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To: Johnny Canuck who wrote (42730)	10/18/2005 11:24:59 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69284

Applied Material Shutters Etec Chris Kraueter, 10.18.05, 5:30 PM ET Applied Materials has quietly shut down its Etec Systems subsidiary, which it bought in 2000 for $1.77 billion in stock, as the world's largest equipment company stops developing new tools for the semiconductor mask market. The unit was acquired amid high hopes for another successful new-market entry by Applied Materials (nasdaq: AMAT - news - people ), but Etec has endured a painful few years; several rounds of cutbacks have slashed the subsidiary's staff from around 1,000 employees in 2000 to less than 100 today. Photomask tools, which print circuit patterns onto silicon wafers, represent some of the most expensive equipment in a semiconductor factory, with price tags approaching $10 million. The funding necessary to keep pushing the underlying technology forward is expensive, while the number of actual units sold is relatively few. "The mask market has been a challenging one for us for a number of years, and the economics to produce these tools no longer makes sense for Applied Materials," says Dave Miller, a company spokesman. Specifically, he says the company will stop developing laser and electron-beam pattern-making tools, and Etec's products for etching, cleaning and inspection will be folded into other Applied Materials divisions. Etec's primary competitors were Micronic Laser Systems, based in Sweden, and Toshiba, based in Japan. Applied will continue to service Etec tools that are already in the marketplace, and the unit's employees will be able to take part in an internal job-relocation program. Miller says additional financial details regarding the decision will be discussed when the company reports fiscal fourth-quarter results on Nov. 16. One analyst said the current impact to the company's results will be minimal, partly because the acquisition has been such a "disaster." He estimated that the unit accounted for less than 2% of Applied's revenue stream, or roughly $32 million in the previous quarter. This would be a sharp dropoff from when Etec was purchased. In 1999, its final full year of operation, Etec generated $237.2 million in sales and a net income of $1 million, compared with sales of $288.3 million and net income of $46.7 million in 1998. The retreat from the market by Applied Materials illustrates the high stakes involved in making semiconductors more complicated and less expensive. One response by equipment companies has been to diversify, something Applied has done via its AKT subsidiary (see: "Applied Materials' TV Business"), which makes tools used to build flat-panel displays. Etec also represented planned expansion, but the decision didn't pan out. With factories costing as much as $3 billion being necessary in order to make semiconductors for electronics gear with limited product windows, research and development burdens are becoming increasingly difficult to bear. The trend threatens the pace of improvement, by which the semiconductor industry has survived since soon after its inception in the 1960s. "The semiconductor industry is at a crossroad," says Stanley Myers, president of Semiconductor Equipment & Materials International, the industry's primary trade group, which released new research Tuesday that highlights a looming gap in R&D funding. According to the survey, the equipment industry will be able to afford R&D outlays of $10.4 billion by 2010, but the amount needed to keep pace with past technology innovations could climb as high as $16.2 billion. The R&D needs would approach $20 billion annually by 2010 if a transition to larger wafer sizes takes place, a prospect that is starting to be debated. Want to track news by this author or about this industry? Forbes Attache makes it easy. Click here.