Expensing options, if it comes to fruition, at least will shed light on these corporate pigs.....
Brooks acts quickly to stop PRI rot
Thursday, 1 August, 2002
The newly formed Brooks-PRI Automation Inc, which was originally hailed as a true ‘merger’ of two of the most successful US based fab automation companies, has turned into an aggressive acquisition with Brooks being the dominant player.
Almost instantly after the new company received both shareholder and regulatory approval for the supposed ‘merger’, Robert J. Therrien President and CEO of Brooks and now the new entity, has made an almost clean sweep of PRI executives from the company.
Rather than a transition period and repositioning of a number of executives, Therrien has simply swept the highest level of PRI management away. On the surface Brooks has created two new board seats for Mitchell G. Tyson, the former president and chief executive officer of PRI and Kenneth M. Thompson, a former member of the board of directors and the previous president of Autosimulations, acquired by PRI from Diafuku a couple of years ago.
Although the boardroom additions have been well documented, reading the ‘small-print’ of Brooks SEC filings in April 2002 shows the real intent and cause of the clear out.
A number of PRI's executive officers and ‘key’ employees had agreements that entitled them to benefits after the closing of the merger as part of employment severance payments. In particular Mordechai Wiesler, PRI's chairman of the board, has an employment agreement under which he received a severance payment of $100,000, acceleration of his options and other benefits as a result of the merger that added up to just over $2million.
However, Mitch Tyson, though given a board seat has only been retained for six months, with a salary of $182,000. This is for ‘consultancy’ work, which if beneficial could lead to a potential bonus equal to twice that amount, according to the SEC filings. Also included is a clause that allows for an acceleration of his options and a payment of $546,000 per year for two years in exchange for his agreement not to compete with Brooks upon his exit from the company. Tyson is expected to receive around $4.5 million in total severance payments.
The cause for such drastic action centred on new product introductions that were designed to keep PRI as the dominant AMHS supplier as the industry migrated from 200mm to 300mm wafers. One in particular was PRI’s TurboStocker product, launched in 2000, which was soon hit with reliability problems in the field; poor delivery records due to manufacturing problems and a growing list of unhappy customers. Its reputation was declining fast with the result that all the first wave of 300mm fabs (except Texas Instruments-DMOS6) selected PRI’s competitor systems.
With the decline in 200mm AMHS orders due to the 300mm migration and the failure to effectively execute on new product introductions, PRI’s market share declined rapidly. According to VLSI Research, the semiconductor equipment market research specialist, PRI had 23% of AMHS market in 1996/7, but had experienced a rapid decline to only 11% by the 2000/1 timeframe.
The lack of orders for its 300mm products in the first wave of fab construction would mean that the task of gaining a foothold in future 300mm facilities would prove increasingly difficult. This would be even more so in those chip companies already working with PRI’s competitors.
One of the obvious attractions to Brooks of ‘merging’ with PRI was to extend its goal of offering a ‘total’ automation solution, having no stocker or overhead rail system products in house. As key image products for the automation dependant 300mm fab, such products would have given Brooks greater leverage with its own range of offerings.
It cost PRI $15.4million to put things right which included $3.4 million in re-engineering, $5.7million in warranty costs, and $6.3 million to repair or retrofit TurboStockers in the field. This significantly affected their profitability during the worst downturn in the history of the semiconductor industry and could well have been the real reason for the PRI seeking sanctuary in the ‘merger’ with Brooks.
However, some of the problems were still in existence in April 2002, with Brooks stating in SEC filings that; “ PRI's efforts to date may be insufficient to resolve its manufacturing problems with its TurboStocker, and PRI may encounter similar difficulties and delays in the future”.
Brooks has made a series of inquires with PRI customers and many of the 300mm fabs, regarding future potential business opportunities. The feedback was not good with Samsung in particular being highly critical, industry sources told Semiconductor Fabtech recently. A curious part of the story is that PRI actually made it into VLSI’s Customer Satisfaction Report for 2002, ranked 9th in the small equipments supplier category for the very first time! It would seem after clarification with VLSI that these could be attributed to PRI’s previous good work with its 200mm products and the fact that such critical products had proved to work well over time, resulting in feedback that has elevated them into the Top Ten domain.
However, going forward with 300mm, Brooks had to do something drastic to stop the rot at PRI and indeed prevent any tarnishing Brooks may now receive upon the ‘merger’ completion. Wiping the executive board clean seemed therefore the most obvious and most visible course of action. Internally, Brooks has brought into PRI’s manufacturing facilities its own engineering experts to evaluate and make the necessary changes to the products. Other changes include improved field service and support.
Fixing the problems still in circulation will cost Brooks-PRI more dollars than so far stated. How this affects the company in the bigger scheme of 300mm automation has yet to be calculated.
In Brooks-PRI’s third quarter results statement issues on July 26th 2002, Therrien remarked on the outlook for the next quarter, stating that "With a full contribution from PRI, we plan on meeting our previous guidance for the fourth fiscal quarter ending in September of $100 to $105 million in revenues and are targeting a book-to-bill ratio of at least parity. Our hope is to improve upon our previous guidance for earnings of $0.30 to $0.35 loss per share pro forma for the fourth quarter."
‘A full contribution’ from PRI may take more time to materialize than hoped for, but with Therrien taking aggressive steps so quickly after the ‘merger,’ they may indeed contribute fully quicker than could well have been the case.
semiconductorfabtech.com |
