New KLA-Tencor CEO Talks About Industry, Future

-- Semiconductor International, 9/1/1999

Ken Schroeder, who took over in June as KLA-Tencor's CEO, agreed recently to be interviewed by SI. A 30-year veteran of the semiconductor industry, Schroeder serves on the boards of directors of SEMI, KLA-Tencor and GaSonics International. Reminiscent of the main character in the movie 'October Sky,' Schroeder became interested in science as a teen-ager, during the heyday of the space race. A seven-foot rocket of his own design, powered by zinc sulfide, earned him one of the top 30 awards from the Illinois State Science Fair, starting him on the road he still travels. He received his BSEE from the University of Wisconsin in 1967 and his MBA from the Wharton School of the University of Pennsylvania in 1969.

SI: With the worst of the economic downturn over, how do you view the state of the industry?

Schroeder: Going by the stock market, it looks pretty good. (Smiling) In fact, our own stock has gone up 25% in the brief time since I assumed the position of CEO. The market looks very good for our customers: telecommunications, logic, those areas; however, prices have eroded in the memory sector.

Overall, I think the industry is doing better. It's not hitting on all cylinders yet -- that will still take a while. It's difficult to project more than six months, but you can see the Holy Grail in the future: 300 mm capacity expansions, and investment driven by technology changes, for both logic and memory semiconductor segments. Our bookings are up this quarter over the last, but it's not full pedal to the metal yet.

SI: Now that you have the KLA-Tencor reins in your hands, what are your plans for the company's business strategy?

Ken Schroeder, KLA-Tencor's new CEO.

Schroeder: I've been with the company for 16 years. I joined when we were 30 people and still a startup. I've been a partner with (KLA-Tencor Chairman of the Board) Ken Levy for all those years and have had a hand in working out that strategy, so I view it as a continuing process, as opposed to something requiring a big change.

SI: Well, then what will change under your tenure?

Schroeder: We want to continue being the best performer in the process control area--not just for the semiconductor industry, but also for related industries such as wafer and reticle manufacturing, and data storage. In addition, we plan to take yield management to the next level, by delivering complete solutions for entire process modules within the lab. Our goal is to improve our customers' competitiveness.

SI: So your plans are evolutionary, not revolutionary?

Schroeder: (Laughing). Exactly! We've evolved from being a point product company years ago, when the old KLA did the first reticle inspection system and the old Tencor did surface metrology. Now we're focused on integrated systems for defect detection and process parametric control, not point products, which we build for different process modules. For semiconductors, of course, it is films, litho, etch and planarization.

SI: What should users expect from KLA-Tencor under your tenure?

Schroeder: We have 50% of the whole yield and process control market, and we're players in almost all segments. We have three to four times the product breadth compared to our closest competitors. We're taking this breadth, adding to it the largest software organization in this segment, and combining everything with the expertise we're developing in methodologies for improved control of these process modules. What this means for our customers is a significant advantage as they navigate the increasingly challenging technology transitions to smaller device geometries, new device technologies such as copper interconnect and larger-diameter wafers, so that they can achieve a faster ROI.

SI: You seem to emphasize the software side of the equation. Is this going to be a major area of growth for you?

Schroeder: Yes it is. That being said, however, you're not going to hear us say, 'Hey, we're a software company; we are de-emphasizing the hardware.'

SI: So no 'KLA-Tencor.com?'

Schroeder: (Smiling) Software is critical, yes, but not many fortunes have been made in our industry solely based on software. We've made sizable investments in software and will continue doing so. Our strategy is to use it in combination with our hardware to provide higher-value-added solutions.

SI: Do you think growth is getting more difficult than before, particularly when competing with giants like Applied Materials?

Schroeder: Applied is the leader in process equipment; we lead in yield management and process control equipment. That's roughly a $2 billion segment, of which we own about 50%, with some 30 other companies splitting the remaining 50%. We will continue growing in that segment, and we are going to enter other markets that we think have potential for our company.

SI: Such as?

Schroeder: In the last year we've made four important acquisitions. Presently, we have two others in the works. It's not enough to build inside; we're also bringing in outside technologies. There is also an increasing focus on integrated inspection and measurement. I expect us to grow in that area. We have an advantage, with our measurement and software experience.

SI: What is your copper technology transition strategy?

Schroeder: What we're trying to do with our process module solutions is, of course, get product leadership -- that is the first step. The second is to have connected solutions, such as a process module solution. The third step is to bring in yield management expertise to these issues, and then customer success. If they're successful, we're successful.

Every major copper development fab in the world uses our defect and metrology equipment. We've helped many of these customers to accelerate their copper yield learning rates, and we will continue adding new capabilities.

In support of our goals to identify critical yield-limiting mechanisms in the copper process, we just announced the eS20, the industry's most advanced E-beam inspection system. The challenge of inspecting copper damascene structures with high aspect ratios and surface voids can only be met with E-beam technology. Added to our optical inspection systems, this provides a comprehensive defect reduction capability for next-generation technologies, such as 0.18 mm copper and aluminum devices. In addition, we have made a number of important purchases in this past year. One of these acquisitions has provided a tool that allows for the control of copper contamination in the fab.

SI: All this commitment in human and financial resources is significant. But are equipment suppliers capable of financing the R&D effort needed to move to 0.18 µm, 300 mm, copper and low-k, all of which is avalanching on us now?

Schroeder: Absolutely not! At a recent meeting between SEMI equipment executives and some industry executives, the point was made that SIA issues its Roadmap, telling us all the wonderful things that are going to happen: we're going to keep shrinks going, get copper and new low-k dielectrics and 300 mm. Someone issued a new Roadmap and put 450 mm on it! This is easy to do; you don't even have to use an eraser; you just overwrite '300' with '450' on the Excel sheet and send it off! This was done without any discussion with those of us who have to meet these requirements.

Things cannot continue to work this way. There has to be a closer link between the Roadmap and equipment suppliers. The industry can't support all these initiatives. Take us, for example. We're the fifth largest semiconductor capital equipment company in the world, and it's a struggle to try to keep up with the Roadmap. We must ask SEMATECH and customers for funding, given they want to do things that are very expensive and difficult -- even for us -- to accomplish. Consideration must be given to where the development money is going to come from.

SI: How receptive are customers to this? Don't they view it as financing your R&D so that, in turn, you can sell them equipment developed with their money?

Schroeder: The response is certainly mixed. Since we are a successful company, some wonder why we need the funding. In some cases, such as mask inspection, it's easy to make your case. It is a relatively small market, about $200 million, and we have a development program that is approaching $100 million for one product! That is a huge investment for that size market, so we have to go to our customers and ask for help to meet their Roadmap. SEMATECH has been very helpful.

SI: Aside from the R&D question, what are some of the endemic problems that you see in your industry, and how would you like to see them solved?

Schroeder: We already talked about one: a better partnership between users and manufacturers on Roadmaps and R&D financing. Another big problem is getting an expert workforce. It's difficult to find software engineers. I worked actively with SEMI to get H-1B visa limit caps increased. We got them raised in May, but they've already been exceeded. The cap goes down in about a year. We can't meet our needs. We're doing software development overseas because we cannot find the resources here we need.

SI: Often equipment manufacturers are asked to meet certain specs but users refuse to reveal why and for what they need them. Would you like to have the sort of 'open kimono' relationship that fabless semiconductor manufacturers have with their fabs, where proprietary information is freely exchanged?

Schroeder: No question! However, I recognize the problems with that. Let me play devil's advocate from the customer's point of view. I have developed a proprietary process that gives me an advantage. My concern is that if I work too closely and too early with my process equipment supplier, that process may be disseminated throughout the entire industry, reducing my lead time. Our emphasis is not on developing processes, but on helping customers quickly, identifying yield-limiting problems with the processes that they've developed. Most of our customers work closely with us to help accelerate their process yield learning rates.

SI: Metrology is essential to process control and yield enhancement; yet many view it as a necessary evil rather than a value-added proposition. Do you believe the industry has a clear concept of how it relates to production?

Schroeder: It depends. There's a well-known company with a key executive who doesn't view metrology and inspection as value-added. Yet his second-in-command is convinced that if you deal with $100,000 wafers, not inspecting or doing metrology is insane. It's a continuing battle, but more people are realizing it's not a non-value-added activity, it's process control. For example, two leading microprocessor manufacturers published that speed binning results equated to an average ASP increase per device of $7.50 per nanometer of improved gate length control!

SI: Dust off your crystal ball and tell us what you see happening in the next 18 months.

Schroeder: We'll continue doing linewidth shrinks as fast as we can. Copper is here, and we'll see the challenges I mentioned in terms of process and yield and contamination; but they are solvable. I believe 300 mm is here -- there will be very few new green field 200 mm fabs being built by the likes of the integrated device manufacturers (IDMs) and others. They're holding their investment capability to build for 300 mm. The foundry model will expand. It already works for short runs, and IDMs are moving business to the foundries already partly because of efficiency, partly because they want to lock up capacity before making their 300 mm leap. It'll be interesting to see whether the high cost of mask sets makes foundries go to something like direct-write and other technologies. In the equipment sector, consolidations will continue, with fewer but bigger players.

SI: What about KLA-Tencor, specifically?

Schroeder: We want to continue to be the market leader in yield management. We intend to grow in our present markets, as well as in future ones using the same kind of advantages we have now -- our software and optics and mechanics, and image-processing skills. Our presence in the wafer manufacturing sector is growing, and I expect us to play an increasingly larger role in data storage. Over the next five years we expect to become players in businesses we've not been in before. In our present business, you'll see us expand into new areas.

SI: Any advice for your peers in the industry?

Schroeder: You must try to be the best performer in whatever segment you're in. These days, it's tough to even be a good number two because number one gets most of the revenues and profits. If you don't have the critical mass, join with a best performer.