Japanese Print Player to Acquire U.S. Maskmaker

If there was before, there will no longer be any question about Japan's domination of the photomask market for semiconductor manufacturing. Toppan Printing Co. Ltd. (Tokyo) recently announced its plans to acquire DuPont Photomasks Inc. (DPI, Round Rock, Texas), making it by far the market leader.

The No. 4 company in the market has entered into an agreement in which it will acquire all outstanding shares of the No. 3 company. DPI shareholders will receive $27 in cash per share for the deal, making the equity value of the transaction ~$650M (~¥71B) on a diluted basis. DPI will become a wholly owned subsidiary of Toppan to be named Toppan Photomasks Inc., and will remain headquartered in Round Rock. Toppan's senior managing director, Akihiro Nagata, will become chairman of Toppan Photomasks. DPI's current chairman and CEO, Marshall Turner, will remain CEO.

Last year's market standings showed that the world leader of the photomask merchant market was Dai Nippon Printing (DNP, Tokyo) with 28.5%, followed by Photronics (Brookfield, Conn.) with 19.8%, DPI with 18.4% and Toppan with 18.3%, according to The Information Network (New Tripoli, Pa.). At these levels, a combined DPI and Toppan would command 36.7% of the market, well ahead of the current market leader. The combined company will produce photomasks in eight different countries, Turner noted in a conference call.

Despite the already few number of players, the merchant photomask industry has been a tough one in recent years, maskmakers squeezed on price as chipmakers cry foul amid skyrocketing prices for mask sets. With phase shifting, optical proximity correction (OPC) and other resolution enhancement techniques greatly increasing the complexity of the masks being made, and with yield being hit by the increasing criticality of defects, maskmakers are faced with tremendous pricing pressure. Although unit shipments of photomasks increased 10% in 2003, revenues dropped by 4.1% to $1.8B, according to a recent report from The Information Network. It's no surprise, then, that they may be increasingly compelled to combine their efforts and resources.

Like DNP, Toppan is a large printing corporation, with business in eight diverse printing fields. Founded in 1900, its most recent fiscal year saw revenues of ¥1.3 trillion (~$11.8B), with the electronics division (including photomasks) accounting for ~20% of the total. DPI, a former subsidiary of DuPont, was founded in 1985 and reported revenues of $354M for fiscal 2004. According to a separate release, DPI saw a return to positive operating income in the first quarter of fiscal 2005, ended Sept. 30. Revenue for the quarter was $94.8M, a 15% increase over last year's first-quarter revenue of $82.4M. Operating income for the quarter was $0.9M compared with $13.9M in last year's first quarter.

"Photomasks are a core business for Toppan and are positioned as a key engine for our future growth," said Naoki Adachi, president and CEO of Toppan, in a statement. "Through this acquisition, Toppan is moving to meet an evolving need among semiconductor manufacturers for comprehensive photomask supply based on an advanced technology development capability, through a global network."

The boards of directors of both companies have approved the acquisition agreement. The transaction, which is subject to regulatory and DPI shareholder approvals, is expected to close in early 2005.

For additional information on lithography, go to www.semiconductor.net/lithography