $8.6 million in cash from operations.

Our business is tied closely to our market share and the total available market for ion implanters. We expect that when calendar year 2008 semiconductor capital expenditure reports are released in April 2009, they will show that we continued our market share gains but, that the total available market for ion implanters was substantially reduced versus 2007. In addition, we believe, based mainly on references to leading industry analyst reports, that semiconductor capital equipment spending will significantly decline in 2009 from 2008.

Wafer size and market. Most advanced devices below 90nm are produced on 300mm wafers. Memory manufacturers typically produce integrated circuits used for flash and dynamic random access memory, or DRAM, which store and retrieve information, while logic manufacturers typically produce integrated circuits used to process data. Foundry manufacturers have the capability to produce both memory and logic wafers.

Market Share and Total Available Market. The table below shows our calendar year 2007 and 2006 market share, as reported by Gartner Dataquest in April 2008 and April 2007, respectively. Market share estimates are calculated on a subset of revenue, and information reported by Gartner Dataquest may not be consistent on a company by company basis. The table below also shows the total available market for ion implanter sales in calendar years 2007 and 2006, also reported by Gartner Dataquest in April 2008 and April 2007, respectively. The total available market represents estimated worldwide total revenue for ion implanters sold during each of the calendar years.

 

     Market Share
Calendar Year Ended
    Total Available Market
Calendar Year Ended
     December 31,
2007
    December 31,
2006
    December 31,
2007
   December 31,
2006
                 (In millions)

By market

         

Medium current

   56.6 %   52.8 %   $ 454    $ 414

High current

   77.8 %   45.8 %     672      720

High energy

   12.8 %   17.4 %     147      230

Ultra high dose

   100.0 %   na       64      na
                 

Overall

   64.5 %   43.1 %   $ 1,337    $ 1,364
                 

Market share and total available market research data is also published by VLSI Research Inc. In April 2008, VLSI Research Inc. reported that our overall market share was 64% and that the total available market was $1.3 billion for calendar year 2007.

Our 21 point increase in market share in calendar year 2007 led to increased revenues during 2007 compared to 2006. Our increase in high current market share is a result of the industry shift to single wafer implanters at advanced technology nodes (65nm and below). We began developing single wafer high current tools in 1994 and are currently the industry leader. The increase in medium current market share is primarily related to our market share growth in Taiwan. The decrease in high energy market share is primarily related to customer mix in the total available market for high energy tools. Our position in the newly designated ultra high-dose market has resulted from the success of our new plasma doping tool known as the VIISta PLAD, which is currently used by memory manufacturers. Calendar year 2008 market share reports are expected to be released in April 2009. We believe we have continued to increase our overall market share during calendar year 2008.

This excerpt taken from the VSEA DEF 14A filed Dec 17, 2008.

Overview

The Compensation Committee is responsible for determining compensation for our executive officers. The Compensation Committee’s goal is to ensure that executive officers are paid for performance and that their total compensation is competitive when compared to the compensation paid to executive officers of a group of peer companies, which we refer to as the Executive and Director Compensation Peer Group. Total compensation is paid at competitive levels, provided that our financial and non-financial performance is comparable to or better than that of a group of competitor companies, which we refer to as the Competitor Group. Performance metrics measured against this Competitor Group include, but are not limited to, revenue and earnings growth, market share, new customer account penetrations, new product success and customer satisfaction. The performance metrics may be weighted differently each year, and sometimes the weights also vary by individual, depending on the specific company focus for the respective year.

The Compensation Committee maintains two separate and distinct peer groups to achieve recruitment and retention goals, while monitoring company performance. The peer groups were established by the Compensation Committee after review by and input from our Compensation and Benefits Group, senior management and the independent consulting firm of FW Cook. The Executive and Director Compensation Peer Group is important for both recruitment and retention of executive officers and benchmarking of director compensation. Companies included in the Executive and Director Compensation Peer Group are generally companies with which we may compete for executive level talent. The Competitor Group is more focused on companies with which we can easily compare financial performance due to similar business models.

The Competitor Group is selected based on specific business characteristics which may include the following items: ion implanter competition; “best-in-class” semiconductor or semiconductor capital equipment manufacturer; similar in size to us with respect to market capitalization and semiconductor revenue. The Competitor Group currently includes the following 12 companies:

 

Applied Materials, Inc.

   Lam Research Corporation

Axcelis Technologies, Inc.

   MKS Instruments, Inc.

Brooks Automation, Inc.

   Nissin Ion Equipment Co., Ltd. *

Cymer, Inc.

   SEN Corporation *

Entegris, Inc.

   Novellus Systems, Inc.

KLA-Tencor Corporation

   Teradyne Inc.

 

* Limited financial information is available. These companies are included in the Competitor Group primarily for market share comparisons.

 

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Although Applied Materials, Inc., Nissin Ion Equipment Co., Ltd. and SEN Corporation manufacture ion implanters and compete with us, we do not include these companies in our Executive and Director Compensation Peer Group. Applied Materials, Inc. is excluded because it is a substantially larger company than Varian Semiconductor. Nissin Ion Equipment Co., Ltd. and SEN Corporation are excluded because neither company is required to make filings with the U.S. Securities and Exchange Commission, so there is insufficient information available on the executive compensation paid by these companies. However, market share information, a key metric for Varian Semiconductor and its competitive positioning, is available via a third party on an annual basis for all of the excluded companies.

The Executive and Director Compensation Peer Group consists of companies generally comparable to us in terms of industry, core technology, revenue and market capitalization and overall financial performance. The Executive and Director Compensation Peer Group currently includes the following 13 companies:

 

Analog Devices, Inc.

   Lam Research Corporation

Axcelis Technologies, Inc.

   MEMC Electronic Materials, Inc.

Brooks Automation, Inc.

   Micron Technology, Inc.

Cymer, Inc.

   MKS Instruments, Inc.

Entegris, Inc.

   Novellus Systems, Inc.

Fairchild Semiconductor International, Inc.

   Teradyne Inc.

KLA-Tencor Corporation

  

Our Competitor Group, excluding the exceptions noted above, is the basis for our Executive and Director Compensation Peer Group. We then added four companies (i.e. Analog Devices, Inc., Fairchild Semiconductor International, Inc., MEMC Electronic Materials, Inc. and Micron Technology, Inc.) in order to increase the sample size of companies and thereby improve the meaningfulness of the compensation data that we used for comparison. We chose these four additional companies because they are in our industry and have market capitalization, revenue, profitability, and certain other metrics approximating those of Varian Semiconductor; however, they are less direct business competitors in ion implanter processes.

When the Compensation Committee reviews the competitive findings, it places the most weight on comparisons to KLA-Tencor Corporation, Lam Research Corporation and Novellus Systems, Inc. The operations of these three companies are considered most similar to us in that they directly compete in the semiconductor capital equipment market in process steps like that of ion implant, have a similar customer base, and the level of technology required to produce their products and maintain their competitive edge is comparable to that of Varian Semiconductor.

Our competitive philosophy is generally for total direct compensation to be positioned between the median and 75th percentile of the Executive and Director Compensation Peer Group, taking into account individual and company performance. In fiscal year 2008, total direct compensation was within this range or above the 75th percentile, depending on executive, of the Executive and Director Compensation Peer Group. However, a majority of the named executive officers were below the median when compared to the three companies we place additional weight on (i.e. KLA-Tencor Corporation, Lam Research Corporation and Novellus Systems, Inc).

This excerpt taken from the VSEA 10-K filed Nov 26, 2008.

Overview

Varian Semiconductor Equipment Associates, Inc. (“Varian Semiconductor”) is the leading supplier of ion implantation systems used in the fabrication of semiconductor chips. Varian Semiconductor designs, manufactures, markets and services semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the United States (“U.S.”), Europe and Asia Pacific. The VIISta™ ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. Varian Semiconductor has shipped more than 4,000 systems worldwide.

Varian Semiconductor provides support, training, and after-market products and services that help its customers obtain high utilization and productivity, reduce operating costs, and extend capital productivity of investments throughout multiple product generations. In fiscal year 2008, Varian Semiconductor was ranked number one in customer satisfaction in VLSI Research Inc.’s customer survey for all large suppliers of wafer processing equipment, an honor received in eleven of the past twelve years.

Varian Semiconductor’s business is cyclical. The business depends upon semiconductor manufacturers’ expectations and resulting capacity investments for future integrated circuit demand. From 2005 to 2007, the total available market for ion implanters grew as memory manufacturers increased capacity to meet demand. During this time, Varian Semiconductor realized significant market share gains through a superior product portfolio. In 2008, the total available market for the entire capital equipment industry is expected to decrease by over 25% due to excess manufacturing capacity. It is expected that Varian Semiconductor will realize modest market share growth in 2008. Calendar year 2008 market share reports are expected to be released in April 2009.

Varian Semiconductor maintains a website at www.vsea.com. The information contained on the Varian Semiconductor website is not included in, or incorporated by reference into, this Annual Report on Form 10-K. Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are made available through the Varian Semiconductor website, free of charge, as soon as reasonably practicable following the electronic filing or furnishing of such materials by Varian Semiconductor to the Securities and Exchange Commission (“SEC”) and are available at the SEC’s website at www.sec.gov.

The Industry

The semiconductor industry is essentially two different, but connected industries—microchip and capital equipment (“capex”). The microchip industry is where microprocessors, dynamic random access memory (“DRAM”), operational amplifiers and hundreds of other electronic circuits are created on small squares of silicon known as “chips” or “die”. The manufacturers of these circuits can be categorized as either logic, memory, foundry, analog or discrete. Logic, memory and foundry represent the bulk of the industry. Logic manufacturers design and make chips that process information. Memory manufacturers design and make chips that store information. Foundry manufacturers are contractors that take chip designs from other companies and make the chips for them. Over the last several years the demand for memory chips has outstripped the demand for logic chips. As the demand for memory-intensive applications such as cameras, phones and MP3 players grows, it is expected that memory will continue to represent the bulk of chips made worldwide.

The capex industry is where Varian Semiconductor participates. The capex industry is comprised of companies that manufacture equipment used in the production of microchips. The two segments of the capex industry are known as Front End of the Line (“FEOL”) and Back End of the Line (“BEOL”). In the FEOL, the various circuit components such as transistors, diodes, resistors and capacitors are formed. In the BEOL, the wires, or interconnect, that join all of the components together to form the circuit are created. Varian manufactures tools

 

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that form the circuit components in the FEOL. The entire semiconductor industry has grown so rapidly because it is continually able to provide more functionality for a lower cost. In order to achieve this dynamic and be successful, capex companies must innovate through aggressive research and development. The technology and applications that drive the entire industry are developed by the capex companies.

During the past five to ten years, however, the semiconductor capital equipment market has experienced a slowdown in growth as compared to historical levels. This is the result of improved productivity and efficiencies of capital equipment, the transition to larger 300mm (approximately 12 inch) wafers, the changing demand for next generation processing chips and the increasing technical difficulties with putting more and more transistors on a microchip.

Semiconductor manufacturing is highly competitive with each manufacturer seeking to provide products that consume the least amount of power, and have the lowest cost and fastest processing speed. Integrated circuit manufacturers generally rely on equipment suppliers for the timely development of equipment and processes to meet their rapidly changing and complex requirements. Today, a semiconductor fabrication factory, or “fab,” can cost over $3 billion. As the industry transitions to 32nm (32 billionths of a meter) devices, these costs are expected to increase.

The fabrication of integrated circuits requires a number of complex and repetitive processing steps, including deposition, photolithography, etch, metrology, anneal and ion implantation. Deposition is a process in which a film of either electrically insulating or electrically conductive material is deposited on the surface of a wafer. Photolithography is used to transfer a circuit pattern onto a light-sensitive material called photo-resist that, after development, can be used in turn to transfer the pattern onto the silicon surface. The etch process completes the transfer of the pattern into the various thin films used to make the integrated circuit. Metrology measures critical features and properties of the device to ensure correct fabrication. Anneal is used to incorporate implanted impurities into the silicon crystal matrix and make them electrically active. Ion implantation provides a means for introducing impurities into the silicon crystal, typically into selected areas defined by the photolithographic process. The selective implanting of ions into defined areas creates electrically conductive and non-conductive areas that form the transistors of the integrated circuits.

Semiconductor manufacturers have historically sought to increase the number of transistors on each microchip by “shrinking” device structures. Through this relentless miniaturization, microchips have chronologically increased their processing capability or memory storage capacity. This is accomplished by exploiting advancements in photolithography. Each new advancement in photolithography is described by the minimum resolvable geometry and is commonly referred to as a “device node.” State-of-the-art production is now accomplished at 45nm nodes with 32nm nodes currently in development at more technologically advanced fabs.

Improved productivity has been accomplished by transitioning to larger and larger silicon substrates, or wafers. From 25mm wafers used in the 1970’s to the current state-of-the-art wafer size at 300mm, each successive generation increases the number of microchips per wafer thereby increasing productivity. The use of a larger wafer generally requires a great deal of infrastructure changes in equipment and factory automation systems, so transitions only occur about every 10 years. The use of 200mm wafers in production began at the end of the 1980’s. The migration from 200mm to 300mm began at the end of the 1990’s. 300mm tool sales now represent the majority of all new tool sales.

To achieve higher yields, implant systems must be capable of repeating the original process on a consistent basis for all devices on the wafer and for every wafer. These characteristics are known in the industry as “uniformity” and “repeatability.” In addition, implant systems must process wafers without damaging the device structures or introducing device-damaging contamination, which is typically characterized by “cross contamination levels” and “particle defect adders.” In many cases, implant performance is measured directly from the electrical performance of actual devices or device test structures. This is called “electrical parametrics.” In production fabs, there are typically multiple ion implantation systems performing the same processes in order to meet the

 

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production demands of the fab. In order to allow the greatest flexibility, semiconductor manufacturers require that each system perform equally well on each device step. This characteristic is known as “tool-to-tool” matching. In advanced device production, semiconductor manufacturers will often adjust the implant processes to compensate for variability in processes upstream from the implanter, making the implanter’s accuracy another important attribute. Uniformity, repeatability, accuracy, cross contamination, defect adders, parametrics and tool-to-tool matching are all critical in achieving commercially acceptable yields.

Semiconductor manufacturers generally measure the cost performance of their production equipment in terms of “cost of ownership,” which is determined by factoring in the fixed costs for acquisition and installation of the equipment, its variable operating costs and total wafer output. Equipment with higher wafer throughput increases total output and allows the semiconductor manufacturer to recover the purchase and installation costs of the equipment over a greater number of wafers and thereby reduces the cost of ownership of the equipment on a per wafer basis. Throughput is most accurately measured on a net or overall basis, which takes into account the processing speed of the equipment and any system setup and non-operational downtime for cleaning, maintenance or other repairs. The increased difficulty of achieving desired transistor performance at advanced nodes has made high yields important in selecting processing equipment. The most desired systems are those that can achieve process results within critical tolerance limits and still operate at desired throughput rates.

The continuing evolution of semiconductor devices to smaller geometries and more complex multi-level circuitry has significantly increased the cost and performance requirements of the capital equipment used to manufacture these devices. As wafer fabs are projected to increase in cost substantially for each subsequent device node, yield losses and depreciation costs will become a much larger percentage of the aggregate production costs for semiconductor manufacturers relative to labor, materials and other variable manufacturing costs. As a result, there has been increasing focus by the semiconductor industry on obtaining increased capability and productivity to maintain returns from semiconductor manufacturing equipment, thereby increasing the revenue generated and reducing the effective cost of ownership of such systems.

This excerpt taken from the VSEA 10-Q filed Aug 5, 2008.

Overview

Varian Semiconductor is the leading supplier of ion implantation equipment used in the fabrication of semiconductor chips. Varian Semiconductor designs, manufactures, markets and services semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the world. The VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. Varian Semiconductor has shipped more than 4,000 systems worldwide.

Varian Semiconductor provides support, training, and after-market products and services that help its customers obtain high utilization and productivity, reduce operating costs, and extend capital productivity of investments through multiple product generations. In fiscal year 2008, Varian Semiconductor was ranked number one in customer satisfaction in VLSI Research Inc.’s customer survey for all large suppliers of wafer processing equipment, an honor received in eleven of the past twelve years.

Varian Semiconductor’s business is cyclical. The business depends upon semiconductor manufacturers’ expectations and resulting capacity investments for future integrated circuit demand. Varian Semiconductor’s business is also tied closely to its market share. Varian Semiconductor has increased its market share substantially in recent years. Most recently, overall market share grew from 43.1% in calendar year 2006 to 64.5% in calendar year 2007. Historically, Varian Semiconductor’s business has experienced significant volatility. Varian Semiconductor believes the semiconductor capital equipment business will

 

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continue to be volatile, largely due to fluctuations in the level of investment by memory manufacturers. As a result of changes in customers’ capital spending plans, Varian Semiconductor now anticipates that fiscal year 2008 revenue will be lower than fiscal year 2007 revenue.

Most advanced devices below 90nm are produced on 300mm wafers. Memory manufacturers typically produce integrated circuits used for flash and dynamic random access memory, or DRAM, which store and retrieve information, while logic manufacturers typically produce integrated circuits used to process data. Foundry manufacturers have the capability to produce both memory and logic wafers. Significant purchasing fluctuations by memory, logic and foundry manufacturers could lead to significant fluctuations in Varian Semiconductor’s revenues, even if the total ion implant market does not change.

Market Share and Total Available Market. The table below shows Varian Semiconductor’s calendar year 2007 and 2006 market share, as reported by Gartner Dataquest in April 2008 and April 2007, respectively. Market share estimates are calculated on a subset of revenue, and information reported by Gartner Dataquest may not be consistent on a company by company basis. The table below also shows the total available market for ion implanter sales in calendar years 2007 and 2006, also reported by Gartner Dataquest in April 2008 and April 2007, respectively. The total available market represents estimated worldwide total revenue for ion implanters sold by all companies which sell ion implanters during each of the calendar years.

 

     Market Share
Calendar Year Ended
    Total Available Market
Calendar Year Ended
     December 31,
2007
    December 31,
2006
    December 31,
2007
   December 31,
2006

By market

         

Medium current

   56.6 %   52.8 %   $ 454    $ 414

High current

   77.8 %   45.8 %     672      720

High energy

   12.8 %   17.4 %     147      230

Ultra high dose

   100.0 %   na       64      na
                         

Overall

   64.5 %   43.1 %   $ 1,337    $ 1,364
                         

Market share and total available market research data is also published by VLSI Research Inc. In April 2008, VLSI Research Inc. reported that Varian Semiconductor’s overall market share was 64% and that the total available market was $1.3 billion for calendar year 2007.

Varian Semiconductor’s twenty-one point increase in market share in calendar year 2007 led to increased revenues during 2007 compared to 2006. Varian Semiconductor’s increase in high current market share is a result of the industry shift to single wafer implanters at advanced technology nodes (65nm and below). Varian Semiconductor began developing single wafer high current tools in 1994 and is currently the industry leader. The increase in medium current market share is primarily related to Varian Semiconductor’s market share growth in Taiwan. The decrease in high energy market share is primarily related to customer mix in the total available market for high energy tools. Varian Semiconductor’s position in the newly designated ultra high-dose market has resulted from the success of its new plasma doping tool known as the VIISta PLAD, which is currently used by memory manufacturers.

This excerpt taken from the VSEA 10-Q filed May 6, 2008.

Overview

Varian Semiconductor is the leading supplier of ion implantation equipment used in the fabrication of semiconductor chips. Varian Semiconductor designs, manufactures, markets and services semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the world. The VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. Varian Semiconductor has shipped more than 3,900 systems worldwide.

Varian Semiconductor provides support, training, and after-market products and services that help its customers obtain high utilization and productivity, reduce operating costs, and extend capital productivity of investments through multiple product generations. In fiscal year 2007, Varian Semiconductor was ranked number one in customer satisfaction in VLSI Research Inc.’s customer survey for all large suppliers of wafer processing equipment, an honor received in ten of the past eleven years.

Varian Semiconductor’s business is cyclical. The business depends upon semiconductor manufacturers’ expectations and resulting capacity investments for future integrated circuit demand. Varian Semiconductor’s business is also tied closely to its market share. Varian Semiconductor has increased its market share substantially in recent years. Most recently, overall market share grew from 43.1% in calendar year 2006 to 64.5% in calendar year 2007. Varian Semiconductor believes the semiconductor capital equipment business will continue to be volatile, largely due to fluctuations in the level of investment by memory manufacturers. As such, worldwide implanter sales are expected to decline in calendar year 2008. Thus, despite Varian Semiconductor’s recent gains in market share, its fiscal year 2008 revenue could be lower than its fiscal year 2007 revenue.

Most advanced devices below 90nm are produced on 300mm wafers. Memory manufacturers typically produce integrated circuits used for dynamic random access memory, or DRAM, which store and retrieve information, while logic manufacturers typically produce integrated circuits used to process data. Foundry manufacturers have the capability to produce both memory and logic wafers. Significant purchasing fluctuations by memory, logic and foundry manufacturers could lead to significant fluctuations in Varian Semiconductor’s revenues, even if the total ion implant market remains flat.

 

14


Table of Contents

Market Share and Total Available Market. The table below shows Varian Semiconductor’s calendar year 2007 and 2006 market share, as reported by Gartner Dataquest in April 2008 and April 2007, respectively. Market share estimates are calculated on a subset of revenue, and information reported by Gartner Dataquest may not be consistent on a company by company basis. The table below also shows the total available market for ion implanter sales in calendar years 2007 and 2006, also reported by Gartner Dataquest in April 2008 and April 2007, respectively. The total available market represents an estimated worldwide total revenue for ion implanters sold by all companies which sell ion implanters during each of the calendar years.

 

     Market Share
Calendar Year Ended
    Total Available Market
Calendar Year Ended
     December 31,
2007
    December 31,
2006
    December 31,
2007
   December 31,
2006

By market

         

Medium current

   56.6 %   52.8 %   $ 454    $ 414

High current

   77.8 %   45.8 %     672      720

High energy

   12.8 %   17.4 %     147      230

Ultra high dose

   100.0 %   na       64      na
                         

Overall

   64.5 %   43.1 %   $ 1,337    $ 1,364
                         

Market share and total available market research data is also published by VLSI Research Inc. In April 2008, VLSI Research Inc. reported that Varian Semiconductor’s overall market share was 64% and that the total available market was $1.3 billion for calendar year 2007.

Varian Semiconductor’s twenty-two point increase in market share in calendar year 2007 led to increased revenues during 2007 compared to 2006. Varian Semiconductor’s increase in high current market share is a result of the industry shift to single wafer implanters at advanced technology nodes (65nm and below). Varian Semiconductor began developing single wafer high current tools in 1994 and is currently the industry leader. The increase in medium current market share is primarily related to Varian Semiconductor’s market share growth in Taiwan. The decrease in high energy market share is primarily related to customer mix in the total available market for high energy tools. Varian Semiconductor’s position in the newly designated ultra high-dose market has resulted from the success of its new plasma doping tool known as the VIIsta PLAD, which is currently used primarily by memory manufacturers.

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