Applied to Acquire Semitool for $364M
Applied Materials will acquire Semitool for ~$364M, positioning Applied in the growing markets of wafer-level packaging and copper memory interconnects. Dean Freeman, equipment analyst at Gartner Inc., said the acquisition will give Applied a fresh start in copper deposition, after its internal effort was abandoned two years ago.
David Lammers, News Editor -- Semiconductor International, 11/17/2009
Applied Materials Inc. (Santa Clara, Calif.) said it will acquire Semitool Inc. (Kalispell, Mont.) for ~$364M, advancing Applied in two fast-growing markets: wafer-level packaging (WLP) and the memory industry's conversion to copper interconnects.
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Semitool's Raider ECD tool is being deployed for wafer-level packaging. |
Applied will pay $11 per share — a premium over the recent close of $7.77 — in the all-cash tender offer for Semitool, a pioneer in electrochemical plating and a supplier of wafer surface preparation equipment. The acquisition intensifies the head-to-head competition between Applied and Novellus Systems Inc. (San Jose) in copper deposition, and allows Applied to address a new set of customers in the packaging industry.
Semitool will become part of Applied's Silicon Systems Group (SSG). Applied Materials and Semitool "have a strong track record of collaborating to develop equipment solutions for leading chipmakers," said Randhir Thakur, general manager of Applied's SSG.
Ray Thompson, chairman of Semitool, said, "As part of Applied Materials, we can accelerate the global adoption of the technologies Semitool has developed and provide our employees with a strong future and our stockholders with exceptional value."
Applied said it will begin the tender offer "promptly" and expects it to close by the end of calendar 2009. Although Semitool struggled along with the rest of the industry during the downturn of the last year, its fiscal fourth quarter revenue was $47.1M, compared with $31.8M in the third quarter and $60.1M in Q4 2008. Gross margin was 42% compared with 52% in the year-ago quarter. Net income increased to $2.2M in the fiscal fourth quarter, compared with a net loss of $1.6M in the third quarter.
Dean Freeman, equipment analyst at Gartner Inc., said the acquisition will give Applied a fresh start in copper deposition, after its internal effort came up short and was abandoned two years ago, for reasons which have never been fully explained. With Semitool controlling 24% of the copper double-damascene deposition market on revenues of $30M in 2008, against Novellus's dominant 73.6% share with sales of $92.4M, the stage is set for an Applied/Semitool vs. Novellus copper showdown, Freeman said.
In electroplating of gold and other metals used in creating bumps for flip-chip packaging, Semitool has a much larger share of 86% on 2008 revenues of $63M, followed by a 14% share held by Nexx Systems Inc. (Billerica, Mass.), according to Gartner data. In the nascent field of filling TSVs for 3-D interconnects, Semitool and Ebara Corp. (Haneda, Japan) each have ~34% shares, Freeman said.
When Applied's electroplating effort was abandoned, Applied and Semitool representatives started going on joint calls to customers, particularly in the memory sector where copper interconnects were under development. Semitool has sold electroplating tools to Advanced Micro Devices Inc. (AMD, Sunnyvale, Calif.) and to Micron Technology Inc. (Boise, Idaho) for both memories and CMOS image sensors. "The deal with Applied will allow Semitool to continue to make inroads at Samsung, Hynix and Elpida," Freeman said. Semitool has relied largely on a network of distributors, and may have been too small to serve the largest memory customers as well as Applied is capable of doing, he added.
The timing of the Applied acquisition comes as both Applied and Semitool close the books on their 2009 fiscal years. With Semitool back in the black, and with its founders looking for an exit strategy so they can comfortably retire, Applied's overture found a willing listener in founder and chairman Ray Thompson. "This has been coming for some time, ever since they started partnering on copper and TSVs," Freeman said.
The equipment industry is consolidating, to the benefit of the remaining players, Freeman said. "What I worry about is that Semitool was willing to go out there and work on small niche projects, something that Applied may not want to do. And Semitool had a certain cowboy culture that will be lost," Freeman said.
With Semitool as the largest employer in Kalispell, and with Applied moving some of its equipment manufacturing to Singapore, China and other locations, the long-term future of equipment manufacturing in Montana may be in jeapordy, he added. Thakur said Semitool's equipment would continue to be manufactured in Kalispell, "using the Applied Materials infrastructure to support Kalispell."
Thakur emphasized that more of Applied's customers seek solutions for wafer-level packaging, noting that the lines are "becoming blurry" between the front-end fabs and the packaging operations. Quoting Gartner data, he said the served available market (SAM) for equipment in the WLP and bumped wafer markets is expected to be ~$500M next year, growing to $800M in 2012. Applied will integrate the electroplating offering from Semitool with its existing abilities in deposition, planarization and etch for WLP applications.
"Packaging is at an inflection point, moving from the die level to the wafer level," said Applied CEO Mike Splinter. "We have been engaging with Semitool on technology development in the advanced packaging space, and we want to welcome the company that Ray [Thompson] and Larry [Murphy, president and COO] have built."
Thompson said, "Applied is strong in supporting high-ASP products. Their muscle will enlarge our order rate considerably."One stock analyst on the Applied-Semitool conference call early Tuesday said Thompson deserves industry-wide credit for building an innovative company over the last three decades, which prompted Thakur to reiterate his praise of Semitool's accomplishments.
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