SemiBull, I promised you a post regarding my take on the Obsidian purchase by AMAT. Since this is a SFAM board, I'll look at the purchase from the standpoint of a SFAM investor. To stimulate more discussion, I'll look at the ways SFAM benefits and the ways it is hurt. I'll then try to bring it together.
Benefits to SFAM
1. This move validates the web-based polisher development strategy that SpeedFam recently announced. If SFAM does develop a superior tool to AMAT/Obsidian, SFAM will benefit from greater market acceptance of the web-based strategy because of AMAT's association with it.
2. There is a need for a lot of consolidation in the industry. The market cannot support this many players' R&D over the long term. By getting rid of a competitor, SFAM benefits a bit from the reduced chance that there will be significant competition-driven commoditization of the polisher market, squeezing profits for everyone.
3. I continue to believe that SpeedFam will be better off if it merges with a well-run company like Novellus. There may be a bit of a takeover premium that starts to get priced into the stock the next time such rumors circulate. The Obsidian buy is the latest sign that consolidation is accelerating. If the potential acquirers see SFAM's stock start to move up, it may accelerate their buy decision. This move will also focus the market's attention on the growth in CMP, and SFAM is still the best (almost) pure-play CMP investment out there.
Threat to SFAM
1. AMAT will have a significant lead in the race for the commercialization of a web-based polisher. SFAM will probably not be able to catch up, but will waste a lot of money trying. SFAM may have been able to catch up with the development efforts of cash-poor Obsidian, but AMAT's R&D machine will make for a more significant competitive threat. I'd estimate SFAM's chances of putting out a superior web-based tool in 6 months at only 20%.
2. AMAT will be able to commercialize Obsidian's technology better than Obsidian could have. The Obsidian tool may form the core of AMAT's next-generation tool design. They will probably offer a common platform that can be configured for fixed abrasives or for slurry applications. This is only speculation on my part; they may instead try to offer different follow-on tools for both the Mirra and the Obsidian platforms.
Summary
Overall, this move by AMAT is only a slight negative for SFAM, IMO. I have not been very impressed by Obsidian's results to date. The technology is very dependant on development breakthroughs in the polishing pad technology. Such breakthroughs will probably occur due to the amount of money being invested in them, but it is likely to take a while for the consumables and the tool design to get to the same high level of maturity needed to compete with the traditional approach that SFAM and AMAT currently offer.
It's likely that SFAM got wind of the impending merger and made their press announcement as a response. I hope that they have thoroughly evaluated the technology and are not just responding with a "me-too" approach. They will not dominate the polisher market by developing a tool that uses each of the approaches (rotary, orbital, web, linear--no SFAM tool for linear yet), but is second-best in each. I think that SFAM needs to focus on a couple of approaches and focus all of its R&D efforts on them.
SFAM continues to look like it will be one of the CMP consolidation survivors, and it is a very attractive takeover target.
For full disclosure, I continue to own a lot of SFAM (9.3% of my portfolio) and AMAT (2.6%) stock and have not made any recent trades in either.
Profitable investing,
Mr. Sam |
