Varian Semiconductor (VSEA) said in 2005 that it would gain market share in 2006. It did. Then the ion implantation equipment supplier said it would gain further market share in 2006. Based on preliminary quick financial benchmark figures, it would seem VSEA did it again in 2007, but even more significantly than in the last two years! 

In the most recent quarterly conference call, VSEA believed that it had increased its market share from the 43 percent range to the 60 percent range!

Granted, we have to take into consideration the market share that Applied Materials had had previously, but that was not 30 percent - indeed it was approximately half that figure before exiting the implant business. That would indicate that the other two major market players, Axcelis and SEN, lost share to VSEA.

According to Gary Dickerson, Chief Executive Officer & Director, at VSEA the company “gained 30 points of market share in high current, nine points in medium current and maintained 100% of the PLAD market which grew from $4 million in calendar 2006 to $64 million in calendar 2007.”

In one of the last investor meetings, Bob Halliday, VSEA’s Chief Financial Officer, told investors that the market share gains were not over, and that it could reach the heady heights of 70 percent plus market share position in the next year or two!

Halliday speaks in a very matter of fact and rather laconic style, which tends to emphasize an air of company superiority!

Claims were also made that Varian’s tools carried the best technology and that they were the cleanest in the business when it came to real-world process conditions.

I must admit I started taking notice of the sales pitch at that investor meeting from that point on as I found that boast a little too much to take on board. Perhaps it had been mentioned before at such events and I had not noticed.

However, at the ISMI Conference last year, the implant manager at TI’s DMOS6 300mm fab gave a presentation that was less than complimentary about Varian’s single wafer implanters! In particular, TI had been having problems with particle build-up and damage and the correspondingly high maintenance levels required in respect to cleaning the tools more periodically than they expected.

This was a very detailed and specific presentation, as ironically the paper was co-written with ATMI, who had collaborated with DMOS6 to produce a new and innovative ion implanter cleaning system that was fully automated and demonstrated results that were superior to those from VSEA!

So it is strange that VSEA would claim such a leadership when in reality another company was able to produce the results for the customer! Perhaps the realization of market superiority lets execs get a little carried away with claims that are hard to refute on the surface?

On current performance, VSEA is indeed on a path to reach that 70 percent and more market share, but that might just be a few percentage points too many for customers!

Chip manufacturers tend to start baulking at dominant equipment suppliers, knowing all too well that their price bargaining powers are seriously reduced. This is even more so the case when you consider the high CoO of ion implanter tools.

VSEA might find that it is naturally capped at around the 70 percent market share price, but that also requires better execution from Axcelis and, to a smaller degree, SEN.

The big problem here is that Axcelis’ management have needed to take a serious reality check ever since they failed to come to market with a competitive single wafer tool soon after Varian did many moons ago.
What made matters worse was that when they eventually did launch the Optima platform, it was already late to market. With qualification times spanning a year, an initial lead can stretch to several - and that’s hard to come back from.

However, it struck me during Axcelis’s latest conference call that when asked, Mary Puma couldn’t give the financial analyst market share figures for 2007 as she didn’t have them. But she then went on to say that she didn’t believe the company had lost market share in 2007!

It was also concerning to listen to the analysts in this call as they only stop asking questions and drill management when they are either in total accord or in total discord with what is being said. In the case of Axcelis it was the latter, and the analysts pretty much gave up digging.

Having written this over the last weekend after catching up with the past few weeks’ conference calls, I was not surprised to see the news that Sumitomo Heavy Industries has made a hostile bid for Axcelis.
What has surprised me is the strong wording used by SHI, which is highly uncharacteristic of Japanese Corporations. Here is its Chairman’s opening remarks for starters:

“Over the last 18 months we have repeatedly made good faith efforts to engage Axcelis’ board in meaningful discussions about a combination that would deliver significant immediate value to stockholders and create a company better able to respond to marketplace challenges and compete successfully over the long-term,” said Yoshio Hinoh, Chairman of SHI. “Axcelis’ board has continually rebuffed our interest saying the timing was not right for them, and we have been extremely patient. However, during this time Axcelis’ market share and financial performance have declined dramatically. We believe that time is of the essence for Axcelis, and that the company’s stockholders, customers and employees deserve to be made aware of our compelling proposal.”

In a letter attached to the press release SHI goes further and states:

"We have been persistent in expressing our interest, but you have continually responded "now is not the right time." Throughout this period, while you have focused on your stand alone strategy, Axcelis' market share and financial performance have declined dramatically."

Puma also surprised me in the last conference call by stating that new technology licensing contract negotiations could take several years longer with SEN. I know the Japanese can be slow to make decisions but that is ridiculous.

Now we know something else was going on, and it is something that considering the poor performance of Axcelis compared to its major rival VSEA may cast further doubt on the company’s grasp of reality, especially when you consider that it needed to re-finance its debt structure in 2008. The offer from SHI of approximately $544 million looks even more attractive.

The deal is certainly not done but a dose of reality is most certainly needed in the implanter business. Reality was lacking until SHI turned up on Axcelis’ doorstep!