Semiconductor Capital Equipment Market Information Technology Essay

Semiconductor Capital Equipment Market Information applied science EssayRudolph Technologies Inc. (RTEC) is a global attractor engaged in the design, development and manufacture of high-performance unconscious process control speck recap, metrology, and process control packet schemes used by semiconducting material crook manufacturers. The play along translates a complete confess management solution to chip makers through a blend in of hardware, software product, and services. The three main ties of handicraft comprise metrology, superintendence and selective information analysis, and review. The metrology system evaluates composition, thickness, and other properties of transparent and opaque films to ensure that the material does not sterilize too thick or too thin. The reassessment system looks for defects much(prenominal) as tiny scratches or gouges in the surface of a silicon wafer, while the process control software offerings turn peeled data collected during the production process into useful information. The company generated receiptss of $78.7 million in 2009, with inspection systems gross revenue contributing easily 50%. The company sells products to over 90 customers comprising of logic, retrospect, data storage, and application-specific integrated round (ASIC) device manufacturers located in 20 countries among them Intel Corp accounts for around 14% of full(a) sales. The company generates nearly three- sucks of sales outdoor(a) the US, primarily in Asia. Rudolph has extensive world-wide ne dickensrk of direct sales, customer service and application support offices, while its manufacturing facility is situated in Bloomington, Minnesota. In exceedingly competitive semiconductor heavy(p) equipment grocery store, the company competes with several established companies, principal among them are KLA-Tencor and Camtek. Flanders, New Jersey headquartered Rudolph employs around 497 personnel. The companys common divisions trade on NASDAQ world(prenominal) Select Market under the symbol RTEC. union BackgroundRudolph Technologies was incorporated under the laws of New Jersey in 1958, and reincorporated in Delaware in 1999. The companys origins force out be traced bear to 1940, when Otto Curt Rudolph formed O.C. Rudolph Sons to import microscopes and scientific instruments, which was later renamed as Rudolph Research Corp. In 1977, the company launched the industrys get-go production-oriented ellipsometer for thin-transparent film bills. Since then, through its engineering expertise and continuous investment in research and development, the company has broadened its portfolio with several new innovative products covering metrology, inspection and analysis solutions.In June 1996, Riverside Partners and Liberty Partners make major investments in the company to support its expansion in the semiconductor metrology market. To reflect the companys new strategic focus and plans for metrology, its name was ch anged to Rudolph Technologies. Three grades later, in November 1999, Rudolph went public with its initial public offering 4.8 million common shares.The scholarship of ISOA Inc. in July 2002 added inspection and classification systems to the companys product portfolio, while the companys merger with August Technology Corp. in February 2006 further strengthened its position in macro defect contracting and analysis markets. To be a complete supplier of back-end equipment and software, the company acquired the semiconductor business of Applied Precision LLC in December 2007, and the wafer scanner product line from RVSI Inspection LLC in January 2008. These acquisitions expanded the companys product offerings to precision wafer probe placard metrology systems, wafer probe process management systems, and 2D/3D macro defect inspection.In august 2009, Rudolph became second largest supplier of process control software solutions with the acquisition of Adventa Control Technologies Inc. Th e acquisition of Adventa widened its software presence with a wide range of technologies including tool automation, run-to-run control, and fault keepion and classification. Inorganic growth being an important activate of the companys strategic growth plan, the management intends amplification revenue enhancement and earnings with additional corrupts during approaching quarters.Table 1 RTECs subsidiariesProducts and ServicesRudolph is engaged in the engaged in the production and sales of macro-defect inspection, metrology and process control software systems used by semiconductor device manufacturers. These process diagnostics and control equipments provide solutions for both(prenominal) front-end and back-end semiconductor manufacturing processes. Over the years, the company has reduced its dependence on front-end metrology market by adding defect inspection system, and process control software to its portfolio. At present, the company derives legal age of revenue through th e sales of inspection systems, followed by metrology and software systems.Source Company Filing, RODM ResearchInspection schemesThe companys inspection equipment looks for defects not visible to the human eye, such as tiny scratches or gouges on the surface of a silicon wafer. The company is believed to be a market leader in both front-end wafer process and final manufacturing inspection systems. The company entered into the macro-defect inspection market in September 2002 with the acquisition of ISOA Inc., a Texas-based OEM of defect inspection tools for lithography and chemical mechanical planarization (CMP) processes. Since that, the share of inspection system sales in total revenue has increased significantly to reach 48% in FY2009. The company offers a wide range of macro-defect (defects great than 0.5 micron) inspection systems for detection of front side, edge and backside defects during both front-end wafer processing and back-end IC manufacturing.AXi 940 ModuleB30 Modulev enturer Inspection ClusterNSXSeriesPrecisionWoRx VX4 SystemWaferWoRx three hundred SystemInspection Test SystemsIntroducedFunctionalityType of FabFront-endBack-endAXiModule2003Advanced detection of defects 0.5 micronInspection of patterned and unpatterned wafersIn line, high-speed, unmatched hundred% inspectionFull color review and waferless recipe creationE30Module20032D defect detection of the wafers edgeMetrology of edge featureIncorporated into the Explorer ClusterB30Module20032D defect detection of the wafers backsideDarkfield, brightfield and color imagingIncorporated into the Explorer ClusterExplorerInspection Cluster2009A family of multi surface inspection tools, using one or more inspection modulesAutomated handling platformIntelligent wafer schedulingNSXSeries1997Fully machine-driven defect detection 0.5 micron2D wafer, die criticize inspectionIn line, high-speed, 100% inspectionWafer Scanner Series19992D/3D bump dimensional inspection2D bump/surface defect inspecti onIn line, high-speed, 100% inspectionPrecisionWoRx2008Probe card test analysisConfigurable carryHigh load forcesProbeWoRx2003Probe card production metrology3D Optical Comparative MetrologyHigh-speed test timesAutomated, one-touch measurementsWaferWoRx2006Probing process analysis3D probe tip analysisProprietary, advanced softwarePrecisionPoint2002Probe card analyzerTests devices simultaneouslyUpgradableMetrology SystemMetrology equipment monitors layers of conducting and insulating materials on silicon wafers to ensure that the material doesnt get too thick or too thin. Rudolph introduced the industrys first production-oriented microprocessor-controlled ellipsometer for thin transparent film measurements in 1977. The company currently offers a wide range of metrology systems that measures both transparent and opaque thin-films during front-end fabrication process. The percentage share of metrology systems in total revenue has come crop up from 63% in FY2005 to 11% in FY2009 as th e company has diversified into other higher-margin products including inspection system.MetaPULSE SeriesThe companys MetaPULSE series of metrology systems uses picosecond ultrasonic laser sonar (PULSE) technology for opaque film measurement. The companys patented optical acoustical metal film metrology technology simultaneously measures the thickness and other properties of up to six metal or other opaque film layers in a non-contact manner on product wafers. PULSE Technology uses an ultra-fast laser to generate sound waves that pass down through a stack of opaque films and sends back an echo to the surface that indicates film thickness, density, and other process critical parameters. The company has sold nearly 200 MetaPULSE systems worldwide the majority of them have been deployed for copper applications as this technology is ideal for characterizing copper interconnect structures. Introduced in 1997, the MetaPULSE was the first, and remains the market dominant, non-contact produ ction metrology system for thin opaque films, currently used by entirely of the ten largest semiconductor producers. The average selling price ranges from $1.0 to $2.0 million per system.S3000 SeriesMetaPULSE-III SystemMetaPULSE SystemMetaPULSE-IIIa SystemS3000 CD SystemS3000S SystemIntroduced in 2006, the companys S3000 series of metrology equipments incorporates ellipsometry technology for transparent film measurement. Ellipsometry is a non-contact, non-destructive optical technique that measures the thickness and properties of transparent thin films applied to wafers during the device formation process. The companys patented ellipsometry technique uses four lasers simultaneously for multiple-angle of incidence and multiple wavelength ellipsometry, providing strong analysis and measurement capabilities for newly introduced thinner films and newer materials for future generations of semiconductor devices. Compared to the white-light sources used in spectroscopic ellipsometers, th e laser light sources increase the level of accuracy and speed of the companys transparent film systems. Some of the systems combine ellipsometry with reflectometry tool to analyze films that require a broader spectral coverage. The companys transparent film measurement systems are available in a price range about $250 k to $1.0 million per system.Process Control SoftwareAlong with inspection and metrology systems, Rudolph overly offers a suit of yield management and process control software, making it a complete yield management solution provider to semiconductor manufacturers. The company offers a comprehensive range of software for front-end fabs, back-end packaging facilities and photovoltaic market. The software collects the vast amount of data through automated inspection of fab process, which can be analyzed to determine trends that eventually improve yield. The type of software offered includes equipment automation software, tool-monitoring and fault detection software, equ ipment control software, yield and defect management software, and defect analysis and data management software. The acquisition of Adventa Control Technologies in August 2009 added several software systems to the companys portfolio, making it the second largest supplier of process control software solutions for chip makers, as per Gartner Dataquest. The company now supplies a broad range of Advanced Process Control technologies specifically for tool automation, run-to-run control and fault detection and classification, all knowing to enable chip makers to increase expertness and yield and to reduce rework and scrap. Advanced Process Control utilizes software to automatically detect or predict tool failure and calculate recipe settings for a process that depart drive the process output to target regardless of variations in the incoming material and disturbances within the process equipment. In FY2009, software licensing generated revenue of $6.7 million, accounting for 8.5% of to tal revenue.Industry AnalysisSemiconductor Capital Equipment MarketRudolphs business is primarily driven by the annual outgo patterns of semiconductor companies on capital equipments which, in turn, is dependent on other drivers such as the sales of PCs, mobiles and other electronic devices. Worldwide, capital equipment consumption has been on a decline during the past 3 years due to the resided strong dram investments in 2007, when the market was experiencing oversupply, slower NAND spending growth, and disappearance of metalworks capital spending. Subsequently, capital equipment spending eroded nearly 64% to $16.3 billion in 2009 from the 2007 levels, according to Gartner. However, equipment spending is pass judgment to increase 56% to $25.4 billion in 2010 following the broad recovery in the semiconductor industry revenues, and related investment in the foundry and memory markets. In addition, the advancement of new technology nodes will drive the future spending. Gartner hazards an average 20% annual growth in capital equipment spending between 2009 and 2013.Wafer fab equipment spending, which accounts for almost three-fourths of total capital equipment expend is currently driven by advancements in memory technologies and related upgrades. The overall capacity utilization rates continue to run at 80-90% levels, while leading edge utilization rates will hit 90-95% by the end of 2010, which will power strong capacity additions by 2011.Process control equipment marketProcess control equipments are primarily used to measure the accuracy of the features of a wafer throughout the process flow, and inspect for any defects during the wafer fabrication process. Semiconductor manufacturing personifys continue to rise as chip design is becoming smaller and more complex, leading to more time consumption and higher defects Complex chip designing not only increases the cost of buidling a fab, but the higher costs, in turn, increase production with imrpoved yeild s for superior profits and ROI. And this can be achieved by process control equipment which we believe is very critical to increase production yield, and asperse defects.In line with the downturn in semiconductor capital spending, the process control equipment spending declined 44% to $1.75 billion in 2009 from the 2008 levels, which had plunged 32% from $4.6 billion in 2007. However, as a percentage of total semiconductor equipment spending, the expend on process control equipment has increased magrinally from 10% in 2004 to 10.7% in 2009, indicating that this market conitnues to exceed overall semicondicutor capital spending. According to Gartners estimates, process control equipment spending is expected to grow 50% to reach $4.5 billion by 2012.Source Gartner, Rodman Renshaw ResearchIn legal injury of overall market share, KLA-Tencor dominates with 50% market share followed by Hitachi and Applied Materials with 15% and 11%, respectively. Although a market leader in several se gments, Rudolph is a tier-2 player holding an 2% share.Source Gartner, Rodman Renshaw ResearchAs a leading supplier of process control equipment for the semiconductor industry, Rudolph serves the macro defect inspection (both front-end and back-end), thin film metrology, and data analysis segments of the process control market.Macro Defect InspectionMacro defect inspection is one of the oldest metrology processes involved in the identification of defects of 0.5 microns and greater. Earlier, inexpensive manual techniques such as microscopes and cameras were the mainstay for identifying scratches, residual material, wafer edge irregularities, and several inspectors were employed at each process level. This compounded the cost of production and compelled production managers to resort to sampling where 20% of the wafers in-line was inspected. Again, the limitations of this sample strategy restricted the ability to reduce errors leading to increasing itemize of misprocessed wafers to b e scrapped. In response, automated macro defect equipments were introduced which made inspection (100%) both technically and economically feasible. The adoption of automated macro defect equipments has transformed this market into one of fastest growing sub-segments in the entire semiconductor capital equipment industry.Presently, the adoption of automated defect inspection is driven by the industry shifting to 300 mm wafers where the wafers have more than 2X of the size and number of die compared to 200 mm. With larger wafers size, more chips are produced per wafer and, therefore, automated inspection improves the frequency of detecting wrong chips, necessitating the use of automated defect inspection. An automated tool has a throughput of 120 wafers per hour compared, nearly double the manual inspection.We believe that as more devices continue to manufacture on 300mm wafers, the demand for automated macro defect inspection tools will enhance in the future.Macro defect inspection is classified into two sub-segments 1) front-end inspection in wafer manufacturing and 2) back-end inspection in packaging and assembly.Front-end macro inspection The front-end inspection takes place at the front-end of manufacturing stages such as lithography, deposition, post-etches, post-clean, and CMP. Front-end macro inspection technique includes a) front-side inspection b) back-side inspection c) edge inspection and d) surface inspection.Back-end macro inspection The back-end inspection takes place in the assembly and final test phase of the manufacturing process which includes probe mark and bump inspection.Source Gartner, Rodman Renshaw ResearchThe front-end macro defect inspection market declined 44% to $50 million in 2009, in line with the decline in the overall semiconductor equipment spending. Gartner estimate this market to reach $215 million by 2012, growing at 100% annually between 2009 and 2012. In impairment of market share, Rudolph is the market leader with a 50% market (enhanced after August Technology acquisition in 2006) followed by KLA-Tencor and Nikon with a market share of xx% and xx%, respectively in 2009.The back=end macro defect inspection participates in the $20 billion Outsourced Assembly and Test (OSAT) market, where Rudolph is the number one provider of inspection solutions, where all of it is from August Technology acquisition. Rudolph has a 34% market share in the back-end market, follwed by Camtek and Hitachi with 23% and 13%, respectively. decoct Film MetrologyMetrology tools are used to measure and examine characteristics such as thickness and electrical properties of a wafer to maintain uniformity across the manufacturing process. These tools can be classified into metal film metrology and transparent film metrology. Metal film metrology is used to measure the thickness of each individual metal layer on a wafer while transparent film metrology uses a process called ellipsometry to measure the thin films properties. Rudolp h has pioneered in transparent thin film market launching the industrys first ellipsometer based thin film metrology equipment.The thin film metrology market stood at $169 million in 2009, down 43% compared to 2008, in line with downturn in the overall semiconductor equipment market. In terms of market share, Rudolph dominates the metal metrology market with a 90-95% share. KLA-Tencor is the market leader in the transparent film metrology market with a 70% share and Rudolph followed with 8% in 2009.Source Gartner, Rodman Renshaw ResearchThe metrology market is currently driven by the transition of copper interconnect metallization into both DRAM and NAND memory market. Essentially, the fundamental shift to copper as a conductor material from aluminum is because an increasing number of semiconductor devices are being designed with more interconnect layers, since aluminum interconnects limit the overall chip speed. Whereas, copper interconnects handle geometries as small as 45 nm wit h more than 10 layers of interconnect circuitry and with higher speeds. Industry majors such as Samsung and Toshiba are progressing in the transition, indicating a substantial market opportunity. We believe Rudolph will be among the beneficiaries when memory suppliers transition to copper in the manufacturing process. The migration from 65nm to 45nm will require high-end metrology tools to measure the thickness of the copper layers. Being a market and technology leader, Rudolphs MetaPULSE solutions will experience giant demand in the market, which has been very successful with leading memory suppliers such as Intel and AMD.Company AnalysisA one-stop shop solution provider for yield improvementRudolph Technologies presence across the value chain in the semiconductor manufacturing process is strengthened by its diversified product portfolio of metrology, macro inspection and software solutions. The transition from being a pure metrology company to a more diversified process control e quipment and software provider has consolidated its presence in both wafer processing (front-end manufacturing), and packaging and testing (back-end manufacturing) with revenues from the former accounting for 60% ($47.19 MM) and the latter with 40% ($31.46 MM). receiptss from the metrology stream stood at $19.66 MM or 25% of the total revenue during 2009 while the inspection and software segments generated $47.2 MM and $11.8 MM, contributing 60% and 15%, respectively toward total revenues.The semiconductor device formation is referred to as front-end manufacturing wherein the raw wafer is subject ot various processes such as oxidation, lithography, diffusion processing, ion implanting etching, photo resist coating, washing, and chemical mechanical planarization (CMP) to develop into a silicon wafer that contains multiple copies of integrated circuit devices. After the device formation stage, the back-end processing (usually outsourced to contract manufacturers) starts to fabricate the finished product or integrated circuit for the customer. The back-end processing starts with parametric testing and available testing following by the packaging process which includes polishing, back grinding, die attaching, wire bonding, and hermetic sealing.Diversified product portfolio (present across the value chain)Source Company PresentationThe companys presence in the entire value chain of semiconductor manufacturing process not only diminishes the risk of exposure to the dynamics of single market, it overly weathers the cyclicality inherent in the semiconductor industry. The successful transition from front-end metrology to a total solution provider has resulted in a much more balanced mix of product portfolio with exposure to both front-end and back-end process. This helps the company to overcome the industry cycles that always do not move in sync (refer chart book-to-bill ratio).Front-end manufacturing is driven by technology changes, while back-end manufacturing is driven by unit volume growth (market demand). The difference in the demand drivers for the front-end and back-end manufacturing equipments can alike be validated by analyzing the book-to-bill ratio over the past two years, which clearly indicates the cyclicality.Book-to-bill ratioSource Company PresentationFinancial PerformanceOver the years, Rudolph has transformed from being a front-end metrology system producer to a total solution provider to semiconductor device manufacturers through a mix of proprietary hardware, software, and service offerings. During 2008 and 2009, semiconductor equipment market experienced a downturn as semiconductor device makers reduced their capital spending due to the global economic crisis. In line with the industry, Rudolphs revenue also declined, although at a rate slower than that of the industry. When the downside in the global semiconductor equipment market was approximately 46.0% year-over-year in 2009, as per a Gartners study, Rudolphs revenue w as down 40.0% compared to the prior year. The companys revenue in FY2009 stood at $78.7 million compared to $131.0 million past year, while the gross profit was $28.9 million over $43.7 million a year ago. Consequently, the company incurred a higher adjusted net loss of $14.1 million or $0.46 per share as against a loss of $2.4 million or $0.08 per share.A majority of the revenue is derived from macro-defect inspection system sales, which represented 48.3% of the total earnings in FY2009. Rudolphs strategy for continued technological and market leadership is largely on its diversified revenue sources from just the front-end metrology system in 1999 to include higher margin macro-defect inspection system and software licensing in its portfolio, thus circumventing the risk of depending on a single market. The share of inspection system and software sales has increased from 14.0% and 1.5% in FY2005 to 48.3% and 8.5%, respectively in FY2009, whereas that of the metrology system dropped from 63.4% to 11.3% during the same period. The company also generates revenue from spare parts sales and services including maintenance service contracts, system upgrades, as well as time and material billable service calls. Revenue from the sale of spare parts and services accounted for 19.6% and 12.2% of total revenue in FY2009, respectively.Rudolph derives a significant portion of its revenue from customers outside of the US, specifically from Asia. In 2009, it derived 72.4% of its revenue from outside of the US, of which 60.8% was generated in Asia, and 11.6% was derived from Europe. Going ahead, we believe that the revenue generated from Asia will be a substantial percentage of the total earnings, as a Garner estimate forecasts the semiconductor capital equipment market in the Asia-Pacific region to outpace other regions over the next five years.The rebound in the global economic and capital spending in the semiconductor industry, surged the companys revenue for 1Q FY10 more t han three-fold to $40.6 million from $11.1 million in the earlier year quarter. Capacity additions by major foundries in chinaware and elsewhere, and increase in capital spending by memory manufacturers supported the revenue growth. The inspection business represented 68% of revenue, while metrology and software businesses accounted for nearly 23% and 9%, respectively. However, the share of metrology business in overall revenue is likely to enhance based on the current capacity addition plans of tier-1 memory manufacturers and the anticipated increase in metrology spending by the foundry sector. We believe that the company is well positioned to benefit from improving business conditions in foundry, memory, and logic markets with its strategic balance of front-end and back-end business. Along with revenue, the companys margins also improved to 49.9% from 20.6% in the comparable quarter of last year, supported by an increase in higher-margin inspection system sales. Although the expe cted higher contribution of metrology systems sales in overall revenue could impart a slightly negative impact on the companys gross margin during the upcoming quarters, it is likely to be offset by improved manufacturing efficiencies as the companys newly introduced products mature. The adjusted operating margin also returned to historical levels, which improved to 13.2% in 1Q FY10 from -78.0% a year ago. Finally, the company swung to a non-GAAP net income of $3.3 million or $0.11 per share from a non-GAAP net loss of $6.7 million or $0.22 per share during the corresponding quarter of the prior year.Rudolph usually invests the cash generated by operating activities into marketable securities, acquisition of businesses and capital assets. Inorganic growth has always be a key component part in the strategic growth plan. The company has acquired five businesses since 2002, the payment in all the cases was made through cash, either partly or the entire purchase price, thereby, minimiz ing stock dilutions. In 1Q FY10, the company generated operating cash flows of $6.8 million compared to an outflow of $4.0 million a year earlier. The company had cash and marketable securities of $67.1 million as of March 2010 which, we believe, is sufficient for the future capital expenditure, and supports the company to pursue its inorganic growth strategy.The balance sheet validates Rudolphs strong liquidity level as well as its debt-free position. The current ratio of 5.4 as of March 2010 affirms the companys ability to meet short-term payment obligations. The absence of debt will preclude financial risks during a downturn, and provide adequate flexibility in its operations. Although the accounts receivable at the end of 1Q FY10 surged 175.2% year-over-year to $40.8 million, it increased at a much lower rate than the revenue, which grew 267.3% during the same period. Days sales outstanding during 1Q FY10 reduced to 94 from 130 a year ago, and inventory long time dropped to 311 from 336, thereby, improving cash generation. The cash conversion cycle has declined to 327 days from 377 days over the prior year quarter.