However, the problem we have noticed is more to do with companies attempting to diversify revenues via acquisitions and the profitable rollout of new technologies to meet emerging markets.

Starting with Aixtron, the company realised last year that its dependence on the compound semiconductor market for its revenues would only result in continued cyclical periods of financial stress. That market has seen excellent growth over the last 10 years but has gone through several rounds of consolidation and a shift to low cost regions such as Taiwan. Pricing pressures have permeated down the food chain to the equipment suppliers. Now the compound industry is taking a breather from capacity expansions and new high-volume product introductions as existing markets have become saturated.

No wonder then that Aixtron sought to expand into the mainstream bulk CMOS markets both with its own new tool offerings as well as boosting inertia with the acquisition of Genus Inc.

The problem is that ALD technology has only gained traction in niche aspects of the silicon world as well as servicing a small disk drive market for the technology. Genus had been successful in developing the market, yet that market had only just kept the company afloat. Genus had been expecting like many others to see the high volume ALD applications come on stream much sooner than was the reality, which we believe played a key part in the company seeking a bail-out.

The exact node migration to high k dielectrics is still being debated but all this has meant is that its implementation has been pushed back a node. This has now happened twice for that application, which is at least a four-year push back. That may be manageable for the likes of Applied Materials, but not for likes of a Genus nor for that matter an Aixtron.

The company reiterated much of what it had said in the 2Q05 conference call but sales and earnings have tracked downwards since then. The Genus acquisition isn't a dead donkey, rather it is contributing revenues quarter on quarter (9.2 million Euros in 3Q05), but nothing different than Genus did when it was a separate company. Unfortunately due to the lacklustre compound equipment sales this year, Genus is contributing to the company's cash burn increase, both on an operational and R&D basis.

Aixtron's R&D expenditure as a percentage of sales hit 24 percent in the current reported quarter, and was cited by executives as contributed to Genus. It's a classic position companies get themselves in and there is no known short-term solution.

In Aixtron's situation management are putting a brave face on things by highlighting on a short-term basis that things are not looking good as well as taking action to reduce cash burn via job cuts (44 or 7% of the workforce) a job freeze and factory shut-downs in poor utilisation periods. Not surprisingly certain R&D projects will be put on hold. Other than getting radical, what could the company do?

Trikon Technologies is in the same rock and a hard place as Aixtron. The company has technology that has shown promise for porous low k deposition but ultra-low k materials have consistently been pushed out by leading chip manufacturers. Trikon's legacy business brings in a smaller and smaller amount of cash, while other market penetration activities will naturally take time to get to a positive ROI. Unfortunately for Trikon, that time recently ran out and is now going through the motions of being acquired by Aviza Technologies. Interestingly, Trikon brought in Bill Elder, CEO of Genus as a consultant to help determine its future course of action!

Ironically, Trikon also produced its quarterly financial results today and continues to lose money. Although the operating loss declined on improved sales, the company also reduced R&D expenditures by 14 percent in the quarter and 18 percent from the same time last year.

Though we have commented about small cap companies, larger European equipment suppliers such as ASM International seem to be in the same position. ASMI reported results last week and during the conference call highlighted the challenges of returning its FEOL division back to profitability.

The company has invested in technology acquisitions such as NuTool and Genitech in recent years as well as develop in-house technologies such as its Levitor RTP tool. Such developments were seen by the company as essential to the growth of the company as its legacy 200mm tools, especially vertical furnaces was a declining market with the migration to 300mm wafers and more single wafer RTP annealing steps.

However, ASMI noted last week that the new product divisions that make up RTP, ALD and copper deposition/CMP have yet to turn a profit. In the case of the NuTool acquisition, management stated that cash burn rate for that technology had become "totally unacceptable," prompting management to take a hard look at its options!

Customer acceptance of the "disruptive" technology would seem to have stalled while the "unique" and some might say "quirky" Levitor technology has taken several years to get to the position where tool evaluation work is now starting to look promising, according to the company. Only the ALD tools have seen real unit sales, but even here as noted with the problems experienced by Genus, the big markets remain elusive. According to ASMI, the company has sold 56 ALD units, which isn't bad, but nothing too impressive when that technology has been marketed for over 8 years!

Aixtron, may take some comfort from the fact that they are not alone in Europe facing these challenges, being caught between a rock and hard place can be very lonely. Like the others they will be working hard not to be left behind come the next upturn.