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Are implanters a commodity? |
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Feb 15, 2007 at 04:16 PM |
The sad news that Applied Materials is to pull out of the ion-implant business and close its operations in Horsham, UK, with the loss of nearly 300 jobs is a big blow to the equipment industry that remains in the country. Having visited and met many people at the Horsham facility over the years, the news is much closer to home than usual when news like this is released.
What also concerned me was the reason given by Mike Splinter for the closure. He said in the press release and reiterated in a conference call the same day that implanters had become a commodity product.
I found this very surprising, as implant tools are, in my opinion, one of the most technically advanced pieces of equipment and a truly enabling technology that simply can't be replaced. Had Splinter said that wet benches were a commodity product I would have agreed but implanters - surely not!
Take, for instance, the fact that the qualification of an implanter in a fab for specific processes can take nearly 12 months. Implanters also cost a lot of money and are expensive to operate but will often out-last every other piece of equipment.
I was, therefore, very grateful to speak at length with Tom St. Dennis, senior vice president of Applied, with responsibility for the Front End Products groups, about the decision to exit the implant market. I also appreciated the chance to try and understand what the company meant by commoditization.
St. Dennis was more than happy to agree with my view that implanters are a technical marvel and that, on the surface, it is surprising that implanters could be labeled a commodity tool.
But the reality, according to St. Dennis, is far removed from my perception. He pointed out that implanters were viewed by customers differently. He used the words "customer indifference" to the technology in an implanter and that all that mattered was obtaining cost savings. The fab perspective, according to St. Dennis, was "get cost at all cost."
With that fab mentality, St. Dennis noted that product margins have trended down for some years both within Applied and at major rivals, Varian Semiconductor and Axcelis Technologies. Compared to other major product platforms produced at Applied, implanters had very poor single digit margins, with little hope of these margins rising.
What exacerbated the challenges for Applied was that a significant investment in R&D would be required to meet future customer process needs. Going from a break-even position at best, to a period of at least three years of loss-making operations while the investment went ahead, meant Applied executives had to make some harsh decisions.
Rumors circulated last year that Applied was looking at acquiring Axcelis to stop its market share losses in this sector. St. Dennis acknowledged that such an option had been looked at, but gave some very good reasons as to why that didn't happen.
He noted that it would have cost Applied over $1 billion to acquire Axcelis, but margins are poor across the implanter sector and R&D investment is still relatively high. An acquisition doesn't change the fundamentals of customer indifference and the reality would be that Applied would be spending a significant amount more, compared to the cost of putting things right in-house.
A classic case of when stuck in a hole, stop digging!
That's what Applied has done. Staying in the implanter market with poor margins and a commodity label attached to the tools wasn't part of Applied's strategy going forward.
Where the money was being made was in the service and support area. With over 700 implanters in the field, that side of the business will continue. A new team of 35 engineers based in the U.S. will be established this year to handle major upgrade work expected for some key customers, while some Horsham employees may be offered positions.
So implanters, it would seem, are now a commodity. What's next? Lithography tools?
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Comment by GUEST on 2008-05-12 14:43:03
With Applieds profit margins on spare parts at 200-300% mark up, it doesn't suprise that customers were looking for cost savings. |
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