Don Mitchell, FSI International Chairman and CEO

Donald S. Mitchell joined FSI International Inc. (Chaska, Minn.) as CEO and president in December 1999. He was named to the board of directors in March 2000, and became chairman of the board in January. He was president of Air Products Electronic Chemicals Inc., a division of Air Products and Chemicals Inc., from its formation in 1998 until December 1999. Mitchell held a variety of executive positions at Schumacher, including president, vice president of operations and vice president of sales and marketing. He is on the board of directors of SEMI and served as 1999/2000 board chairman. FSI International provides automated batch and single-wafer surface conditioning cleaning systems and photoresist processing equipment.

SI: Like everybody else, FSI has faced the results of the downturn: You've had layoffs and your 1QF02 shows a reduction in income. How do things stand now, and what are your expectations for the next year?

Mitchell: During fiscal 2000 we made a number of structural adjustments to the company to ensure that we could react more quickly to the inevitable cycles facing the industry. We created a "lean enterprise" initiative to focus on improving asset use and to streamline our business processes. This influenced positively our margins and earnings in the second half of that year, and the first half of 2001. Then, as we all know, our industry entered a period of unprecedented decline. In response, we've been aggressive in protecting our balance sheet and adjusting our variable costs. Fortunately, we are debt-free and have sufficient cash to weather a protracted downturn. We have maintained our investments in research and development in order to come out of the downturn as a stronger company with a broader product portfolio.

SI: What was the magnitude of your staff reduction?

Don Mitchell (Source: FSI International)

SI: What about the next 12 months?

Mitchell: The 9/11 event postponed the industry recovery by six to nine months. For FSI, our lowest bookings level was in the fourth quarter of last fiscal year. We've had a modest improvement in the first quarter, and again experienced sequential growth in the second fiscal quarter. The vast majority of our order activity is related to copper processing, 0.13 µm technologies and solder bump applications. More than 50% of our orders are for 300 mm equipment, so we believe we are well positioned for the next upturn.

SI: It seems like everyone in the industry is looking ahead to the upturn — what are your short- and long-term strategies?

Mitchell: In our microlithography division the short-term focus is to be fully prepared to take advantage of the upturn by improving our resist processing platform reliability and by shortening the manufacturing, installation and start-up cycle time. The latest-generation products in this system family have demonstrated superior CD control. Customers report that this is contributing to improved yield and tighter distribution within their product performance. Over the long term we'll leverage this technology by further building upon our APC capability, enabling our customers to more intelligently use the CD benefits that our system provides.

In terms of our surface conditioning business, we've been focused on broadening our applications base to cover the entire spectrum of wafer cleaning opportunities. Historically, we've been a front-end-of-line, batch strip, cleaning supplier. We're the market leader in that segment, and have strengthened our position with the introduction of our most recent cleaning platform, which gives users more flexibility running multiple chemistries at different temperatures, yielding faster, more efficient processes. We've also introduced new DI ozone processes that allow users to eliminate sulfuric acid and peroxide mixtures, improve throughput, and reduce process time and waste. This past year we entered the back-end-of-line market segment and introduced environmentally friendly cleaning processes using semi-aqueous solvents. In addition, we've become the tool of choice among key 300 mm customers for solder bump surface conditioning. Recently, we developed a platform that's positioned for copper and dual-damascene processes, where we use cryogenic gases to remove particles from these softer metals and effectively clean porous dielectrics without chemical contamination. These new product applications substantially multiply the size of our served market.

SI: All this development must have helped your growth rate.

Mitchell: It has. During 2001 we were the industry's fastest-growing cleaning company. Our surface conditioning revenue grew 249%, while the entire cleaning sector grew on average about 105%. We moved from 11th place to 4th overall in the world, became No. 1 in market share in Europe and became the largest U.S.-based supplier of surface conditioning equipment. Later this year we will enter the immersion "critical clean" market. This will propel us to become the leading supplier of the most comprehensive line of surface conditioning products in the world.

SI: Customers now expect suppliers not only to provide them with a reliable product at a low price, but also with the expertise they lack in-house. How do you see this, particularly in view of the R&D operation you must maintain to develop new products? Is the time coming when customers will have to help defray these expenses?

Mitchell: No, although a closer collaboration between customer and supplier is essential to enable us to maximize our R&D return. We need to fully understand our customers' challenges, explore alternatives, and distill these into practical solutions — our job is to prioritize our time and resources to deliver the right solutions. During development, we provide our users with Class 1 laboratories, process equipment and skilled engineering personnel. The customer covers the cost of development wafers and the cost of bringing their people to our applications facilities. We have special expertise in these processes that our customers do not — it is, after all, our business. When they recognize this and share their insight with us, we can be very efficient in developing solutions.

SI: What are you planning to change in the company?

Mitchell: We've made several changes in the company leadership over the last couple of years, and I believe we have a very strong management team in place. At this time we're consolidating our sales and service operations into a centralized customer-focused organization. I believe this regional, key account management orientation will provide both commercial and financial leverage. We also continue to focus on our "lean enterprise" initiatives. Over the last two years we've consolidated from seven facilities to two facilities, at a time when our shipments more than doubled. Our productivity has improved to more than $300,000 of sales per employee for the first time in our history. We must continually focus on improving our supply chain management, selectively outsource and streamline business processes with the ultimate goal of shortening cycle times for everything we do. Finally, we need to acquire technologies and businesses that fit into our strategies.

SI: It does appear that you're poised for growth. Do you think growth is getting more difficult?

Mitchell: No, I don't. We see more growth opportunities than ever before. Our technology has enabled our customers to create ever faster and more capable devices that have created a plethora of digital products. These products have become ubiquitous, so our customers will continue to grow. For FSI, the markets we participate in represent in excess of a $3B opportunity. We've set our sights on attaining leadership status in these markets, so I believe we have a tremendous upside.

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

Mitchell: Technology and design — when we design a tool, we design for the highest possible flexibility and productivity. We provide the option of running multiple processes on a single platform. This is done in the smallest footprint possible and with the most APC capability. We believe that our offerings in both divisions are unique in this regard. As we broaden our product portfolio we should see an increase in customer mind-share.

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

Mitchell: We'll continue to develop a more comprehensive global infrastructure to support their needs. It'll include regional applications capability, seamless sales and service support, broader product lines and greater know-how to address their challenges. Our users will get an increased number of served applications and more sophisticated process control capabilities.

SI: In the past, you've referred to "opportunistic" customers and their impact on the industry. Can you elaborate?

Mitchell: Many of our customers are very loyal to us and to our technology. We have very open and candid relationships with them. In return, they have a rational approach to negotiating prices and services. There is another group that is more opportunistic and exclusively focused upon short-term needs. They'll switch suppliers based upon pricing alone, and they don't consider the implications of bankrupting their supply chain. As an industry, we must work together to share and understand one another's needs. We expect our customers to provide us, the suppliers, with rational roadmaps — to identify the technology that is needed and determine when they're going to adopt it. For example, as an industry we've had several false starts with the 300 mm adoption timeline. Customers are benefiting by receiving second- and third-generation 300 mm tools, but the suppliers' financial returns haven't yet materialized. Finally, for every industry segment, we should establish rational design standards. We must discourage every country around the world from establishing unique standards, forcing us into redesign loops to satisfy those requirements — it's not productive for the supplier community or the industry at large.

SI: How would you deal with these "opportunistic" customers?

Mitchell: Through candid discussion and public forums. SEMI has done a good job in establishing dialog between the various constituents within our electronic ecosystem. Frankly, device manufacturers who buy on price alone generally end up with a mix of different sets of equipment in their fab for each technology node. Over the long run, this is considerably more expensive and difficult to operate. These device houses may not survive the long term. There is an element of Darwinism here.

SI: It appears we're nosing up from what's probably the worst downturn our industry has ever experienced, and some are already talking about the next one taking place around mid-2005. What can we do to minimize these cycles?

Mitchell: I'm not sure we can minimize them. There's more sophistication in our forecasting methodology than ever before. Despite this, we cannot seem to predict the future with any degree of accuracy. Therefore, we must evolve our business models to react to this inherent instability. This means we must use shorter cycle times for everything we do. You must keep your organization lean, yet you have to be prepared to commit to R&D through thick and thin, and that requires faith on the part of the management team and investors. You must keep a healthy balance sheet and, finally, you must become a student of supply chain management because it's an essential ingredient for a flexible business model.

SI: What would you change in the industry if you could?

Mitchell: Environment, health and safety. I've been a spokesman for SEMI's Global Care initiative. Over the years, I've listened to our customers' requests for equipment and processes that are more environmentally friendly. We've developed these products and applications, and can now demonstrate both technical superiority and economic advantage. However, the majority of device manufacturers aren't really making the move, and I'd like to know why. They all ask for these solutions, but at the end of the day they are risk-adverse. We need companies to take that step.

SI: What should we prepare for, say, two years from now?

Mitchell: Clearly, 300 mm will finally become a reality. Copper damascene and low-k films will become widely accepted. There'll be a balance of orders from 200 and 300 mm customers. With 200 mm customers upgrading to >0.13 µm processes, we'll see new technologies become mainstream for cleaning. There is an assumption that everything will go single wafer, but I don't believe it. Sophisticated customers have done the analysis and concluded that, for several process steps it makes sense, but productivity combined with process capability determine our customers' success. The optimum fab will have a combination of both batch and single-wafer processes.

SI: What will FSI look like in five years?

Mitchell: We'll be a larger, more international company. Depending on market conditions, our sales will be somewhere between $500M and $1B, and with this will come expanded global infrastructure and capabilities. We'll have more executives deployed throughout the world to guide the strategies, and we will have more support personnel to work with customers in regional application labs like those we have in Asia.