Dave Ring, PHI-Evans President and CEO

Dave Ring has been president and CEO of PHI-Evans (Eden Prairie, Minn.) since November 2001. He previously was executive vice president of the customer operations group at LTX Corp., a semiconductor test equipment supplier. Before that, Ring was president of the Microelectronics Group at Entegris, a wafer-handling products provider. He has a bachelor's degree from the University of Minnesota and an M.B.A. from Lehigh University. PHI-Evans, a provider of integrated surface analysis and materials characterization solutions, is comprised of two business units: Physical Electronics (PHI), a supplier of materials analysis instruments; and Evans Analytical Group (Evans), a materials characterization laboratory.

SI: You've coupled the instrument and services businesses of PHI and Evans much more closely. What's the background on this?

Dave Ring (Source: PHI-Evans)

SI: How?

Ring: Physical Electronics has been a leader in surface analysis equipment — XPS or ESCA, SIMS, TOF-SIMS — technologies developed to analyze surfaces. We're a company rich with technical talent: Ph.D.s who understand and apply these techniques to solve customer problems. A couple of things have changed in the surface analysis market. One is that, in the past, much of what we sold was bought by the old Eastern Bloc or by defense contractors — that market has substantially declined. We also sold much of our output to Japan, and they've been in a decade-plus recession. The final development has been the huge productivity push in the United States, with tools that go into production lines getting funded, while those going to yield analysis or central labs falling under the "discretionary buy" label. Coupled to this is the fact that surface analysis technology is approaching maturity. It's older technology, and lately there haven't been that many technical breakthroughs. All these factors put downward pressure on the ability to grow in that specialized market and, like everything else in our industry, it's been hard hit by the downturn.

Then there's Evans, which is very good at providing an outsource solution to its customers. Most of our customers have their own analytical labs, but often use Evans because they know we process many more samples. We're going to have more data points, a better sense of which technique ought to be used for what. Thus, we provide confidence, security, repeatability and reproducibility in our test protocols, and our technology base is wider than that of any internal lab. In the past, Evans has been very transactional. What I mean by that is that a customer would come in with a problem, we analyze and process it, and provide our analytical report and recommendations and move on to the next analysis.

Something that we discovered when we bought PHI and Evans together was that, when you couple an equipment company with a services company, there is a good value proposition and much more is going the way of services. When the two organizations started working together, we recognized trends in technology that pointed to emerging problems in the semiconductor industry. Evans sees those problems and develops protocols to enable the customer to solve them. We noticed that one thing semiconductor customers like as they go through their device development stage is knowing that the techniques they use to analyze their problems will provide a potential solution at the end. Thus, when they get to production, they don't have to reinvent a production analysis technique to solve the problem that they addressed in their development phase. They've decided it's best to focus on their core competencies, and leave these matters to those for whom these are their core competencies. Conversely, they know that when they address problems with Evans, a metrology solution awaits at the other end.

SI: And you couldn't offer this?

Ring: If the solution included a hardware development component, Evans alone couldn't. We'd say, "Well, XYZ Co. is going to have to address that for you," and the customer would be forced to go to some equipment company for that solution. Since bringing these organizations together, we observe what is going on in the market and can develop the production capability that the customer needs. It's now a different market for us. Up-front you have Ph.D.s and scientists involved; when you get to production you want to have fab-ready equipment that can be run easily by technicians and operators. So by the time the tool gets developed, you want it to be easy to use, and have software and built-in algorithms that will enable a technician to do a yes/no procedure to determine whether the spec is being met.

SI: So you're focusing on process control?

Ring: That's one of our initiatives. We're focusing on minimizing time-to-market issues as you go from R&D, up the ramp and into the chip production phase. We're a small company, so we have the luxury of not having to be broader than this. We can be very nimble and targeted in our approach, deliver value around whatever problem the customer has, and build a very solid company out of it.

SI: Are you having difficulties leveraging the capabilities of the two companies?

Ring: Not really, but we're only in the early stages yet. We saw the marketplace opportunity, and are now in the process of developing a metrology capability around it. There are the usual challenges to this kind of a situation — the sense of people leaving behind what they know and the strong legacy of the organization for which they are proud to work. They signed up to work for a company that does such-and-such, and now there's a new business model asking them to do things differently to support a different objective, a different vision for the business. That's difficult, and we're just beginning the process of rolling this out. It bears emphasizing we have two businesses that are successful entities each in its own right, and we're confident that we will be able to develop this new model without disrupting the core business in each group.

SI: Has there been much function integration?

Ring: Because the two businesses are so different — one's a services business and the other an equipment company — we really don't have much overlap of functions. Our concept revolves more around the creation of a new business model involving a leveraged combination of both analytical services and metrology equipment. For example, consider the product development process. We're in the early stages of developing a formal process where a market scan is done as it relates to metrology required for next-generation materials such as nitrided gate oxides, as well as more advanced medium-k and high-k dielectrics.

SI: It has shaken the dust off, hasn't it?

Ring: (Laughing) Absolutely! At this stage of the game, all the baggage comes out. You're asking people to move from their comfort zone to consider new ways of doing business — challenging themselves to reconsider the basic models that drive their business and decision-making. For anyone who has gone through an extensive merger experience, you realize that there's a lot of fear, emotion and concern, and that you must be able to lead people through this change process.

SI: What will PHI-Evans look like when the dust settles?

Ring: We'll look like a nimble, focused provider of characterization and metrology solutions for the industry. Our goal is to allow semiconductor manufacturers to implement nanotechnology production techniques — anything under 100 nm. If we execute our vision, we'll be a company that plays in the space of nanotechnology production, and helps semiconductor manufacturers make their transition from development to full production faster through their use of our equipment and services.

SI: What are some of your short- and long-range plans and strategies?

Ring: Short range, it's to weather the present storm the industry is going through — it's testing all of us. We must continue to manage and keep the company moving along, serve and support customers, and continue product development. We have a very aggressive product development program in place. Long term, it's the creation of a new company that leverages both companies' capabilities — we don't have to abandon the legacy of either. Evans will always be recognized for what it does; there's no need to change that. Downstream, I'd like to convince loyal Physical Electronics and Evans customers that they haven't lost anything and, in fact, have gained a lot as they find themselves working with this new company that offers next-generation metrology equipment and has analytical service elements doing leading-edge technology work. I expect to acquire technologies that we don't have and port them into our products.

SI: Will you be doing all of this mostly through organic growth or acquisitions?

Ring: We'll do what needs to be done first — which is to focus organically and not get ahead of ourselves. Two or three years from now, there will be other opportunities. There are many small, undercapitalized companies that have great technologies but lack the platform to put it on and the critical mass in the marketplace.

SI: Obviously, many of these changes have been prompted by changes in what your customer base expects of you. Can you elaborate?

Ring: Our customer base is asking us to profile and characterize what no one else can do. They turn to us because they don't have a solution. For example, over the last two years we've been doing precise characterization work on advanced gate oxides. We're doing this because no one else has the capability or knowledge to do it. We have people coming to us because their current techniques no longer work, and they know they're not getting reliable results.

SI: With the integration of the two companies, this is the time in which to institute changes without disruptions. Are there any major changes under consideration?

Ring: Yes there are. We're going to go through the process of raising capital. At present, we've done those things we think will get us through this period, which isn't the right time to be raising money. However, we'll position ourselves to raise money and accelerate our growth. We estimate that every new major tool development we do will probably cost in the neighborhood of $20M. As we look at successive generations of technology, we'll need the capital. We'll also likely shift the epicenter of the company from Eden Prairie to California, to be more in the center of the action. We have some 120 employees there already, but I believe that number will increase.

SI: When do you expect the integration of both companies to be finalized?

Ring: Around March or May 2003. It won't take long because we're a small company. There'll be some restructuring to bring the organization in line with the reality of the new business model. There will be some repositioning or reporting and the physical movement of people. We'll then begin rolling on the brand awareness side, letting people know that here we are and this is what we've become.

SI: This is a difficult time to do what you are doing. How has the downturn affected you?

Ring: Our revenues are not off by as much as one would think. If you look at the company as a whole — Evans and PHI — we're off 17% in revenues from last year, which is a minor drop given the downturn's catastrophic magnitude. We've just completed our first quarter — our fiscal year ends in April — and we're still seeing revenues trending downward. We'll probably be off, from a companywide perspective, by another 15% during this fiscal year. We're disappointed, but it could be worse.

SI: How are you planning for your next growth areas?

Ring: What's most important for us right now is building the right management team. Given our historic business, being a surface analysis company, we haven't had people in the company that have semiconductor OEM experience. We have people who have been in the surface analysis equipment instrumentation business. Clearly, our next priority is complementing this team with people who have worked in that industry, understand it, and know what to do. We're also developing the processes that will allow us to leverage the synergies between the two companies, and building up a product line that we'll begin announcing to the market — using a common platform we can port different metrologies onto to do the critical measurements for customers as they move from development into production.

SI: Do you think growth is getting more difficult?

Ring: It certainly seems that way during a downturn. However, look at what the last upcycle was in terms of the growth numbers that it produced. Metrology is still growing above the industry average. In our core market right now the growth isn't there, so we're moving to where our technology is most needed: the semiconductor industry.

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

Ring: The fact that we're going to focus on newer technologies through a different mechanism in the business is one thing. We're building up our product portfolio based on services that we are providing now. Everything we're doing has been proven in the field. We're turning our services into products — we don't see anyone else doing that.

SI: Metrology is certainly no longer seen as a non-value-added factor. However, the cost of doing and buying it are sharply rising. What's your perspective on this?

Ring: Metrology, once simply seen as an insurance policy, is now recognized as a key tool in reducing cycle times and accelerating product yield ramps. People are readily prepared to pay for it because, in the end, it saves them money and enhances bottom-line results. The cost of forgoing metrology isn't an option. There can be no process control without it, and processes increasingly need more control.

SI: How does Asia figure in your plans?

Ring: Asia is very important for us. Some of the strategies we're currently working on are directed at shoring up our distribution there, getting more of our development work focused on what is going on in that market. We've been very active in Japan for some 20 years, but outside of Japan we haven't been nearly as active or engaged as we need to be — this'll change.

SI: Looking at China?

Ring: Absolutely! We put China and Taiwan together in that we see Taiwan as the gateway into China. China will be the manufacturing area, with Taiwan more of an IP center. We're looking for companies we can work with over there, that have expertise in both markets.

SI: Are there any industry trends we should be paying attention to?

Ring: The overall trend leads to more moderate growth in the electronics sector. I don't see the industry's cyclicality vanishing. I think it's going to be greater than it was before. You must structure your business to enable you to respond to this. The shift toward the foundry model and toward Asia-Pacific will become very critical for anyone wanting to be a player in our industry. The move to new materials and device structures will create new opportunities. We see this as important.

SI: You mentioned that the cycles would worsen. Why is that?

Ring: While demand for electronic devices grows fairly consistently, supply fluctuates wildly. With 300 mm fabs, this supply is going to come out in bigger chunks. Additionally, that capacity is coming on-line faster than ever before. So now, not only does more supply come on to the market at the same time, but it comes to market faster as well, and you have many companies competing for the same business. These elements combine to produce wilder up-and-down cycles — not pretty, but it's the nature of the business.

SI: What will PHI-Evans look like in 2007?

Ring: We'll be a highly regarded specialized metrology solutions provider, respected for the solutions that we bring to the market. We'll have major new product introductions every 12 to 18 months, which will be critical for our customers to keep their manufacturing operations moving.