*CRT*
Assuming the merger will go forward, then PHTN becomes a smaller version of ORBK, with better FPD and PCB inspection technology, and perhaps higher growth rate if they can execute.
Excerpt from merger prospectus below:
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Business of CRT
CRT is a worldwide supplier of X-ray and automated visual inspection systems for the electronics and semiconductor industries. CRT offers a suite of products to inspect all types of printed circuit board assemblies and semiconductor packages. CRT's machine vision and image technologies products have been developed during over sixteen years of experience in manufacturing environments. CRT's products emphasize ease-of-use with respect to the user interface. CRT's products utilize proprietary X-ray and other machine vision technologies to enable electronics and semiconductor manufacturers to analyze and report on product quality at critical steps in the manufacturing process. CRT manufactures and distributes products for both off-line inspection purposes and for automated monitoring of process-induced defects in printed circuit boards, semiconductors and other electronics. CRT's products include manual and automated real-times X-ray systems that inspect and verify the assembly of internal semiconductor features and "hidden" printed circuit board features and optical inspection systems to monitor the assembly of populated printed circuit boards.
Driven by the need to put more performance and capability into smaller packages, manufacturers of electronic products are increasingly building high-density assemblies with smaller components and more complex connections. Examples of such products include cell phones, personal digital assistants, notebook computers, electronic cameras, electronic games and many other everyday electronic products. CRT's machine vision and imaging systems are used by customers to control quality, monitor production processes and reduce costs of the semiconductor devices, electronic components, and!or electronic assemblies that they manufacture. CRTs X-ray systems are available with a wide range of X-ray sources and imagers to provide solutions tailored to individual customer's needs.
Industry Background
Market Overview. CR1 believes that a common trend driving the need for automated visual inspection systems in both the semiconductor and printed circuit board manufacturing industries is the increasing density and complexity of advanced electronics product designs that contain features which cannot be adequately inspected by human observation. High resolution and high magnification are required to inspect these micron-sized features. The increasing density and complexity of advanced electronics designs is in turn being driven by consumer demands for electronic products that have provided increasingly more features and power within a single compact device. One example of the industry's response to these demands is the increasing use of components with hidden connections under the package, which can only be inspected with X-ray or machine vision technology. Unlike older integrated circuits which have leads around the edges of their packages, these ball-grid-array components are connected to printed circuit boards by an array of solder balls underneath the package, where they are hidden from visual inspection. CR1 believes that the growing use of ball-grid-array devices in advanced electronics products is a major factor influencing the purchase and use of X-ray and machine vision inspection equipment by electronics manufacturers.
These trends to smaller packages, greater complexity and rapid time to market, combined with pressure on reducing costs, are causing traditional electrical testing systems and manual inspection to be inadequate. Electronics manufacturers have recognized the need for new inspection systems using X-ray and automated optical inspection to check, measure and control the quality of finished product.
The need to reduce cost and increase quality and precision requirements has also resulted in electronics manufacturers shifting more of their production to contract manufacturing. Many major manufacturers, such as Compaq Computers, have discontinued their board production lines and out-sourced production to contract manufacturers. This shift has created an additional product sales opportunity for CRT's products as contract manufacturing production increases.
Current worldwide sales of X-ray and visual inspection systems are estimated at approximately $300 million per year and are estimated to be growing at compounded annual growth rate of 20% to 25%, according to Prime Research Group and the Electronic Industries Association.
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Market Segmentation. CR1 markets its products to manufacturers of semiconductor devices and their customers, manufacturers of print circuit boards assemblies and manufacturers of other electronic components, modules and assemblies, as well as other manufacturers, end-users and OEMs. The following discussion includes both domestic and international markets with respect to such customers.
Semiconductor Market. The semiconductor industry is an important existing market for CRT's X-ray inspection systems, and a large prospective market for CRT's machine vision inspection systems. The world market for semiconductor capital equipment in 1997 was approximately $35.3 billion, according to Dataquest, of which approximately $17.5 billion was spent on test, assembly and packaging equipment. The test, assembly and packaging equipment market forecast for 1998 for this market sector was estimated to be approximately $21 billion, representing growth of approximately 20% for this market, with an annual growth of 20% to 25% expected to continue, according to the Semiconductor Equipment & Materials International.
Semiconductor manufacturers are among the largest electronic companies and many are members of the Fortune 100. The top five semiconductor manufacturers are Intel Corporation, Motorola, Texas Instruments, IBM and Lucent Technologies, with total combined revenues from semiconductors sales of over $39 billion. The semiconductor market includes two main categories of customers for CRT's products: manufacturers of integrated circuits, microprocessors, dynamic random access memory chips and digital signal processors (DSPs), such as Intel Corporation, Texas Instruments and Motorola; and contract assemblers-companies that assemble silicon integrated circuit chips into usable packages by mounting the die on lead frames, bonding wires to the chips, and encapsulating the package. Contract assemblers include Anam, Amkor, Alphatec, Kyocera and smaller companies. Contract assembler companies are mostly privately held and are typically located in the Pacific Rim or have major offshore operations outside the United States.
Semiconductor customers purchase X-ray and machine vision inspection systems to verify the correct packaging of semiconductor devices. Examples of semiconductor device features inspected include die attach, bond wires and encapsulation. Because of the small geometry involved in inspecting semiconductor devices, these customers typically purchase high resolution, high magnification systems, with average prices of $160,000 or more.
Purchasing decisions are based primarily on image quality, system features, customer support and service and price. CR1 believes that, of all these factors, price is not the most important consideration for such customers. Customers will nearly always "try before they buy", either by evaluating equipment at trade shows, visiting other customer sites, or by visiting the supplier's factory. X-ray inspection system purchases are important decisions, as the equipment will be used for five to ten years or more.
CR1 believes that there are more than 500 semiconductor manufacturers, contract assemblers and foundries that are potential customers for CRT's X-ray inspection systems. In addition, many of the leading semiconductor manufacturers, such as Intel Corporation, Motorola and Texas Instruments, have multiple production facilities.
Printed Circuit Board Market. Printed circuit board manufacturers purchase both X-ray inspection systems and machine vision printed circuit board inspection systems, such as CRT's RTI-6500/6520 product. These systems can be quickly and easily set up for automated inspection of populated printed circuit boards for common defects, including missing components, wrong components, mispositioned components, polarity errors, solder defects and other problems. Printed circuit board manufacturers benefit from reduced labor, lower inspection costs, improved quality and increased customer satisfaction.
X-ray inspection is typically used only by the more advanced printed circuit board manufacturers who use new component types with hidden solder joints. Examples of these new component types include ball-gridarray and micro ball-grid-array and chip scale packaging. Because the solder connections are concealed underneath the component, only X-ray inspection systems can verify that these components are correctly soldered to the printed circuit board. Automated visual inspection reduces the cost of inspection, reduces the cost of in-circuit electrical testing, and improves processes and product quality for printed circuit board manufacturers.
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The use of X-ray is growing rapidly as new components with concealed solder joints are gaining wider use. The number and type of integrated circuits packaged as ball-grid array devices is estimated to be growing annually at a compounded annual growth rate of 62%, and is anticipated to account for up to 4.5% of all integrated circuit packages sold worldwide by the year 2001, or over 3 billion packages per year. Printed circuit board manufacturers are more price-sensitive than semiconductor manufacturers and pricing is therefore a more important consideration for these customers. X-ray inspection systems purchased by the printed circuit board manufacturers are believed to average in the range of $100,000 per system to $125,000 per system.
CR1 believes that there are more than 5,000 potential customers in the printed circuit board market, and that many of such customers present multiple installation opportunities for both X-ray and automated machine vision inspection systems. Because real-time, in-line inspection is desired, the buying decision is typically based primarily on a hands-on product evaluation by the potential customer, and on price. CRT's new CRX-80 X-ray inspection system, priced at approximately $65,000, is specifically designed for this market.
Electronic Products Manufacturers. The electronics industry includes not only semiconductor manufacturers and printed circuit board manufacturers, but component and subsystem manufacturers, manufacturers of products for consumers, OEMs and other end users as well. The total electronics market in 1997 was approximately $835 billion, according to Dataquest, of which approximately $154 billion was comprised of semiconductor products. Electronic product manufacturers, both contract and captive, accounted for approximately $443 billion in sales in 1997, with growth projected at over 13% per year, to up to approximately $700 billion by the year 2001, according to Semiconductor Equipment & Materials International.
Manufacturers of various electronic products and devices, such as power supply, cell phone and toy manufacturers, either manufacture their own products, or wish to verify the quality of products which they outsource to contract manufacturers. CR1 believes that there are over 30,000 companies involved in manufacturing various other electronic products and believes that the largest ten percent of such electronic product manufacturers, or approximately 3,000 companies, are potential customers for CRT's products.
The electronic products market includes three main categories of customers for CRT's products:
Captive (in-house) manufacturers: These customers are comprised primarily of the internal manufacturing operations of large electronics companies and their only products are the parent company's products. Many large companies, such as Rockwell, IBM, Compaq Computers/Digital Equipment Corporation, Hewlett-Packard, Honeywell, Sun Microsystems and Qualcomm, maintain such internal production operations. These major electronics companies have internal printed circuit board manufacturing operations for historic reasons. However, the trend toward outsourcing board manufacturing is growing rapidly. In 1997, nearly 90% of electronic product manufacturing sales were generated by captive manufacturing operations. These customers typically produce only a few products over relatively long production runs.
Contract manufacturers: These customers are independent operating companies who perform contract assembly services for electronics companies. These companies operate in a quick-turn, high-mix, low-volume environment, although production runs for larger customers can be longer. Contract manufacturing service companies are estimated to be growing at a rate of 27% per year, as more companies turn to contract manufacturing to reduce costs and improve efficiency. The best known contract manufacturers include SCI Systems, Solectron, Celestica, Jabil Circuits and AVEX Electronics. The large number of smaller manufacturers and the relatively small market share of the top five contract manufacturing companies suggests the presence of a large, diverse market that is highly competitive and committed to developing and maintaining a competitive edge.
? End-user companies. These are companies that outsource their manufacturing and wish to verify the quality of the products which are delivered to them by their outsource suppliers. Such end-user companies may wish to inspect final assemblies, printed circuit boards, and/or critical components such as high-cost semiconductor devices.
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Other Markets. Other potential customers for CRT's products include OEMs and VARs, as well non-electronic product manufacturers, customized inspection product end-users, and display inspection end-users. Although CRT believes that there are potentially thousands of such other prospective customers, CR1 conservatively estimates that approximately 500 companies within this market segment are viable prospects for CRT's current X-ray and machine vision inspection systems. However, as new products are developed by CRT which might be more suitable for such companies, CR1 expects this potential market to present a greater marketing opportunity for its products.
The current market-by-market segmentation that CR1 believes represents the allocation of potential sales of CRT's products in the respective markets are as follows:
? Approximately 10% for the semiconductor manufacturer market
? Approximately 55% for the printed circuit board manufacturer market
? Approximately 25% for the electronic products manufacturer market
? Approximately 10% for all other markets identified above
Products
CR1 offers a suite of products designed to provide a variety of nondestructive X-ray and machine vision inspection tools primarily for semiconductor and printed circuit board manufacturers.
CRT's products share a common Windows(r) operating platform, with similar graphical user interfaces and controls. Products can be networked together to provide factory-and enterprise-wide access to product defect and production data. Customers use these systems to detect and identify defects in integrated circuits, electronic components and printed circuit boards, to reduce inspection costs, and to improve yields and quality on production lines. Both CRT's X-ray and visual inspection product lines are based on proprietary machine vision and image processing technology, integrated with an attractive user interface.
Automated Optical Inspection Systems. CRT's Automated Optical Inspection (AOl) systems automatically check assembled printed circuit boards for defects in assembly, many of which cannot be detected electrically. Common printed circuit board defects checked by CRT's AOl systems include solder defects, missing or wrong components, component position errors, wrong polarity, and other defects. CR1 offers both off-line systems and in-line systems, which can check printed circuit boards either before or after the soldering step in the manufacturing process.
CRT's AOL 2020 product is a low-cost, bench-top printed circuit board inspection system. The AOl 2020 system offers off-line operation only and is based on scanner technology. The AOl 2020 system is specifically designed to target the large market of small contract manufacturing companies which often cite price as the most important criteria influencing their purchasing decision. With a maximum printed circuit board size of 9" x 12", the AOl 2020 system is well suited for inspection of notebook computer motherboards and similar compact, complex assemblies.
CRX Real-time X-ray Inspection Systems. CRT's CRX X-ray inspection systems are offered in manual, semi-automated and automated formats. Each CRX System provides high-quality X-ray images of hidden features in both semiconductor and electronic products. CRX systems all use high-resolution X-ray subsystems for sharp, high magnification images, with CRT's proprietary Windows-based image processing software. CRX customers use these systems to analyze failures, to control quality and to monitor processes on their production line. Typical defects found with CRX systems include hidden solder joint defects, broken wiring, missing components and other defective assembly features. CR1 offers a variety of CRX systems to meet customer requirements for resolution, magnification, penetration, pricing and other factors, including the following products:
? CRX-80 -for printed circuit board sizes up to 18" x 24", with up to 80 key output;
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? CRX-l000 -for semiconductor manufacturing use; up to 160 key, with over l000x magnification; and
? CRX-2000 -for semiconductor manufacturing and printed circuit board sizes up to 18" x 24", with up to 160 key.
RT1 -6500 and RTI-6520 Printed Circuit Board Inspection Systems. CRT's RTI-6500 and RTI-6520 products are off-line and in-line inspection systems, respectively, which automatically inspect populated printed circuit boards for correct assembly. Typical defects found by the RTI-6500 and RTI-6520 systems include incorrect components, wrong placement or position, incorrect polarity, solder defects and other defects. The RTI-6500 is an off-line (stand-alone) system which can inspect printed circuit board sizes up to 24" x 24". The RTI-6520 is an in-line system with a built-in conveyor which inspects printed circuit board sizes up to 18" x 20" on the production conveyor line, without the need for manual load or unload. Each system features an integrated multi-camera/lighting head which indexes over the surface of the printed circuit board, selecting different magnifications depending on the size of the components.
XRV Combined X-ray and Machine Vision Inspection Systems. As indicated above, CRT's product suite includes both X-ray and AOL inspection systems, which CR1 believes is a competitive advantage in selling to the printed circuit board industry. Many of CRT's customers have found the ability to use both X-ray and AOL inspection systems to be a desirable capability, and have ordered both X-ray and AOl products from CRT. CRT's newest product, the XRV, combines X-ray and visual inspection into one system, using X-ray specifically to verify the quality of ball-grid-array components, and using optical inspection to check visible features.
The XRV combo system is an automated, in-line printed circuit board inspection system which combines the respective advantages of visual and X-ray inspection, allowing the simultaneous inspection of both visible and hidden features on a printed circuit board. The XRV system uses cameras for optical inspection to check for missing or incorrect components, misplacement of components, orientation, polarity errors and other visually evident defects. The XRV inspects the majority of features on a printed circuit board using its integrated video cameras. The system also uses an X-ray source, an X-ray-sensitive video camera and radiation shielding and interlocks to add X-ray image processing to the optical inspection sequence for ball-grid-array, micro ball-grid array, flip chip and other chip scale packages, J-leads and other hidden solder connections which cannot be visually inspected. The XRV system is designed to automatically check every feature on assembled printed circuit boards while reducing handling and speeding throughput and saving floor space.
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