Paul McLaughlin, Rudolph Technologies Chairman and CEO

Paul McLaughlin (Source: Rudolph Technologies)

SI: This has been a signature time for you and Rudolph. In November 1999 you came out with your public offering, followed by a secondary stock offering in February 2001. In January 2001 your announced revenue for the fourth quarter of 2000 was $28.8M, a 122% increase over the same period in 1999 and a 16% sequential increase — and you've had your fifth consecutive record quarter. How are you going to top that?

McLaughlin: We believe we have the strategy to do it, based on very simple and fundamental principles. We develop new products where the need is the greatest and where the funding is available. A statistic I often refer to when talking to investors is that, if you look at our orders during the last quarter, 78% of them came from products we didn't offer 18 months earlier. During that period, we've had a series of strong product releases. I believe we've become the copper standard for metrology, made evident by the fact that 16 different manufacturers have purchased our MetaPulse tools for their copper measurements.

Fully two-thirds of our MetaPulse tool sales originate from copper orders — mostly customers getting into the technology. We're at the very early stages of this trend, so I'm very bullish. I believe that's a major reason why we grew over 130% during 2000, 50% faster than the industry's overall growth did. In 1999 we grew nearly four times what the industry did, 90% in 1999 over 1998 — all due to new products, particularly MetaPulse. Metal measurement accounts for about 60% of our business, up from 3% in 1997. The rest comes from our heritage products in transparent film metrology.

SI: Now that the secondary financing is done, are you going to reorganize?

McLaughlin: No, we're not planning any significant changes. The current downturn gives us an opportunity to strengthen Rudolph. We'll do what we did during the last downturn, which was to roll out some new products and add key technical staff — we'll spend heavily on areas we consider as critical to our future.

SI: Which things are those?

McLaughlin: We've identified new product areas through direct interaction with key customers, and by matching these with metrology needs identified in the ITRS Roadmap. SEMICON West will be an ideal place to see what we have new to offer. We've had these products in the works for over 12 months, and we continue developing others to meet what our customers tell us they need.

SI: Are these "new-new" products or upgrades to current lines?

McLaughlin: (Smiling) New-new. There'll be a couple of things that will surprise everybody. Unfortunately, because of the SEC's Fair Disclosure rules I cannot talk about them yet. I can only say they will be multiple lines being released this year.

SI: What else are you doing?

McLaughlin: During the last downturn, we built a new manufacturing facility, which we thought would carry us for a few years — but that may not be the case because we're growing faster than anticipated. In any case, we'll make investments necessary to reinforce our infrastructure. Recently, we substantially expanded our training and simulation centers to offer world-class field service and applications training.

SI: The industry is forecasting negative numbers, and customers are short of money. What makes you certain you're going to grow?

McLaughlin: Nothing is guaranteed, but Rudolph's been around a long time, and we have new tools for the new technologies that the industry is spending money on. I can list at least four customers who, during the last month, have issued press releases announcing that they're cutting capital equipment spending, yet increasing spending in what they consider as "core strategic areas" that will help them with next-generation chips when the market turns. For example, TSMC announced that their Fab 7 will go to 300 mm, and that's where they're going to invest during the downturn. Intel has been publicly talking about their 300 mm copper program, which they believe is critical to their success. ROI during these periods must be balanced by ensuring that you invest so that you can realize improved returns when the market comes back.

SI: So what have you done about it?

McLaughlin: We've decided to strengthen our partnerships with customers with whom we have longstanding relationships — the top 10 device makers — and they've all purchased new product lines. Sixteen different customers have purchased our copper metrology tools, which covers just about everybody doing anything of significance with copper. Our thinking is that customers with the deeper pockets regard these investments as strategic, not tactical, so they look at life differently and say, "OK, I'm a memory provider. My game plan is to shrink to 0.15 µ m, I want to do a 256 Mb and a mid-generation 512 Mb device, so I need to have next-generation capabilities on the shrink. I have problems with my silicides and my metals — who can measure this stuff?" And that's where we come in — we're a process control company providing leading-edge inline metrology tools.

SI: If you are like most equipment vendors, your customers are no longer satisfied with getting a good tool at a reasonable price. They also want the expertise they lack in-house. How do you see this, in view of the fact you have to maintain your own R&D effort and provide it for your customer as well?

McLaughlin: It's difficult and can be expensive. But I don't want to share those costs with the customers. When the technology resides at Rudolph rather than with the customer, we become more important. That's why our involvement at a local level around the world is so important. If we can improve our customer's productivity through increased yields, then we'll get paid indirectly for our R&D efforts through new sales.

SI: How do you support your customer in this area?

McLaughlin: We have a very successful Expert-in-Residence program, which operates on a hub-and-spoke concept. The technology's hub is here, in New Jersey. At the spoke's end, we keep experts at major fabs in locations around the world. Technology goes back and forth between the spoke and the hub, keeping customers abreast of technology advances and process improvements, keeping them comfortable.

SI: Are you planning to change anything in the company — either in your R&D or customer relationships?

McLaughlin: As far as R&D is concerned, we have working relationships with two universities to help leverage our research dollars. We're very close with certain professors at the graduate school level at Brown University. As you probably know, we're the exclusive licensees of Brown University, mainly for the MetaPulse technology. They receive a royalty on that product's sales. During the current downturn, I expect our R&D efforts to increase — both internally and with our associates at Brown.

SI: What are your next growth areas, and how are you planning for this?

McLaughlin: We'll expand, but within our own metrology sandbox. This is, in part, because we want to take advantage of our global brand recognition. We have the largest installed base of ellipsometers in the world, we've been around since 1940, and every fab knows us. There are innumerable opportunities for us in our metrology sandbox. Metrology is growing faster than the overall semiconductor capital equipment industry.

SI: Metrology used to be viewed as a useless, non-value-added expense. More complex processing and concerns for yields have changed this. Correct?

McLaughlin: No question! You can see it happening every day. Continuing shrinks mean chip manufacturers have decreasing process latitude, so processes must be controlled more tightly or suffer costly excursions. What we're seeing as an ongoing trend, at least at leading chipmakers worldwide, is that process control using monitor wafers is no longer acceptable. Monitor wafers have become too expensive — particularly for 300 mm wafers. When you use monitor wafers, it's not just the expense of the wafers, but also the cost of using the process tools to make them — it makes no economic sense. Inline measurement on product wafers is much more cost-effective and represents a major trend that is benefiting us.

SI: Is it more difficult to grow now?

McLaughlin: If you're talking about matching the rate we did before, yes. Nonetheless, we believe we'll be comfortably ahead of the industry's growth rates at least over the next few years.

SI: How are you different from your competitors?

McLaughlin: The difference lies in our technology and how we deliver it. We have a mix-and-match, full fab solution using our MatrixMetrology platform, which allows transparent and opaque metrology using the same automation base. We're the only ones in copper metrology capable of non-destructively measuring up to six metal levels at high speeds on a product wafer.

SI: Some predict the coming of 450 mm as early as five years from now. If monitor wafers are expensive now, they will be even more expensive then. How long do you think you can hang on to your type of technology before someone comes out with a metrology process not covered by your patents?

McLaughlin: We have an extensive IP portfolio, which we zealously protect. Like other equipment manufacturers, we have "intellectual fences" around our core patented technology in ellipsometry and opto-acoustics.

SI: Is your case similar to Polaroid's Edwin Land? He patented everything, including his failures, and years later when Kodak was successful with one of those, he stopped it from marketing its own version of self-developing film.

McLaughlin: Yes, we believe so.

SI: What should users expect from you over the next two years?

McLaughlin: A series of new metrology tools and processes that'll provide solutions to major drivers, some of which have yet to become critical.

SI: The fabless model is taking over manufacturing. How do you view this trend?

McLaughlin: Unlike some, I don't believe it overly concentrates power in the foundries. Rather, I see a segmentation of competencies that is healthy for the industry. By this I mean that many foundries today have world-class, state-of-the-art manufacturing capability and will remain on the leading edge by being current with new technologies like copper and 300 mm. This is their core competency. The foundry business model is successful today and will continue to be so, in my judgment, provided there is no infringement upon the competencies of their customers, which are IP, design excellence and exceptional service to electronic products markets.

SI: Do you think there are too many consolidations and mergers taking place?

McLaughlin: Past experience tells us that consolidations will continue in our industry, and that sometimes it may stifle an interesting technology. However, because of Moore's Law, which requires technology changes at an ever-increasing rate, there will be new companies and new opportunities. So while there might be 15 consolidations in any given period, there is also likely to be 15 new companies started. I would expect that the percent of business that goes to the consolidators and other big players in our industry will peak at 75-85% of total business available. That leaves approximately 20% available to smaller companies and startups. That 20% is a big pot — literally billions.

SI: What industry trends should we be paying closer attention to?

McLaughlin: The trend to increase yield. It involves so many pieces – yield management, wafer management, inventory control and complete fab management. The cost of microprocessing continues to climb exponentially.

SI: What could we do to minimize the industry cycles?

McLaughlin: I don't believe we can do much, and we can blame Moore's Law again. The industry demands twice the transistors and half the cost every 18 months. This recipe spells volatility. When Moore's Law goes away this will change, but I don't see that happening for at least another 20 years. Industry size and segmentation may help mitigate volatility but, in my judgment, it won't go away.

SI: What would you change in the industry?

McLaughlin: If I could change anything, I think I'd like to find a way of solving the people problem. It is very difficult for a company like Rudolph — and I would expect most companies in our business — to hire qualified technical talent. At least in the United States, we're not building a large enough pool of talented semiconductor technologists. Plus, whenever we have a downturn, many say, "I'm not going into that industry!" One of these people, in fact, is my daughter. When she graduated from Georgia Tech, she was offered a great opportunity at a major semiconductor manufacturer but decided to go into research pharmaceuticals because she didn't want to be in a "yo-yo" business like her dad.

SI: Why do you think, then, that the industry is so reluctant to train retired engineers? IEEE statistics indicate there are hundreds of thousands of them. A great majority of them would like to get back into the harness, but the industry seems unwilling to look at that labor pool.

McLaughlin: That is an excellent point! It certainly is a tappable labor pool. I don't have a good answer. In my judgment, there is at least a perception that young technical graduates are more adaptable to the new technologies than their 1960s counterparts. Perhaps our industry could find ways to address that perception.

SI: From your perspective, what would you say are the major unresolved hurdles in the transition to copper?

McLaughlin: The yield issues associated with copper interconnect are largely unresolved. The full benefits of copper will not be realized until low-k materials are adopted, and the jury is still out as to the preferred ones. I see this from a metrology perspective, as early adopters struggle controlling the barrier films, seed copper and electrodeposited copper, as well as the neighboring dielectrics. We have made some very good progress within the CMP module, but there's more work to do, especially on the multilayer film stacks.

SI: What will Rudolph look like in two years?

McLaughlin: Our goal is to become No. 2 in semiconductor metrology.

SI: How would you like to be known?

McLaughlin: As a company that listens, responds and delivers on what we promise in all aspects of our business.

— Alexander E. Braun