Why Brooks and PRI say it's time to merge and get bigger
By J. Robert Lineback, Semiconductor Business News
Mar 4, 2002 (10:36 AM)
URL: siliconstrategies.com
The days of wafer fab automation being dominated by relatively small but highly focused suppliers are over.
A flurry of acquisitions, led by Brooks Automation Inc., is reshaping this $1.3 billion chip-manufacturing segment, but the biggest force behind the change is a growing need for new fab software and fully-automated factories, which are now needed to justify multi-billion dollar plants, said the chief executives Brooks and PRI Automation Inc. These two Massachusetts-based companies are awaiting U.S. clearance for a planned merger, which will create the world's largest fab automation supplier with annual revenues over $700 million.
"If there is one thing we hear from our customers, it is that they want to do business with fewer suppliers," said Robert J. Therrien, president and CEO of Brooks. "They want fewer part numbers. So suppliers are taking on larger and larger projects. The value proposition becomes the integration of hardware and software--delivering pre-integrated, pre-tested automation solutions."
For that reason, Brooks has been moving quickly on the acquisition trail, buying a dozen automation and software suppliers in the past 15 months, including its pending $380 million stock purchase of PRI Automation. Brooks' acquisitions have covered the gamut of fab automation systems, from software to air flow systems and material movers to machine vision and e-diagnostics (see table below).
And now the Chelmsford, Mass., company is preparing for its biggest move yet by merging with PRI Automation and renaming itself Brooks-PRI Automation Inc. The two companies believe they will finish the acquisition by the end of this month, and they have already begun preparation for the merger by forming steering committees and taskforces for the quick integration of operations, said Mitchell G. Tyson, president and CEO of PRI Automation in Billerica, Mass.
"Mergers are almost never easy," Tyson noted. "Brooks and PRI have a lot of experience--Brooks even has more experience than we do." To make sure the merger is successful, Tyson and Therrien are not taking anything for granted. At stake is the ability to serve "this enormous automation challenge that's coming up," Tyson said.
"Only when you shift to 300-mm [wafer fabs] does the customer fully appreciate how everything is integrated and attached to other systems," Tyson said. "When fabs have automated material handling, the data automation begins to be a major issue because you do not have people making decisions during the course of moving production lots around the fab."
The need for integrated automation of data and material-moving systems has increased the "complexity of managing suppliers with many subsystems, interfaces, and each with points of failure," Tyson said. That issue is leading to the concept of "one phone number to call when you have a problem," he added.
In separate interviews with SBN, both chief executive officers said the severe downturn in semiconductor capital spending played a factor in the decision to merge Brooks and PRI, but Tyson and Therrien insisted that the move is not driven by a shrinking revenue base. Brooks reported its revenues fell 45% to $61.5 million in the company's last fiscal first quarter, ended Dec. 31, compared to $111.4 million in the period last year, while PRI's dropped 35% to $54.9 million in the same quarter from $84.7 million a year ago. Brooks posted a net loss of $7.7 million, including restructuring charges, while PRI had a $6.8 million loss.
"We think this is the right thing to do for customers, employees, and shareholders," Therrien said. "If you cannot add one plus one and make it equal three in a merger of this type, then it probably doesn't make sense. There is risk [in mergers], but we have so much enthusiasm on both sides of the aisle that we think it will go really well."
Therrien has been promoting the merger as a good fix between two major suppliers primarily focused on different segments of automation. "Historically, Brooks' core business has been tool or equipment centric," he explained. "PRI has been fab centric," he added, referring to the company's automated material handling systems for movement of wafers in plants and inside various process bays.
Only 5-to-7% of Brooks and PRI revenues are from products that overlap, based on initial assessment, according to Therrien. Some of the overlap will be eliminated, but he promised that the new company will continue to support legacy products.
"One of the drivers in this acquisition is that we believe strongly that size matters," Therrien said. "Brooks spent about $60 million on R&D [in the last fiscal year, ended Sept. 30]. PRI spent something comparable. "Today, the R&D investments are so important because the projects are getting larger and more complex."
Filling out
In 1999, Brooks--a long-time supplier of robotics and cluster tool platforms--made a major move into protective mini-environments by acquiring the assets of Jenoptik Infab GmbH, a German-based supplier of 300-mm FOUPs (front-opening universal pods) and 200-mm SMIF (standard mechanical interface) systems. A year earlier, Brooks expanded its software business by acquiring Fastech Integration Inc. and then filled out its portfolio with by purchasing AutoSimulations Inc. and Auto-Soft Corp. to become the largest fab software supplier in the industry.
Brooks reported $114 million in software revenues from a sales total of $382 million in the last fiscal year. "We are clearly No. 1 [in fab automation software] by a wide margin, and no one disputes that," Therrien said.
In manufacturing execution systems (MES) software, the company continues to face some competition from Applied Materials Inc., which acquired Consilium Inc. at about the same time Brooks bought rival Fastech Integration. However, Therrien believes IBM Corp. presents the biggest challenge based on its installed based of SiView MES systems.
Other challengers addressing the fab software segment include mini-enviroment rival Asyst Technologies Inc. of Fremont, Calif., and Electroglas Inc., which launched a new division--called EG Soft--to enter the market with an integrated portfolio of Web-based infrastructure products (see Nov. 5 story).
"Automation today has become a science and discipline into itself. It is more than just having products. You need the systems integration services to deploy those products. We think we are learning cycles sare way ahead of them," he said, referring to the handful of major competitors.
In the emerging e-diagnostics segment of software, which is connected via the Internet and secure portals, Therrien believes the new Brooks-PRI Automation company will have a significant advantage because his company already deals with both the fab tool suppliers and fab operators. "I would suggest we have a huge advantage because we are at both ends of the wire," he said, referring to issues of gaining trust with both equipment suppliers and customers over protection of sensitive data. "Last year, 55% of our business was with OEMs [fab equipment suppliers] and 45% with end users," he said.
Besides e-diagnostics, which is a major focus of industry standardization efforts, another key automation battle underway is in equipment front-end modules (EFEMs), which are "buffer" stations or mini-stockers where wafers area held while lots are being processes at each location in the fab. The Brooks-PRI merger promises to cover nearly every aspect of this segment.
"They [PRI] are very strong in AMHS [automated material handling systems]--both wafer carriers and reticles--and in atmospheric automation, and Brooks is very strong in vacuum tool automation and factory software," Therrien said.
The Brooks CEO believes the EFEM segment will be a major automation battleground in the 300-mm production fabs because it will require extensive integration of software, work-in-progress tracking systems, and material handlers. At stake will be the ability to save up to 30% in the cost per die in keeping tools busy while correctly applying the right process recipes to the right 300-mm wafers, he said.
Dealing with volumes
"In a megafab, the complexities are huge--the management, scheduling, and dispatching to make sure you have the right materials at the right place at the right time," Therrien said.
Agreeing, PRI's Tyson noted that the automation task becomes more complicated as 300-mm fabs moved into volume production. "Initially when the industry was looking at 300-mm [wafers], the issue was just moving around the material," he said, referring to the physical task of safely transporting heavy 12-inch substrates in pods or carriers. "But now customers are looking at production-scale 300-mm plants, which brings up all sorts of new considerations, and the data automation is just as crucial," Tyson added.
The take of making 300-mm fabs more flexible and efficient--along with the need for greater control over shrinking geometries and new materials--is setting the stage for greater spending on fab automation, said analyst Risto Puhakka, the vice president of operations at VLSI Research Inc. in San Jose. The fab automation market took a hit--like all other equipment segments--in the 2001 downturn. Automation hardware systems sales dropped by about half to $650 million in 2001 from a record high of $1.2 billion in 2000, Puhakka said. Software revenues are about equal to automation hardware sales, he said.
But Brooks and PRI both believe automation sales well bounce back as fabs become more expensive. Therrien said current estimates show between $150-to-$180 million is spent on automation in a new wafer fab--about 3% of the total expenditure. "That will be moving into the 4-to-5% range," he said, noting that the next-generation production fabs will have a total price tag of up to $3 billion.
Brooks acquisition scorecard
Acquisition Purchase price Added capability/products Date
Intelligent Automation Systems $17.9 million
cash & stock Machine vision and engineering February 2002
Zygo's Automation Systems Group $11 million
cash Reticle stockers, inspection, handlers December 2001
PRI Automation $380 million
stock Wide range of systems Pending
Tec-Sem AG $20 million
stock Bare reticle stockers, tool buffers, batch transfer systems October 2001
General Precision Inc. $26.9 million
stock Protective minienvironments October 2001
Progressive Technologies Inc. $31.5 million Air flow and pressure control systems July 2001
CCS Technology Inc. $5.35 million
cash & stock 300-mm automation test, certification software June 2001
SimCon N.V. $2.6 million
cash & stock European reseller of fab automation software May 2001
KLA-Tencor's e-diagnostics software $33 million
cash & stock e-diagnostics infrastructure technology June 2001
SEMY Engineering Inc. $36 million cash
& $2.75 million stock Process control software, real-time yield enhancement technology February 2001
Daifuku Co. Ltd. Not released Distributor of fab automation software in Japan December 2000
AutoSimulations Inc. & AutoSoft Corp. $57 million
cash & stock Simulation, materials handling and plant floor automation January 2000
Jenoptik Infab $24 million stock Minienvironment, SMIF and FOUPs October 1999
Source: Company reports and SBN |
