Applied Lands Sweetheart Deal

NEW YORK (TheStreet) -- Over the past 25 years of analyzing the semiconductor equipment space, I have been often critical of Applied Materials(AMAT Quote).

But in my opinion, Applied Materials grossly underpaid for the purchase of its purchase of Semitool(SMTL Quote)for $364 million.

First of all, Semitool recorded semiconductor equipment revenues of $237 million in fiscal 2008-ended Sept. 30, 2008. Sure they will be down in 2009, but so will every other semiconductor equipment manufacturer (I noted in my July 31 article on TheStreet.com that the overall semiconductor equipment market will drop 46% in 2009).

Semitool competes strongly in the copper-interconnect market. These are the fine traces of lines that connect all the transistors in an integrated circuit and are in the range of 65 nanometers wide. By way of comparison, a human hair is 65,000 nanometers wide!

In December 1995, Semitool recognized the first sale of its copper electrodeposition (ECD) tool and owned the market through 1999 until Novellus(NVLS Quote), Applied Materials, EJA, Ebara, and CuTek saw an opportunity to compete.

Semitool maintained a leadership role partly because its tools were selling for $1.7 million in 1999 compared to $3 million for one sold by Novellus. Today, Semitool's Raider ECD tool sells for up to $4.4 million.

In 2008, according to my statistics, Novellus had $92 million in ECD sales, Semitool $21 million, and Applied Materials $3 million. For 2009 Semitool is gaining share because of customers such as AMD(AMD Quote)/GlobalFoundries and Micron(MU Quote)/Nanya/Inotera and the movement by DRAM manufacturers from aluminum interconnects to copper.