Nanometrics Incorporated (NANO)

Citi 8th Annual US Small/Mid Cap Conference Call

November 16, 2011 11:45 AM ET

Executives

Timothy Stultz – President and CEO

Analysts

Presentation

Timothy Stultz

So, Nanometrics, five points I am going to try to address this morning. The first one is, although in the semiconductor capital equipment market primarily which is a process control metrology provider. Talk a little bit about the drives high-growth business, in particular our flagship product known as optical critical dimension. Where we will talk a little bit about the emerging growth of three dimension devices, three dimension packaging and the market that support those activities. Our efforts to expand our position within the markets through a combination of acquisitions, new product development and key comp penetration, and little bit our financial performance which we’re quite proud of.

So what is Nanometrics, Nanometrics provides products to the semiconductor, data storage, LED, solar markets, these are light-based technology to make measurements in the fabrication of our integrated devices, integrated circuit LED or solar cells. All of our technologies are non-destructive, high-speed and in line metrology components.

We have a variety of products that are used depending on which environment, whether it’s a semiconductor fab or LED fabric, but what’s really importantly is, it’s not about machines themselves but the software analysis and measurement capabilities that are provided by what we call our NanoCD suite which is a combination of server platform and proprietary software.

Our products have all this optical techniques to take advantage of the physic of the way light in our actual surfaces to make these measurements, but it apply to multiple markets, primarily -- our primary market is the semiconductor, but we -- as I mentioned earlier, we are in this high-growth utility solar, data storage and the packaging area, and for us it really doesn’t matter what the device does, because what we are measuring are the features and structures that play direct role in the performance of the devices, so whether it’s a light emitting dial or it is a solar cell, or some integrated circuit, they all make features, they all make devices that have structured properties that need to be measure to control in order to get the desired outcome and that’s why our tools come into play.

And the common theme to all of our customers is that we -- they use our tools to develop the next generation applications, the smaller features or smaller devices to improve the yields by controlling the process variations and therefore reducing their manufacturing costs, the return on investment for products like in process controller area are very high and as a consequence more the capital spending in general goes to process control than in process tools as time design.

So this picture is a little schematic to show you, a little bit of what we measure and this is an example of 6-Transistor SRAM Cell, and you see the building device software, the layer after layer that comes in to that make every device and we – they use our tools to make these measurements along each of process steps, so in this case it maybe thickness of the film or width of the particular area, then they build another, might be the dimension here in the height, then they will measure the length and depth and pitch.

And in every one of our measurements, the use it through a sequence of measurements but then we also collectively measure what’s happen to the layers below, so we don’t measure just a surface, we measure down interim material and to make sure that the properties of the previous layer haven’t been disturb by the subsequent process steps.

So what drives our business, well, the first one is, most law is shrinking the device, as they make the device smaller this particularly graph shows, technology more than semiconductor going from 130 nanometer as the small feature down to 22 nanometer, which is one of most advance nodes at this time and actually working on nodes below that in the one X 18 and 14.

To make these devices smaller they also have to add layers in order to make the structures that they want, every new layer is the new measurement opportunity. In addition as they make the devices smaller the tolerance for variation is reduced and so it right they need to make additional measurement they have excel.

So as a result process control measurements have a key metric relationships to -- for the advancement of these devices, as they scale down, which is represented by the orange line, as they scale down on the device structure, they need more measurements and more steps and therefore more tools, so that’s best kind of a underlying driver with high process control. Within our technology space, our flagship product is known as optical critical dimension, it’s an optical technique for making these measurements in a non-destructive way.

And one of the key things that’s happening is that there have been tool, critical dimension measurement have been made since they have been -- all these transistors, but traditional workforce, already now exceed and one of them is the Scanning Electron Microscopy. The Scanning Electron Microscopy has been the industry work force for making critical dimensions. But that electron beam technology in the technology world and OCD is now displacing it, so in upper right hand corner we are showing the relative displacement of CD-SEM by OCD as is market in terms of market penetration.

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