Robert Therrien, President and CEO, Brooks Automation

Robert J. Therrien's career began with 14 years' experience in engineering project management at North American Rockwell, General Precision Laboratories and MIT Draper Laboratory in the avionics and aerospace industries. For the past 28 years he has served as president of several small high-technology companies. He co-founded Ditran Corp., a shaft angle encoder maker acquired by Litton Industries; and Accutest Corp., a semiconductor test equipment company where he served as chairman and president for 12 years before it was acquired by Schlumberger. Therrien engineered the leveraged buyout of Brooks Automation in 1989 and more recently the acquisition of PRI Automation, a supplier of factory automation systems, software and services. Brooks Automation is a leading global supplier of factory and tool automation for the semiconductor industry.

SI: Brooks' acquisition of PRI Automation has caught the entire industry's attention. What are your plans for the merger, and what will the company look like?

Therrien: There are two drivers suggesting that one needs scale, size and critical mass. The first is the growing trend towards outsourcing, which is a catalyst for size, and the second is the competitive landscape, which puts a premium on size. On the latter, I am not referring to our competitors, but to our customers. For the most part, customers now want to do business with as few suppliers as possible — this means more complete, more capable, more integrated solutions that are pre-tested and pre-integrated, which can be deployed with lower risk and lower cost. Customers want to know that their suppliers have the additional expertise that they need, since they're concentrating on their core competencies. The suppliers also need to have the financial strength to take on large projects. Both these drivers underscore the fact that size really does matter. Today, automation is a science and a discipline unto itself, and you really need to specialize functionally.

SI: Obviously, this isn't a minor merger. How are you coping with differences in corporate culture?

	Robert Therrien (Source: Brooks Automation)

SI: With 20/20 hindsight, would you have done anything differently in the acquisition and merger?

Therrien: (Smiling) I suppose we could have done it at a different point in the industry cycle. However, we all know from experience that, during the upcycle, everybody's preoccupied with satisfying the customer, delivering product on time on a repeatable basis — making money. So for us this actually is a good time to focus on the restructuring and integration of the two companies. Yes, we are in a down market but, as I said, this gives us more time to think and more resources with which to execute in terms of positioning and repositioning the combined, new company in a much better way for the next investment cycle.

SI: Even before the events of Sept. 11, neither the industry nor the economy were particularly healthy, and now even forecasters seem to be extremely conservative. What's your view of the situation?

Therrien: We believe we have the best sustainable model in our industry. When you analyze the demand and supply equation in our industry, we have been less affected in the downturn. We've had nine consecutive quarters of growth — both in revenues and orders — going back to Q498, the time of the last downturn. This doesn't mean, however, that in this environment all companies, including Brooks, aren't impacted. In the summer of 1998, we developed what we call our focused diversification strategy, which we call "The Six Bs." We want a broader product base, a broader customer base, a broader geographic coverage, a better balance between end user and OEM revenues, a better balance between hardware and software, and a better balance of modules and systems sales, because the market is tiered.

Hardware/software/module/systems sales go to the heart of our culture, which is systems-oriented, in delivering solutions. That's a very different business model than selling components — you're not selling specs, you're selling customer satisfaction. We needed the strong domain expertise in both hardware and software. The value proposition is in their integration. That's what drove our initial entry into software, not just to get a better balance between end user and OEM, and hardware and software, but to form the platform to provide integrated solutions. Our strategy has paid dividends in the downturn. However, we're anticipating a grim industry for several more quarters. The good news is that cycles have two halves.

SI: Now that the acquisition has been targeted to close in first-quarter 2002, what are your short- and long-term plans and strategies — anything that you'll be doing differently than before?

Therrien: Short term, we have to focus on restructuring for synergies and organizing around our customers. We want all this to result in the best company, people, products and processes. Certainly, right behind that will be the need to further evolve our technology/product architecture and design to deliver integrated solutions for factory automation.

SI: Once the merger is finalized, will there be much job duplication?

Therrien : We expect about $20M in synergies. Undoubtedly, with stand-alone companies such as ours there is some duplication, and some restructuring will be required. However, it was amazing to us that during calendar year 2000, the two companies had combined sales of $727M, of which less than $40M was overlap. PRI is strong in OEM atmospheric automation and in automated material handling for wafer and reticle management. Brooks is strong in vacuum automation and factory software, so the companies are far more complementary than competitive. There'll be some changes in the organizational approach to managing the business, and departments will be consolidated and redundancies eliminated. Where appropriate, there'll be centralization of facilities.

SI: Once the dust settles, where do you see your next growth areas and how are you preparing for them?

Therrien: Our biggest opportunity lies in the transition to becoming a partner, as opposed to a transaction-based supplier, in our customer relationships. This is especially true on the factory side of the business and, where we can, on the OEM side. Post-acquisition, we'll have a broad and deep product line and the hardware and software capabilities to not only start with the factory simulation and layout, but go all the way to the continued maintenance of the automation systems — hardware and software — in the fab. Our strategy is simple: to never leave the customer.

SI: Is growth getting more difficult?

Therrien: The industry cycles certainly don't help. After being in the industry for so many years, I've concluded that its cyclicality is both natural and inevitable. I don't see this downturn as a sign of a major storm moving in. What does surprise me are the excursion's absolute numbers, both on the upside and the downside. There is no confusion that the time between 1999 to 2000 marked a period of excesses, and that overinvestment led to overcapacity. The revelation is that, by everyone's accounts, we were surprised by the rapid fall in market demand. There was excess capacity, inventory problems, end markets in terms of unit volume, dollar volume, everything then going down in every sector of electronics, including the invincible telecom sector, computers, Internet infrastructure, then the automotive sales. An adjustment was long overdue and shouldn't have surprised anyone.

Don't get me wrong. I realize that this downturn is creating more hardships and difficulties for companies because the challenge is how deep must you cut back to balance the operation expenses with current revenue levels. A good example would be system integration services. This is very important for us — deploying our product and being on-site to support our customers. For that you need talent that's hard to come by, is very expensive, and isn't scalable. Those are the hard decisions that must be made in down markets. We have been fortunate in that Brooks is unusually diversified for a focused automation company, and that has helped us to retain a large percentage of the workforce.

SI: What do you think might be done to reduce the severity of these cycles?

Therrien: You have to see further consolidation and concentration in the industry. All you can do at the end of the day in business is satisfy your customer; you can't tell him that you are unwilling to ramp capacity because you sense a downturn. You must create partnerships and stronger relationships with your customers, who have a better insight into upstream business. This should reduce some of the capacity duplication in good times, which can lead to overproduction. The only challenge for companies such as ours would be to make sure we remain a best-in-class supplier with the scale and efficiencies needed to compete in a very price-based industry. Often, technology is nothing more than a cost advantage.

SI: So you view the increasingly large number of consolidations taking place in the industry as a positive development — something that may lead to a reduction in the severity of these cycles?

Therrien: Yes, I do. I think there are too many hounds chasing too few rabbits in some markets. On a sustainable, profitable basis, this situation cannot be supported or lead to a healthy supply chain.

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

Therrien: They should expect us to remain focused on automation, to move toward developing more and deeper partnership relationships with them, and to continue the move to more pre-integrated, pre-tested solutions. We'll certainly continue working to obtain the right architecture and the right design for optimizing both tool and factory performances. We now have the capacity to offer a multidisciplinary approach to products and services. This is particularly important with the introduction of 300 mm technology because, regardless of what some say, it'll involve a very steep learning curve.

SI: Are there any industry trends that we ought to be paying more attention to?

Therrien: Product lifecycles are a concern. In another year or so, we could be looking at, for example, cell phones with a six-month product lifecycle. We need to pay very close attention to the evolving markets. We know, for example, that the next great opportunity will come when the PC is displaced by a tablet-like product that you can write on. This suggests low-powered devices will be needed, as well as smaller geometries and new materials such as copper. New, more efficient power supplies will be needed. Changes in the technology will not cease — trends toward more functionality and integration will continue.

SI: What will Brooks Automation look like five years from now?

Therrien: I'd be extremely disappointed if we weren't well over $1.5B in revenues. We think we can achieve this kind of growth by staying focused on our strengths. Our track record proves this — we've grown at a premium to the market. This year we'll emerge as the largest automation company in the world, and expect to capture a larger market share over any year in our history. We'll end this calendar year with certainly no less than $336M, and we'll pick up six percentage points this calendar year alone in market share gains. The combined companies — Brooks and PRI — will be strong in learning cycles in the automation space, and will be investing over $100M in R&D this year.