MITCHELL TYSON - PRI AUTOMATION INC (PRIA)
CEO Interview - published 03/23/2000
DOCUMENT # JAP204
MITCHELL G. TYSON is President and Chief Executive Officer. Mr. Tyson
was appointed CEO of PRI Automation in August 1998. He joined the
company in 1987 as Vice President of Operations and was promoted to
Executive Vice President and Chief Operating Officer in 1990. In 1995,
he was named President and a member of the Board of Directors. Mr. Tyson
has led PRI's growth from a $4 million manufacturer of robotic systems
in 1987 to a $250 million-plus leading supplier of factory automation
systems to the global semiconductor industry. From 1984 to 1987, before
joining PRI, he held various positions including Director of Product
Management at GCA Corp., a manufacturer of semiconductor capital
equipment. From 1979 to 1984, he was a Senior Legislative Assistant and
Science Advisor to US Senator Paul Tsongas in Washington, DC. He worked
on legislation in the fields of industrial and technology policy,
energy, environment and economic development. Currently, Mr. Tyson is a
member of the Board of Directors of the Semiconductor Industry Suppliers
Association of America (formerly SEMI/SEMATECH). In addition, he is also
a member of the Board of Directors of the Massachusetts High Technology
Council. Mr. Tyson holds a BS in Physics (1975), an MS in Political
Science (1978), and an MS in Nuclear Engineering (1978), all from the
Massachusetts Institute.
SECTOR: SEMICONDUCTOR EQUIPMENT
TWST: Could we start out with of an update on PRI over the last year,
what's gone on and where are you at today?
Mr. Tyson: The semiconductor industry is exploding as the demand for
chips is skyrocketing. Thus PRI, along with the rest of the
semiconductor equipment industry, is ramping up production to meet the
new increase in demand for semiconductors. During the last two years,
the industry has been in a downturn, but today we are in a period of
renewed rapid growth.
TWST: What is causing the upturn?
Mr. Tyson: The increase in demand for semiconductors is being driven by
the Internet and wireless communications. PCs used to drive the demand
for semiconductor manufacturing, but now there are more and more
products using chips and this is increasing the demand for new
manufacturing capacity.
TWST: As people try and build capacity, are there any constraints on
that in terms of production or financing, or is it just a matter of
time?
Mr. Tyson: Semiconductor manufacturers have recovered financially from
the downturn, so financing is not a constraint to adding new capacity.
One constraint might be how fast the equipment industry can ramp their
production in order to produce and deliver the equipment.
TWST: As we look out over the next 18 months, is this going to continue,
or are we just really at the beginning of the cycle?
Mr. Tyson: No one in our industry should ever say the cycles are over,
but there are indications that this upturn is going to be sustained over
a longer period of time than previous upturns. The strength of the
increased demand is driven by the Internet and wireless communications.
It is having a profound impact on the way we do business, communicate
with each other, entertain and educate ourselves. The result of this is
that more and more electronic products are using greater amounts of
semiconductors. This in turn is driving manufacturers to produce more
complex chips at ever lower prices in order to penetrate very large mass
consumer markets. This trend could continue to drive demand for another
three to five years.
TWST: Given that positive scenario, what does PRI have to do to take
full advantage of it?
Mr. Tyson: To remain competitive, semiconductor manufacturers will need
to find ways to produce their chips at the lowest cost and in the least
amount of time. We believe that automation is the key to unlocking the
hidden productivity inside the fab and will play a key role in making
fabs highly productive and adaptive manufacturing environments. Fabs
will need to become highly efficient and flexible manufacturing
'machines' capable of producing a variety of complex and inexpensive
products that address a wide variety of applications. To achieve this,
manufacturers will be required to automate their entire manufacturing
process. We used the downturn to focus on our strategy of providing a
complete range of factory automation systems and software to address
these automation requirements. We developed many new products and
acquired several companies that we felt extend PRI's product offerings
in the areas critical to fab productivity. I think we have made a lot of
progress and have the most complete solution of any of our competitors.
TWST: It's really a whole new world in terms of semiconductors at this
point.
Mr. Tyson: Ten years ago semiconductor factories were basically
laboratories that produced chips. It's only recently that manufacturers
have begun to get a higher level of process control and improve yields
and equipment reliability. Today, these factories are capable of
producing up to 30,000 to 40,000 wafers a month at very high yields.
Despite these gains, manufacturing productivity is still relatively low
compared to other industries. PRI offers a complete set of automation
systems, software and services to help manufacturers create a highly
efficient manufacturing environment that can respond rapidly to changing
demand.
TWST: Who are you competing with to do this?
Mr. Tyson: PRI is the only company with the breadth of products and
experience to meet the demand for a fully automated manufacturing
environment. We have three divisions: the factory systems division,
which provides our interbay and intrabay products that move materials
across the factory and between process tools; the OEM division provides
robotic systems and software to the OEM tool manufacturers, and the
software systems division provides a wide range of software that manages
and controls the flow of data throughout the fab. Our factory management
software runs production. Our planning and scheduling software creates
resource and materials acquisition plans and schedules shop floor
equipment to meet desired production requirements. Our cell control
software ensures that the data at the process tool communicate with the
factory management host software to help improve yields and tool
throughput.
TWST: Given your broad coverage, where is your market position today?
Mr. Tyson: According to Dataquest, PRI has approximately 50% of the
worldwide automation market for interbay automation and OEM atmospheric
robotic wafer-handling systems. We also have the fastest growing
installed base of manufacturing execution system (MES) software
customers, winning over 50% of new license sales in 1999.
TWST: Given the bright outlook for the industry, are we likely to see
new competition, or does it just take too long to gear up?
Mr. Tyson: I would be surprised if we didn't see some new companies
trying to enter the market. But I think the odds of a customer betting a
$2 billion factory on a new supplier with a system that may not be
proven over a long period of time are unlikely. We certainly have
competition in each of the areas in which we compete. Yet, as I
mentioned, we still maintain a 50% or better market share. In fact,
during the downturn we improved our market share position. We have
competition, but I believe that PRI is uniquely positioned because we
offer a complete range of automation solutions that address all the key
automation requirements inside the fab. We should be in a position
several years from now to be able to optimize a factory and demonstrate
to a customer that they can improve the output of their factory by over
10%. This kind of productivity improvement could be worth over $100
million to a manufacturer. The only way you can achieve this kind of
return is by offering the broad range of automation systems, software
and services that PRI offers and make them work together. Only by
managing and controlling all of the manufacturing logistics inside the
fab can you assure a customer that they can improve the productivity of
their fab by at least 10%.
TWST: You've got a strong and unique position in this industry at this
point.
Mr. Tyson: We believe we are uniquely positioned to offer the complete
range of products and services to help semiconductor manufacturers
maximize profits.
TWST: Given that, what kind of growth should investors look for from PRI
over the next three or four years?
Mr. Tyson: Given the volatility of our industry, it's so hard to tell,
and I know Wall Street is loathe to predict anything much more than 30%.
So I believe that you will probably see the industry growing 30% and PRI
growing at a rate faster than that because of the increased penetration
of automation in next generation fabs. 300mm manufacturing will require
full fab automation where the wafer is automatically transported from
one process tool loadport to another. This will significantly increase
the demand for intrabay automation. To optimize this material handling,
manufacturers will need more sophisticated and intelligent software
capable of managing the entire production chain. 300mm manufacturing
will also create new market opportunities for our OEM systems. For
example, in addition to providing our traditional wafer-handling robotic
components, we see a new opportunity to create a fully integrated wafer-
handling system that is integrated with the front end of the process
tool. This system will store wafers at the tool to improve tool
utilization and act as an integration point between the process tool and
the automation systems in the process bay. These types of expanded
automation systems will have a significant impact on average sales
prices. Today, a typical 200 millimeter factory has the potential to use
$15 million worth of PRI products. In a 300mm factory, we see that
growing to between $50 and $75 million of PRI products.
TWST: Is there any question that that transition is going to occur?
Mr. Tyson: No, I don't think there's any question. It's just something
that's inevitable. The semiconductor industry has been successful in
developing and adopting new technology to keep producing the next
generation chip. That's the only way we've been able to keep Moore's Law
in effect and continue to produce more powerful chips at lower and lower
prices. 300 millimeter wafers provide twice as many chips per wafer as
200 millimeter, helping to lower the cost of chips. A few pilot lines
are expected to come online next year with full production to follow
over the next two to three years.
TWST: From an operating margin point of view, in this kind of bright
outlook, what can the company generate ultimately in terms of an
operating margin?
Mr. Tyson: It all depends on the actual timing of the transition to
300mm so I would be reluctant to provide goals and set expectations, but
with our strong market position and fast growth I believe that we can
beat our semiconductor equipment industry's average.
TWST: For investors looking at the company, what should they worry
about? What is the risk? Is it just the general economy at this point?
Mr. Tyson: The general economy is, of course, an important background
issue. I think investors need to be concerned that the industry doesn't
overbuild. There is no sign of it at this point, but if capital spending
as a percentage of semiconductor revenue were to exceed 30% for an
extended period of time, that would be a cautionary signal. From PRI's
point of view, we need to continue to focus on our core strategy of
developing and delivering the most comprehensive set of automation
systems and software to meet the changing requirements of semiconductor
manufacturers.
TWST: Are there any areas within the company that need to be
strengthened at this point to allow you to fully participate?
Mr. Tyson: Our strategy is in place and we are developing our programs
and hiring the people we need to successfully implement our strategy.
This is a very tight job market and it is a little harder both in
Silicon Valley and in Massachusetts, but we have been successful in
finding the people that we need.
TWST: You brought up the labor market. Is it as tight as everybody says
it is?
Mr. Tyson: It's pretty tight, but we're still able to fill all of our
critical positions.
TWST: So it really hasn't been that much of an issue for you.
Mr. Tyson: Today's job market is very different than it was a few years
ago. We have been very proactive in developing recruiting strategies to
attract the talent we need to continue to grow the company. We know that
when we interview people they're looking at several other opportunities,
and we need to make competitive offers and we've been able to do that.
TWST: For investors keeping an eye on the company, what can they use as
kind of benchmarks or milestones over the next year or two to mark your
progress?
Mr. Tyson: I would look at our quarterly reports, market share growth,
operating profits, and new product announcements.
TWST: How do you feel about the value the market is currently putting on
your stock?
Mr. Tyson: I feel good about it.
TWST: In October of 1998, the stock was $10. At that point, was it at
the bottom of the cycle?
Mr. Tyson: That's right, and people were very cautious about predicting
when the upturn would come. We are at the beginning of the upturn and I
think there is a lot more run in the company's valuation. As this ramp
continues, I think the transition to 300 millimeter has tremendous
potential to move our company even further.
TWST: Is there anything on the horizon other than the general economy
that could derail what's going on?
Mr. Tyson: As long as the information age unfolds the demand for chips
will be very large. I don't have any doubt that the demand for
semiconductors will continue to be robust.
TWST: If you were sitting down with some potential long-term investors,
what two or three reasons would you give them to go out and buy your
stock today?
Mr. Tyson: I think the opportunity for PRI is huge, I think the value
proposition to customers is great, I think PRI is clearly differentiated
from the competition, and I think all that adds up to long-term
shareholder value.
TWST: Thank you.
MITCHELL G. TYSON
President & CEO
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, MA 01821
(978) 670-4270
(978) 670-7599 - FAX
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