Mattson hopes to terminate rivals in turnaround
Mark LaPedus
10/06/2003 11:45 AM EST
URL: siliconstrategies.com
FREMONT, Calif. -- Officials from chip-equipment maker Mattson Technology Inc. are quick to point out that parts of the hit sci-fi movie, Terminator 2: Judgment Day, were filmed at the company's new headquarters here.
Some at Mattson even call its new headquarters The Terminator Building. But the real issue is whether Mattson will terminate its rivals--or will get terminated-- in the brutal semiconductor equipment market.
After a period of losses and painful cuts--coupled with a pair of ill-fated acquisitions--Mattson has put the finishing touches on its turnaround strategy designed to get the company back on track and restore profitability starting in 2004.
The Fremont-based supplier of dry strip systems and rapid thermal processing (RTP) tools has cut costs, restructured, implemented a new supply-chain strategy, and narrowed its focus from nine to two major product lines.
This is not to say Mattson has halted all R&D. On the contrary, the company is currently developing a new, low-pressure annealing tool for the development of advanced chips, said David Dutton, president and chief executive of Mattson.
Dutton was sketchy about Mattson's R&D efforts, but he is clear about the company's product strategy. "Our focus is on dry strip and RTP," Dutton said. "Our products have to be in a leadership position. If we're not in a leadership position, we don't want to be in the business," he said in a recent interview with Silicon Strategies at the company's headquarters in Fremont.
Dutton believes the company has the right formula to compete against the heavyweights in its core businesses. It competes in the RTP market against Applied Materials Inc., while it goes toe-to-toe in dry strip against Novellus Systems Inc. and others.
Mattson ranked second in both RTP and dry strip in terms of worldwide market share in 2002, only behind Applied and Novellus, respectively, according to Dataquest Inc. of San Jose. In total, Mattson was the 17th largest chip-equipment maker in 2002, with sales of $166.1 million, down 22.5 percent from 2001, according to Dataquest.
Competing against Applied and Novellus remains a tough task for Mattson, said analyst Risto Puhakka of VLSI Research Corp. in Santa Clara, Calif. "On the other hand, chip makers are always looking for second sources in RTP and drip strip," he said.
"Mattson has formidable competition, but I still like their story," said Cristina Osmena, an analyst with Needham & Company Inc. "They have the right focus. They have a new management team, who are focused on operations. That's a big change," she said.
Osmena was referring to Mattson's management shakeup. At the end of 2001, Dutton, who had joined Mattson in 1994, was named chief executive. He had been serving as its acting CEO, following the retirement of Brad Mattson, founder and former boss. Brad Mattson is a technologist and visionary, but the company needed more of an "operations guy" to lead Mattson Technology out of the severe downturn, according to one industry observer.
Right place at wrong time
In any case, it's been a long and painful time for this company. After enjoying the fruits of the upturn in the late 1990s, the company stumbled in 2000, when it simultaneously acquired the semiconductor equipment division of Steag Electronic Systems AG and CFM Technologies Inc. The acquisitions had a total value of about $630 million.
At the time, Mattson offered strip, etch, deposition, RTP, and epitaxial systems. The company had been expanding its portfolio to cover more process steps and hoped to become a broad line supplier of fab tools. With systems acquired from Steag, Mattson expected to strengthen its position in RTP and gain cleaning processes and chemical vapor deposition (CVD) tools. And with CFM, Mattson picked up a range of wet-processing systems.
Then, starting in late 2000, Mattson--and other chip equipment vendors--hit the wall due to the sudden and severe downturn. The company's acquisition strategy backfired, as it was caught with too many weak products in a horrific market, according to analysts.
Then, it began to divest many product lines--except for RTP and dry strip. Recently, Mattson completed its move to focus on its core markets, by selling its wafer cleaning business to SCP Global Technologies Inc. of Boise, Idaho.
Mattson was unable to support a plethora of products amid the downturn, Dutton explained. "The acquisitions were the right thing to do, but the timing was horrendous," he said.
The turnaround strategy
Starting in late 2001, Dutton moved to turn the company around. Over time, Mattson has dramatically cut its headcount, restructured, and consolidated its facilities. It has also deployed a new, innovative supply chain system, dubbed the Cyclically Flexible Enterprise (CFE) model.
As part of CFE, Mattson is outsourcing its 200-mm fab tool lines to contract manufacturing specialist FoxSemicon of Taiwan. "We see a cost benefit in outsourcing," said Neal Holmlund, vice president of operations at Mattson.
And Mattson appears to be in the right place on the product front. The company's Aspen line of 200- and 300-mm dry-strip tools are based on what it calls inductively coupled plasma (ICP) technology. But a key to the company's growth is the newer Aspen III Highlands, a tool geared for low-k resist strip applications.
However, the market for the Aspen III Highlands has been hampered by the slow deployment of low-k dielectrics. "Today's low-k will require a critical etch," Dutton said. But the overall "low-k market has stalled. That's been frustrating for us."
In RTP, Mattson is also addressing critical processing steps, such as ultra shallow junctions and others. At present, it sells the 2900 for 150- and 200-mm RTP applications and the 3000 for the 300-mm market.
While the company has solidified its product strategy, Mattson--and other chip-equipment makers--face a major problem: revenues. In the second quarter of 2003, Mattson reported sales of $30.5 million, a 55 percent decrease from $67.8 million in the first quarter of 2003, and a 36 percent drop from $47.3 million in the second quarter of 2002.
Net sales consisted of $27.5 million in sales of RTP and strip products, and royalties of $3 million related to the settlement of the patent infringement suit with Dainippon Screen Manufacturing Co. Ltd. Net loss was $9.5 million in the Q2, compared to a net loss of $16.0 million for the first quarter of 2003, and a net loss of $24.5 million for the second quarter of 2002.
What's next?
For the third quarter, new order bookings are expected to increase by approximately 20 percent from second quarter bookings. Net sales are expected to be $28 million.
Analysts believe that the company is expected to post a loss in Q3. Needham's Osmena believes that Q4 will be soft for Mattson and all chip-equipment vendors. That quarter is expected to be an "air pocket" for vendors in the marketplace, according to the analyst.
Mattson recently received a huge order from a Taiwan company, reportedly Powerchip Semiconductor Corp., a DRAM foundry fab. The company declined to comment on its new customers, but noted that it has seen an upswing in the DRAM sector. Like all chip-equipment makers, Mattson is waiting for purchase orders from the foundries like TSMC and UMC, which have held back their capital spending.
"We're seeing more activity," Dutton said. "Lately, the activity has been at the DRAM companies. We expect to see more activity at the foundries," he said.
"Japan actually looks very good," he said. Korea, Taiwan and China are showing signs of life, but Europe and the United States are lagging in terms of chip-equipment orders, he said.
Dutton sees a possible upturn for chip-equipment in mid-2004, but there are too many unknowns and visibility is unclear. "It's very unpredictable," he said. |
