Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : KLA-Tencor Corporation (KLAC) -- Ignore unavailable to you. Want to Upgrade?

To: advocatedevil who wrote (1706)	2/6/2003 7:59:02 PM
From: SemiBull	Read Replies (1) \| Respond to of 1779

KLA's Kispert looks to old industry for new growth Thursday February 6, 12:46 pm ET By Daniel Sorid NEW YORK, Feb 6 (Reuters) - The long-sought holy grail of microchip makers is a chip plant so automated that a man and a dog could run it: the man feeds the dog, and the dog growls at anyone who tries to fiddle with the machines. John Kispert, the chief financial officer of KLA-Tencor Corp. (NasdaqNM:KLAC - News), would be a rich man in such a world. KLA-Tencor is the dominant supplier of tools that check for defects in the hundreds of steps it takes to turn a useless wafer of silicon into the brain of a computer or a mobile telephone. Process control technology, as it is called, comprises about 15 percent of total chip factory expenditures and its share is growing every day, Kispert said in an interview. "You go to an oil refinery and you see three guys up in a tower overlooking the whole thing with a bunch of process control surrounding them," he said. "In a chip factory, you see a whole lot of people running around, guys like you and I running around with notebooks. "Over time, those folks go away, because more and more of the data is being collected on KLA-Tencor equipment," he said. It takes some 500 steps to turn a silicon wafer into a pile of pricey chips and each of those steps introduces the potential for error. Even minuscule errors can ruin a batch of chips and a ruined batch can be costly. A single wafer, diced up into hundreds of individual chips, can generate upward of $14,000 in revenue. Kispert pointed to decidedly low-tech industries, such as paper mills and oil refineries, as an example of where chip production is headed. He said that as much as 35 percent or 40 percent of capital spending in those industries goes to process control technology. Plenty stands in the way Kispert's vision. But investors have been more willing to give companies like KLA-Tencor a chance to prove it. Over the last two years, KLA-Tencor's stock has fallen less than 2 percent, while chip stocks overall have fallen more than 50 percent. BUNDLE OF CASH Among the biggest roadblocks for KLA-Tencor is Applied Materials Inc. (NasdaqNM:AMAT - News), the chip equipment industry's largest player. Applied has pushed, with some success, into the process control space. Applied Materials has also begun to combine tools that actually make the chips with tools that measure and monitor the process. Such combination tools are a small part of the market today, but demand could grow fast in years ahead, said Mark FitzGerald, a chip equipment analyst at Banc of America Securities. The threat of a combination device has fueled talk that KLA-Tencor could benefit from an acquisition of a maker of process tools. The company sits on a bundle of cash -- at the end of last year it had more than $1.3 billion in cash, short- term investments and marketable securities. Kispert is not shy about KLA-Tencor's willingness to take on a major acquisition. In fact, the merger that formed KLA- Tencor in April 1997 is seen as one of the most successful big acquisitions the chip equipment industry has seen. "I think anybody watching this company knows that we're well positioned for any sort of consolidation in the industry," Kispert said. "We're inspecting everybody else's process equipment." On its own, KLA-Tencor is seen as the dominant player in a segment of the chip equipment industry that will grow faster than the industry as a whole. "They have weathered the downturn, probably better than most of the other equipment segments," said Carl Johnson, the president of semiconductor researcher Infrastructure. "As you move to new materials and even smaller features, it becomes more and more difficult to get these process parameters in line with what the requirements for the final device are." FitzGerald said the logic of KLA-Tencor buying a maker of complementary semiconductor equipment, such as Novellus Systems Inc. (NasdaqNM:NVLS - News) or Lam Research Corp. (NasdaqNM:LRCX - News), would make sense, at least on paper. "Having all that under one roof ... that's kind of the holy grail," FitzGerald said.