Edward Braun, Veeco Instruments Chairman and CEO

As chairman and CEO of Veeco Instruments Inc. (Plainview, N.Y.), Edward Braun led the company through an MBO in January 1990 and an IPO in 1994. This was followed by the acquisitions of 11 metrology and equipment companies, and a jump in annual sales from $40M to $450M. Braun joined the company's predecessor, Veeco/Lambda, in 1966 and held numerous positions, finally becoming executive vice president and COO. He serves on several boards of directors including SEMI (he was chairman of the board in 1993); IDEMA, the data storage trade association; and kSARIA Corp., a manufacturing automation company serving fiber optic applications. Braun has a B.S.M.E. from Clarkson College of Technology. Veeco provides 3-D metrology equipment, as well as ion-beam etch and deposition systems.

SI: Irrespective of the downturn, Veeco hasn't done at all badly this year. You completed your acquisition of Applied Epi and you ended your second fiscal quarter with fairly good results.

Braun: True. As you said, for those six months we had record revenues of $240M — up 27% — and earnings growth up 78%. Even during these troubled times, the year looks to be in line with our projections, so we'll have a growth year in sales and significant growth in operating profit. All this, aside from our very significant acquisition of Applied Epi, represents further opportunity for us to grow a business in the wireless portion of telecommunications.

SI: Do you think this growth is mostly due to Veeco's diversity?

Braun:

	Edward Braun (Source: Veeco Instruments)

SI: Still, you must be feeling the downturn. How are you coping with it?

Braun: We're very positive about Veeco's long-term growth. We see the downturn as typical of the cyclicality of these individual markets although, clearly, this one is a bit steeper than previous downturns. The way we cope is by continuing to be deep in the food chain and offer people enabling technology in the markets we're in, so that they continue technology buys even during a time when there are no capacity increases. At our size, one can continue growing the company based on introductions of new enabling technology and enjoying a continuous trickle of technology buys — even in the absence of production buys. We went public in 1994 at about a $50M size and have grown to about a $500M. If we're able to sustain that growth rate over the next four years or so, we'll be a billion-dollar company.

SI: So much for the short term. What are your long-term plans and strategies?

Braun: Long term, I believe that these technology product introductions will blossom into production buys. I think that by the second half of 2002 the semiconductor industry will recover. We see the same for data storage within that period. For telecommunications, however, I don't foresee a recovery until sometime in 2003.

SI: Where do you see your greatest growth in wireless?

Braun: What we want to do in wireless is similar to what we've done very successfully in data storage, where we combined etch and deposition technologies in clusterable platforms. We expect to enable wireless telecom users to combine MBE, CVD and ion-beam etch together in a single cluster tool. This would uniquely position us as a broad equipment maker in telecommunications. Motorola recently announced they had put a GaAs film onto a silicon wafer using MBE. They made a device that was a tenth of the cost of a pure compound semiconductor device, with 30 times the speed. This is only a hint of the further integration of optoelectronic and wireless devices on silicon substrates. We see continuing breakthroughs in telecommunications, in the areas of integration and bandwidth.

SI: Beyond Applied Epi, where are your next growth areas and how are you planning for them?

Braun: We're moving forward with R&D, and advanced development projects having to do with higher bandwidth, cheaper chips and more data storage, which we expect will become compelling solutions for the consumer. We want to determine which are the technologies required for that continued evolution and integration — and MBE, CVD and PVD are part of the selection process — so we can continue to provide people with R&D tools and later with production tools.

SI: Is growth getting more difficult, downturn aside?

Braun: In the businesses we serve, our customers view new technology as their savior. Unlike older, mature industries, we deal with markets that respect and value the early introduction of new technology as a way to improve their own end products. People are making new technology investments when they aren't making production investments. The Applied Epi acquisition is our 11th since having gone public, and it underscores the fact that critical mass has become increasingly important. Companies continue to see a need for worldwide sales and service support, stronger balance sheets, better financial capabilities, broader product lines — all for better customer service. So even in a downturn we find increased interest in acquisition as part of our growth strategy.

SI: Obviously, then, you approve of the consolidation feeding frenzy that has being going on in our industry.

Braun: Yes. You must realize that our customers in the equipment industry have tended to be larger than their suppliers. They want to have financially stable worldwide suppliers who can take over more of the process development task and speed their time-to-market needs. A future $1B-size Veeco will be a more strategic partner to our customers.

SI: Some have argued that this kind of growth comes at the expense of innovation.

Braun: I don't agree with that. My endorsement of consolidation is not at the expense of innovation. As long as there are venture capitalists there will be entrepreneurial startups that feed that portion of the food chain. Ultimately, they need to become a part of a larger company. Innovation will continue, and the venture capitalists will continue to be rewarded by finding the right corporate strategic partner for those startups.

SI: What are you planning to do to differentiate yourself from your competitors?

Braun: We have always looked for specialty markets and innovative products where we can be No. 1 or No. 2. We aren't in any business where we don't occupy one of those two positions — in most of our products we're No. 1.

SI: What should your customers expect from you over the next two years?

Braun: Strategic partnerships. More and more we see our major customers wanting to have a voice in our development programs, wanting to be able to depend on us not only for tactical on-time delivery and cost of ownership and service issues, but longer term, to ensure that Veeco is funding process and equipment development that is aligned to their own roadmaps. Today is very different from what it was 10 years ago, and there's an ability to have strategic technology reviews with your major customers on a frequent, regular basis to ensure your R&D is aligned to their new product development.

SI: That requires a very close relationship. Do you think that your customers will communicate everything you need to know about their processes, particularly when they consider their IP the value-added factor to their product?

Braun: It varies by industry. The semiconductor device industry is more mature in having used strategic roadmaps for a longer period of time. Everybody understands the benefit of this in terms of time-to-market problems. Data storage and telecommunications are in the process of understanding the value of strategic partnering as a critical part of their own growth.

SI: Your customers are steering you toward the kinds of equipment they want, their requirements grow increasingly stringent — forced by smaller process windows — and, of course, they want everything at a lower price. So you have to do your own R&D, plus offer engineering expertise because they are concentrating more on their core competencies. Do you find this is bringing up your costs and, if so, should the customer in partnership with you help defray these costs?

Braun: (Smiling) This may sound like sacrilege, but I don't believe the focus is entirely on equipment selling price. It's shifted toward cost of ownership and improved throughput and yield. We tend to focus on evolving basic technologies — such as MBE or ion-beam deposition — where often at the very beginning yields are low although the films are superior. We work toward improving the yields so as to offer a better cost of ownership. The selling price is a minor element compared to yield, uptime and the maintainability of the equipment.

SI: What are your thoughts on the fabless model?

Braun: The fabless model is not a major issue for Veeco. Certainly, in data storage and telecommunications, that model doesn't exist. In semiconductors, our principal product is the AFM, which is a very high-end, next-generation, 0.09 µm feature metrology tool, which is needed by both manufacturers and fabs.

SI: Which trends do you believe we ought to be paying more attention to in the semiconductor industry?

Braun: In our case, we're more influenced by the use of semiconductor technology in other information age markets. A third of our business is data storage, and a third of it is telecommunications — so two-thirds of our business is involved with industries that are using semiconductor technology or nanostructure technology in products that aren't computer chips. We see considerable growth in the cross-pollination that occurs as people use semiconductor technology in new markets. In all these markets, there is a focus on nanotechnology. We're half equipment and half metrology, so we are asked to make smaller devices and to measure them.

SI: Just when it seemed that things were looking up after the last downturn, we went into the present one. It appears the frequency is increasing. What should we do as an industry to try to, if not break the cycle, at least ameliorate it?

Braun: The collaboration that's taking place between equipment makers and their customers will help, including sharing strategic roadmaps. We all need to have improved visibility. The difficulty has always been that, when you are this deep in the technology food chain, we tend to be more optimistic about new technologies' adoption rate than is often practical. We should develop better forecasting tools — the adoption of new technology is inevitable, but not necessarily at the speed we've forecasted.

SI: If you could, what would you change in the industry?

Braun: Developing skilled management and labor teams is a major problem. I'd like to see an additional focus on education, more use of university interns to establish a closer relationship with academia and ensure there will be a skilled labor force available to us. There are times when American education seems to lag behind other regions of the world. We would benefit by lobbying for improved standards in the American education system.

SI: How would you describe your management philosophy?

Braun: Open and responsive. I believe we can have an open environment where we challenge our people and they challenge us back. You cannot function without two-way communication. There must be spirited debate — and disagreement — over issues of growth and technology selection. This has helped us in the assimilation of our acquisitions and different corporate cultures.

SI: What should we prepare for, as an industry, within the next two years?

Braun: We're going to have a difficult 2002. The focus now is on the acceleration of new products and the technology that'll form the base for a solid 2003 recovery.

SI: Is there anything you are planning to change at Veeco?

Braun: We must get even closer to the strategic roadmaps that we develop with our customers. We'll continue looking at both acquisition opportunities that bring us new technologies and important internal product development. Our business development activity is ongoing and the short list of possible acquisitions continues to grow, particularly now, when people are more agreeable to discussions of consolidation than they were two years ago.

SI: What will Veeco look like in five years?

Braun: We'll be a $1B to $2B company, we'll still be focused on technology and innovation, we'll be a far more global company, and we'll have a broader product line. We will continue being responsive to our customers.

SI: Any advice to your peers?

Braun: Keep in mind that running a technology company is not a matter of manufacturing breakthroughs; it is often a matter of understanding evolving markets and technologies. For all of us, the problem is the timely selection of technologies and products, and an ability to work closer with customers to time the evolution of those technologies.