There can be no better indication of how the industry has changed over the course of the past three years than Mattson Technologies Inc.’s divestiture of its wet surface preparation division.
The Fremont, Calif.-based equipment supplier today announced it would be selling its wafer wet cleaning division to rival SCP Global Technologies Inc., the No. 2 wet bench supplier behind Japanese player DaiNippon Screen Co.
The move by Mattson had been in the rumor mill for some time prior to today’s announcement.
The companies did not release terms of the definitive agreement they signed, but they did say they are pursuing a strategic alliance to develop integrated wet and dry cleaning processes. Under the alliance, Mattson and SCP would cross license intellectual property, which they believe would significantly increase development efficiencies.
SCP did say it would receive $50 million in venture capital and have access to a $20 million line of credit, both happening concurrently with the close of the Mattson deal, leaving the company well capitalized. Mattson will absorb yet another restructuring charge upon close of the acquisition.
The announcement came in conjunction with Mattson’s Q4 2002 and year-end results, in which the company posted net loss of $31.9 million, or 71 cents per share on the quarter, and a loss of $94.3 million or $2.23 per share for the full-year. While Mattson’s losses grew quarter over quarter, they improved 72 percent year over year, even while bookings remained flat from 2001 to 2002 at $186 million.
That improvement came because of significant restructuring and focusing on core competencies, said Dave Dutton, president and CEO. The company’s ongoing efforts in these areas include the shedding of its wet wafer clean division, leaving it with rapid thermal processing (RTP) and photoresist cleaning, or dry strip.
“Our industry has changed permanently. … This is more than just a cyclical downturn,” Dutton said during a conference call today with analysts. Companies must change with the times, in order to survive, he added.
As a result, the company is embarking on a plan it calls cyclically flexible enterprise, in which Mattson aims to remain profitable in terms of an operating income during all points of an industry cycle going forward. To do this it must concentrate on its core competencies — areas of the market where it has technology and market leadership, Dutton said. It also means utilizing lean manufacturing principles where feasible, such as outsourcing the assembly of mature 200mm equipment, and developing other strategic partnerships such as the one it is pursuing with SCP Global.
“We view this strategy as most critical to us,” Dutton said, adding that he expects other companies that haven’t done so already to begin taking similar avenues of business.
At first glance, the wet products division doesn’t seem to be that harmful to Mattson. Revenue for the wet division was $90.9 million, about 45 percent of 2002 revenue, according to CFO Ludger H. Viefhues. But that percentage was higher than average because of deferred revenues under accounting rules related to the U.S. Securities and Exchange Commission’s Staff Accounting Bill 101, Viefhues said during the conference call.
At the end of 2002, the wet clean division accounted for 357 employees out of 1152 total. On a shipment basis, revenue per employee in the division was half that of employees in the RTP and strip divisions. “These products heavily impacted our resources,” Viefhues remarked. “The divestiture changes this.”
Mattson — and an industry — changes its tune
Layoffs, consolidation and divestiture of unprofitable divisions have become so commonplace in the industry, particularly among its equipment suppliers, that it’s almost not even newsworthy anymore. But Mattson’s actions today are symptomatic of something deeper than merely improving the bottom line in an effort to get back to profitability.
Back in 2000, many companies were concentrating on achieving critical mass. In fact, the term critical mass was one of the more popular terms in the marketing lexicon of the time, as the industry enjoyed phenomenal growth and a lot of pie-in-the-sky forecasts of continued growth and an end to industry cycles.
A few years later, as the downturn that began at the end of 2000 extends into its third year, the industry has become much more concerned with being lean and concentrating on core competencies, rather than growth through acquisition. Many companies are discontinuing unprofitable business units or selling them to rivals, such as Mattson is doing with SCP, and at the same time seeking partners to distribute the cost of development and R&D.
Mattson added RTP and wet bench tools to its strip repertoire back in 2000 with its acquisition of the semi equipment division of German supplier Steag Electronic Systems AG and its U.S. wet process rival CFM Technologies Inc.
“The industry is consolidating, and you are either getting big or getting acquired,” founder and then CEO Brad Mattson told Electronic News back in 2000. “This was my strategic priority: to grow and keep growing,” he said.
Analysts and competitors alike at the time said it was a shrewd move by Mattson. By offering both wet and dry cleaning tools, the company was in a position to stake out leadership in surface preparation, particularly in the emerging copper dual damascene market.
At the time the combined projected revenues of the three companies were between $460 million and $500 million, making Mattson the 15th largest equipment vendor in the world. The company was well on its way to becoming a huge deposition company, having moved into chemical vapor deposition (CVD), and epitaxial deposition, as well as wet and dry clean and RTP.
Needless to say, times have changed; Mattson’s revenue last year was $203.5 million, a 12 percent drop from 2001.
The timing of the three-way merger coincided with the worse downturn in the industry’s history, making it problematic at best. Like most if not all of its fellow tool vendors and competitors, it has been forced to dramatically cut costs, trimming the fat and sometimes even muscle from its operations, undoing in part what the merger put in place, while it concentrates on what it does best: RTP and strip.
“Unfortunately, Mattson could never get their arms around Steag and the wet group,” said Dean Freeman, a senior analyst with market research firm GartnerGroup’s Dataquest unit. Had the three-way merger been accomplished early in 2000, the company might have been more successful in achieving leverage and momentum in all of its new markets, he suggested.
While critical mass may still be in important in terms of servicing a global market that turns more and more to outsourcing, lean operations have become a way of life.
Divestiture of the wet clean group was the last step for Mattson, said Dutton. The company has already announced that it’s narrowing the focus of its epitaxy and CVD units to existing strategic customers.
“We believe the industry has changed,” Dutton reiterated. “We’re coming out of 2002 much tougher and much better prepared to operate in all cycles.”
Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.