PART II
SPEEDFAM INTERNATIONAL INC (SFAM) Quarterly Report (SEC form 10-Q)
THE COMPANY FACES INTENSE COMPETITION, INCLUDING FROM COMPANIES
WITH GREATER RESOURCES. Several companies currently market CMP systems
that directly compete with the Company's products, including Applied
Materials, Inc. and Ebara Corporation. For several reasons, the
Company may not compete effectively with competitors, including:
- Some competitors may have greater financial resources than the
Company. They also may have more extensive engineering, manufacturing,
marketing and customer service and support capabilities.
- Some competitors may supply a broader range of semiconductor capital
equipment than the Company. As a result, these competitors may have
better relationships with semiconductor manufacturers, including
current and potential customers of the Company.
- The Company expects competitors to continue to improve their
existing technology and introduce new products. This could cause a
decline in the Company's sales or lead to intensified price-based
competition.
- Other capital equipment manufacturers not currently involved in the
development of CMP systems may enter the market or develop technology
that reduces the need for the Company's products.
THE ASIAN FINANCIAL CRISIS IS HARMING THE COMPANY'S BUSINESS. The
Company expects reduced sales to Asian customers for at least the next
12 to 18 months, which will negatively impact the Company's sales
growth and revenue performance. A substantial portion of worldwide
semiconductor manufacturing capacity is located in the Far East.
Pacific Rim countries are experiencing severe currency and financing
problems that are contributing to economic slowdowns or recessions in
those countries. The Company's U.S. dollar-denominated products have
become more expensive in certain Asian countries. In addition, some
customers in these countries may not be able to obtain satisfactory
financing terms to allow them to place volume orders or pay for
equipment that has been shipped.
THE COMPANY'S FUTURE SUCCESS DEPENDS ON INTERNATIONAL SALES.
International sales accounted for 31.7% of the Company's net sales for
fiscal year 1998, 31.2% for fiscal year 1997 and 21.7% for fiscal year
1996. International sales accounted for 45.5% of IPEC's revenue in its
fiscal 1998, 26.6% in fiscal 1997 and 27.8% in fiscal 1996. The
Company expects that international sales will continue to account for
a significant portion of the Company's net sales in future
periods. International sales are subject to risks, including:
- Foreign exchange issues
- Political, economic and regulatory environments of the countries
where customers are located
- Collectability of accounts receivable
- Inadequate intellectual property protection
Foreign exchange issues also affect the value of the Company's foreign
subsidiaries and the Company's equity interest in its Far East joint
venture. The Company does not manage this balance sheet risk through
currency transactions known as "hedging," which are designed to
minimize this risk. The Company does try to manage near-term currency
risks through "hedging." However, efforts may not be enough to
decrease the risks involved.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's quarterly
operating results will fluctuate due to a variety of factors,
including:
- Industry demand for capital equipment, which depends on economic
conditions in the semiconductor, memory disk and silicon wafer
markets.
- Timing, cancellation or delay of customer orders and shipments. The
Company derives a significant portion of revenue from the sale of a
relatively small number of machines during a given quarter. Order
and delivery delays and cancellations, even of one or two systems, may
cause the Company to miss quarterly revenue and profit projections.
- Unexpected costs associated with sales and service of the CMP tools
and processes.
- The quarterly operating results of the Company's joint ventures,
which the Company accounts for on the equity method.
- Foreign currency exchange rates.
Results of operations in any period are not an indication of future
results. Fluctuations in the Company's operating results may also
result in fluctuations in the Company's common stock price. In future
quarters, operating results may not meet the expectations of public
market analysts or investors and the trading price of the Company's
common stock could decline.
ORDERS IN BACKLOG MAY NOT RESULT IN FUTURE REVENUE. The Company
includes in backlog only those customer orders for which the Company
has accepted purchase orders. Expected revenue may be lower if
customers cancel or reschedule orders, which they can generally do
without penalty. For example, IPEC removed orders of approximately
$12.0 million from its backlog in the fourth quarter of fiscal 1997,
primarily due to delays in, and ultimately the suspension of,
construction of a wafer fabrication facility for a customer in
Thailand.
THE COMPANY WILL DEPEND ON A SMALL NUMBER OF MAJOR CUSTOMERS.
For the foreseeable future, the Company expects that it will sell
machines to a limited number of major customers. To date, the CMP
process has been used primarily to fabricate advanced semiconductors,
which accounts for only a portion of the overall semiconductor market.
In fiscal 1998, no customer accounted for 10.0% or more of the
Company's total revenue. In fiscal 1997, AMD accounted for 12.8% and
Komag accounted for 10.3% of the Company's total revenue. In fiscal
1998, Intel represented 38.3% and Tokyo Electron represented 12.0% of
IPEC's revenue. In fiscal 1997, Intel represented 51.0% of IPEC's
revenue.
IF THE COMPANY IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, ITS
BUSINESS COULD SUFFER. The Company's intellectual property portfolio
is very important to the potential success of the Company. However,
the Company may not be able to protect its technology because:
- Pending and new patent applications may not be approved in a timely
manner or approved at all
- Third parties may try to challenge or invalidate existing patents
and new patents
- Policing unauthorized use of intellectual property is difficult and
expensive
- The laws of some foreign countries do not protect intellectual
property rights as much as U.S. laws
- Competitors may independently develop similar technology or design
around intellectual property owned by the Company
THIRD PARTIES MAY PREVENT THE COMPANY FROM SELLING PRODUCTS THAT
INFRINGE ON THOSE THIRD PARTIES' INTELLECTUAL PROPERTY RIGHTS. The
Company cannot be certain that third parties will not in the future
claim that its products infringe their intellectual property rights.
Third parties may:
- Bring claims of patent, copyright or trademark infringement
- Obtain patents or other intellectual property rights that limit the
Company's ability to do business or require the Company to license or
cross-license technology
- Bring costly, time-consuming lawsuits
Third parties hold many patents relating to CMP machines and
processes. The Company licenses the right to manufacture CMP
machines employing an orbital motion in its AvantGaard 676, 776 and
876 from a semiconductor manufacturer. [ANYONE HAVE A CLUE FROM
WHOM IPEC LICENSED THEIR ORBITAL MOTION TECHNOLOGY FROM?]
In addition, although the Company believes that its products do not
infringe any valid existing proprietary rights of others, there can be
no assurance that third parties will not assert infringement claims in
the future. In the CMP market the Company serves, there are a number
of patents relating to the CMP process held by third parties.
Accordingly, the Company, as a CMP equipment manufacturer, may be
required to attempt to obtain licenses from the holders of one or more
of such patents, which may impede the use of CMP technology by the
Company. There also may be pending patent applications or issued
patents of which the Company is not aware, and which would require the
Company to license or challenge such patents, at significant expense
to the Company. There can be no assurance that any such license would
be available on acceptable terms, if at all, or that the Company would
prevail in any such challenge.
Certain statements and information in this Form 10-Q constitute
"forward-looking statements" within the meaning of the federal
securities laws. Such forward-looking statements involve risks and
uncertainties which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors that may affect the Company's
business and may therefore affect actual results include, among
others, the cyclical nature of the Company's business and the
industries which it serves, the Company's dependence on new product
development and the effects of rapid technological change in the
semiconductor and disk media industries, including the effects of
significant competition in these industries, the normal fluctuations
in the Company's quarterly operating results, including the effects of
the Far East Joint Venture's results of operations. This is only a
summary of some of the important factors that could cause actual
results to vary. For a more complete description of these and other
factors, refer to "Certain Factors Affecting the Company's Business"
elsewhere herein and in the Company's Form 10-K/A filed with the
Securities and Exchange Commission. The Company undertakes no
obligation to update the information, including the forward-looking
statements, in the Form 10-Q.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable. |
