John Bertucci, MKS Instruments Chairman and CEO

John Bertucci (Source: MKS Instruments)

John Bertucci has served as chairman and CEO of MKS Instruments Inc. (Wilmington, Mass.) since November 1995. From 1970 to 1974, he was vice president and general manager of the company, and was named president in 1974. He sits on the board of trustees of Carnegie Mellon University, the board of the Associated Industries of Massachusetts (AIM), and is vice chairman of the executive board of the Massachusetts High Technology Council. He received an M.S. in industrial administration and a B.S. in metallurgy and materials science from Carnegie Institute of Technology. MKS Instruments provides instruments, components, subsystems and process control solutions that measure, control, power and monitor critical parameters of semiconductor and other advanced manufacturing processes.

SI: Everyone seems in agreement that the upturn is finally here, orders are coming in and financial reports are looking better. How do you view this?

Bertucci: We reported a 31% sequential revenue increase in the first quarter of 2004 on top of a 25% revenue increase in the fourth quarter over the third quarter. We also returned to profitability in the fourth quarter of 2003. We've been seeing an increase in orders beginning back in late August and September 2003, which we believe reflects increased OEM order demand, as well as their need to fill their pipeline. Because we supply to the OEMs like Applied Materials, Novellus, Lam and Tokyo Electron, we're subject to their production rates. Let's say that their production rate was 100 units per quarter, and then it increases to 150. They don't just begin ordering parts now to go from 100 to 150. They also have to fill their work-in-progress pipeline, because it may take them three months to build a tool. So they must order quantities that are in addition to just a simple increase in their production rate. Our growth of 25% and then 31% — or overall rate of 63% — over two quarters was more than the OEMs had been forecasting they would do. This is because of this pipeline-filling effect. As they stabilize their production rates, our rates normalize. This is what we're seeing at present. Our expected Q2 volume is now consistent with those of the OEMs, in the range of 10-15% sequential growth.

SI: Based on this, what are your expectations for the balance of the year?

Bertucci: Based on industry estimates, we expect to continue to see year-over-year growth in each quarter this year.

SI: Now that the economy is looking better, are you planning any changes?

Bertucci: We went public in 1999, and experienced 35% growth in 1999 and 80% in 2000. When the downturn came, we saw it as an opportunity to make technology acquisitions that assisted our strategy to surround the process chamber with our instruments and components. That helped us to develop integrated products, where we combined several product technologies into subsystems. Some of our acquisitions were in an area where we hadn't played before — information technology. Four of the 11 companies that we acquired were small companies involved in generating and processing information from sensors and actuators around the process chamber to provide this information in a structured way to the fab systems. During the downturn, we positioned MKS for the upturn and the changeover to 300 mm. Now we're executing our strategy.

SI: Will this result in company changes?

Bertucci: We've already made a number of changes as we integrated these acquisitions. We've integrated sales and manufacturing capabilities and facilities into one global structure. We're focusing on the development of integrated products by leveraging the technologies and the expertise in different product groups. We have teams from different groups working together to produce new products in the areas of power supplies and plasma processing. In the information technology area, we're working on leveraging digital networking technology across our product groups. This approach also leverages our R&D dollars.

SI: Have your customers' requirements changed as a result of the downturn?

Bertucci: Our semiconductor customers are equipment and flat-panel display OEMs, and end users. In segmenting out between OEMs and end users, the end users are certainly looking for equipment productivity, ROI and improving yields. This is because the number of process steps has increased as device shrinks have progressed. More process steps and larger 300 mm wafers have made the wafer more valuable than ever. The point is they're more willing to spend money for monitoring products. For instance, we make residual gas analyzers and FTIR devices that look at the gases in the process chamber — looking for the fingerprint of something that can go wrong, such as a leak, remains of photoresist after cleaning, etc. These systems are not inexpensive, but there is more willingness to spend for process monitoring and control instrumentation.

SI: Are your customers asking for more expertise from you than they did before the downturn?

Bertucci: Yes. Through the acquisition and development of technologies we carried out during the downturn, we have strengthened our expertise in plasma and vacuum technologies, process control instrumentation and information technology. Now we have a broad technology portfolio, and we're being asked to design subsystems. Often we're required to design to a function or a specification, rather than to just duplicate what the OEM has done. They tell us what they want us to design and how much they are willing to pay, and we then make a determination as to whether it is feasible. There has been outsourcing in some other areas as well. For example, OEMs no longer make their own control valves; they leave it to us. The internal competition we had with OEMs has pretty much disappeared.

SI: Will most of your growth be organic or through acquisitions?

Bertucci: We're considering both. If a product line or technology that fits into our strategy becomes available, we'll look into it. Right now, there are few areas left we'd like to be in. If we see something that would add value, we'd be interested.

SI: Is growth getting more difficult to do?

Bertucci: For us, it has become easier — the large get larger and the successful get more successful. We've doubled our served market through growth and acquisitions, so we always see opportunities. As a public company, we're better equipped to cope with downturns and upturns.

SI: Like almost everyone else, you must be interested in Asia, specifically China.

Bertucci: Certainly. We have a manufacturing plant in China, as well as sales and service resources. We've had a strong presence in Japan since 1983. We also have subsidiaries in South Korea, Singapore and Taiwan. About 30% of our direct sales are to Japan and the rest of Asia. Of course, since our OEMs also sell into Asia by end use, we believe the ratio is 50/50, U.S. and export.

SI: Does the IP situation in China concern you?

Bertucci: Yes. We think it's getting better, but it looks like a slow process. Our strategy is to retain design centers in the U.S. The manufacturing that we're doing there is done in our own China subsidiary; we're not transferring technology. Our efforts in low-cost countries, including China, are more focused on materials procurement. Assembly is not the major driver of our costs; materials are.

SI: Any trends we should pay attention to?

Bertucci: Unsurprisingly, the trend toward Asia will continue. We must prepare to have the center of our business shift in that direction. Some companies are not ready for this, and they'd better start thinking about and gearing up for it as well.

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

Bertucci: The industry sometimes is too conservative in its manufacturing. We don't use the things we make. Consider microprocessors, for example. Their functionality doubles, in accordance with Moore's Law, roughly once every 18 months, yet many platforms do not reflect this. I think that a greater use of the technology we generate is something that must come about.