Nanometrics Incorporated (NANO) Analyst Day March 15, 2012 10:00 am ET Executives Timothy J. Stultz – President, Chief Executive Officer and Director Ronald Kisling – Chief Financial Officer Kevin Heidrich – Senior Director –New Business Development William McGahan– Director of OCD Technology Lars Markwort – Chief Executive Officer – NANDA Technologies Analysts Srini Sundararajan – Oppenheimer Presentation Timothy J. Stultz
So we’re going to talk about the OCD, we’re going to give some nice information in that, on our new acquisition of NANDA with the SPARK platform and inspection and we’re also going to talk about wafer-scale packaging.One part of the agenda is with the [agenda] setup so that there will be a brief opportunity for some direct Q&A technical ones on the presentation right after each presentation, but afterwards my colleagues will be join me at the table and we’ll actually do a Q&A session where we can answer the more general ones. So unless you have a very specific question about a slide that you want to answer at that moment I encourage you to use the panel session to dive a little more deeply into the topics of interests. So I am going to address three things here. One is the secular growth driven by technology changes and industry demands which plays a major role our business opportunity, going to talk about how we’re entering new markets through our R&D investments as well as the acquisitions and a little bit about our success in gaining market share through competitive wins, which is clearly a key metric that we measure ourselves by. So, I’ll start with the first one, which I'd say secular growth and technology changes. And we’ll talk about the drivers of the industry, most of you here are very familiar with the ongoing shrinks in the technology and the shrinks ultimately drive more mass levels of processing more mass levels and more mass levels in the end turnout to be more process steps, and more process steps in the end turnout to be more wafers being measured and in the end what really matters to us is that, if you have more process steps and you have more wafers being measured and you make more measurements you need more tools.
And so the bottom line is that the growth in demand for process control type tools and particularly metrology inspection is increasing at a rate much greater than the number of steps that are fundamentals to the shrinks taking place. So we get a geometric relationship between the demand for our tool and the advances of technology.The second one that we’ve talked about is the displacement of other traditional technologies by OCD, OCD being non-destructive, high speed and giving multi-dimensions. It is not only displacing CD-SEM, but some other technologies and we will have a nice presentation, talking in more depth about where the OCD is positioned, what the OCD does differently and why it has superior performance capabilities over other technologies. The third area is the three dimensional aspect of devices and so most of you are familiar with the FinFET device that was announced by Intel a while back, no other companies are also going into these three-dimensional structures. The key point here is that, we’re no longer will deliver plainer features. We’re looking at vertical features that have a lot more parameters of interest. You’re going to see some really nice graphical models of the types of things we’re actually measuring whether our OCD in these three-dimensional structures. Along with the three-dimensional transistors, are the three-dimensional memory devices, this is an example on the right-hand side what’s called a BiCS which is in Toshiba, three-dimensional memory cell. There are also many cells being developed. They are known as VNAND or vertical NAND devices in Korea. We are deeply engaged in all of these developing applications, tools and tool modifications to address these exciting areas. The main thing is, it’s three-dimension, it’s not plainer and so the traditional tools do not address the needs for metrology and inspection.
And finally there is the packaging area. The packaging is going three-dimension, we’ve talked about this before that, so it’s the form factor that drives it. It’s the performance. It’s the power of battery consumption that drives the benefits in terms of going to three-dimensional packaging. And we’ve got a nice presentation. We will talk a little bit more about whether these are involved in the three dimensional packaging, whether you are stacking chips, whether you are putting chips side by side in areas that called inner browsers and so on.But all of these are important factors that are behind what’s driving our business, the OCD, the displacement, the shrinks, the tighter process allowances, the increasing complexity of the devices and the three dimensional features. So a couple of slides that we’d like to share and this one is the adoption of our OCD inter production. So this is not a market play. This is a Nanometrics deployment of OCD into production. What’s important is not only is there a high growth rate that’s doubling almost annually, but to take note that where the highest growth is in the smallest technology nodes, the 2x, and 3x nodes. You will see that that one is doubled what it is in the nodes, which intuitively make sense, if anything we are telling to you is aligned with what’s happening. So as the technology nodes gets smaller as the process tolerances become smaller then the need to make more measurements and to do more across the wafer and to better control the process increases. And so you’ll see this continue to increase and we’re already working on the 1x nodes. Importantly, two for OCD it’s not just a single technology or a single device type technology. You’ll see that we’ve got applications not only in the logic, but we’ve got it in the memory in the DRAM as well as in NAND and even in the hard disk drive that used in the OCD technology for looking at process and process controls in hard disk drives.
So, the other area that we’re going to talk a little about in more detail today is wafer scale packaging. We’ve talked, in 2009 we acquired a product line from Zygo. We call the UniFire played a key role in this area and we’re try to help give a little more clarity as to where we fit into our packaging. We’re not so much in a traditional packaging flip chips and putting things on to PC boards.But really when they are packaging the devices either on the, what they called interposer, which is the piece of silicon, where they put two chips side by side still using small micro interconnects, which is shown here an image of one of them or they stack in the devices, one on top of the next. And then in this case we’re looking at through silicon VS. Again we’ve got more slides and some more in content that we will be sharing later today. All in all, it’s a very, it’s all amazing technology it’s an inevitable technology it’s being driven by, as we said, form factor performance and battery consumption and so the materials and equipment industries that are positioned in this area are benefiting from these transitions. And we have a couple of products to address in this area. So we talk about, the next step is the entering new markets through R&D investments and strategic acquisition. So the first one is to remind everybody that we continue to invest on our product line, we consistently introduced next generation products across our entire area, whether it’s our flagship product the Atlas OCD, where we just introduced the Atlas II in the fourth quarter of last year. Our software or that we call the NanoCD suite and we continuously improve it, that’s used for the modeling, that’s used for the analysis and control, there is going to be a more day, we’ll be sharing on that today.
Our UniFire, where we continue to increase its capabilities to address new applications and now recently with the SPARK, but our R&D investments are continued to be made to make sure we remain competitive and have a differentiated capability to win in a competitive environment.So, a little bit about in-line process control, this is a slide that reminds folks that our core business is based on optical metrology, optical metrology being fast, non-destructive and suited for in-line, in-line is important, its going to be fast enough, so that you can be used between each of the process steps to make sure you control the sequence, they are all non-destructive, its basically light-in and light-out and the interpretation of the change of that light as it interacts with the surface measuring either structural features or material characteristics. We packages in a variety of automated platforms that are appropriate either for the semiconductor environment, data storage and so on and we also have the software NanoCD suite which we will be explain in more about. We just recently added to our optical technologies with the acquisition of NANDA, a small firm in Germany that is now obviously part of the Nanometrics family added the SPARK platform and the inspection capability. Up until this time, we’ve been basically a pure play process control metrology company. With the acquisition of NANDA and the incorporation of the SPARK platform, we now move into inspection and that’s the other leg of the story in terms of process control. We have – for us, we sell multiple markets and the reason we plug that out is that we really don’t need to know in any major detail whether or not the device is going to be a memory device, or a logic device, or it’s a solar cell, or an LED.
What we need to understand and help is how do you control the properties that dictate the performance of those devices. On LED and solar cells, solar you put light in and you get electricity out, and in LED you put electricity in and you get light out. I mean in many ways you can look at that. What you really care about is; what are the critical features? What are the dimensions? What are the film thicknesses that need to be maintained in order to get the desired performance, the yield and reduce the manufacturing costs?So the common value proposition across this entire product area is that we, they use our tools to develop the next generation products. We’re deeply engaged with all of our major customers developing their next generation devices. We’re working very closely with them too to improve the yield, trying to yield is a key metric for the profitability of our customers and ultimately reducing their manufacturing costs. So just a couple of things about the NANDA acquisition and we’re very fortunate at large. Mark Carter will be talking about this product platform to start. So I want to remind everybody what is our criteria for acquisition? We get asked this question often. The first thing is adjacency. We’re not looking to acquire companies to put revenues on the top that don’t really leverage what we’re doing. We wanted to be adjacent. We wanted to be compatible with our core capabilities. Well second thing is we want to expand our served markets. Our goal is to increase the served markets and if we increase the served markets and meanwhile gain market share, then we can grow the business at a rate faster than spending, faster than the industry overall. The third one is to leverage our synergies. We have a global infrastructure. We have sales, service and applications all over the world and when we find a company like NANDA that’s got a great product, that’s highly differentiated that has customer interest. Typically the barriers that they run into is the customers are same, we likely what you have, but you are not ready for 24/7, you don’t have the deployment of the service and applications groups and we bring that to the table. We can say, we can solve that problem, we’re healthy company, with the people in place to support the products and we help them overcome that barrier.
And finally, we needed to be differentiated, we don’t look for it, we are not excited about B2 products. We want to be a market leader. In order to be a market leader, you have to be able to gain market share. In order to gain meaningful market share, in a market where the barriers to entry are tough, and the switching cost are very high, you need to have a highly differentiate platform that offers a value proposition to your customers that, they are not realizing with their current offerings.So right across the board, NANDA hits all four of those and their SPARK platform basically met, all of our criteria and that’s why we get so excited about bringing business into our family. So what is the NANDA acquisition and more importantly our entry into inspection do for us? So typically we describe or have been describing our business as process control metrology. And this is a kind of showing what the metrology total available market is running about $1.4 billion and we’re kind of segmented it in the different areas whether it’s films and LCD. And that part of that market that we serve with our products, which is about $977 million. So close to two-thirds, three quarters of the market, we actually serve with our current products and we are doing pretty good in that space. But that can’t becomes a limit, with the acquisition of NANDA and incorporation of the SPARK platform, we now enter into inspection. Inspection is actually a larger market in total than metrology. We don’t address it all, we have shown right here out of the $1.6 billion, $1.7 billion we got about $300 million that addressed with the – with our current products and product pipeline. That’s an important part though, because what they really amount is approximately a 35% increase in our served markets.
So we have taken our serve market from under a billion to about $1.3 billions with the acquisition of the SPARK platform and allowing us to now participate in an important area where we can continue to pursue our goal of growing faster than the rest of the industry and expanding our market share.So, just a little summary about the history of our acquisitions, and I’ve got to hit a few of these right at the top. So we’ve had a series of acquisitions that we made and we start off with the KOR Nanos around 2005, we acquired Accent Optical, which got us into the overlaying some materials business. We acquired Tevet in Israel small company that had Fiber Optics; it was primarily for the solar business. We acquired the UniFire product line which addressed the wafer scale packaging and now we’ve acquired the SPARK product line. In most of these cases with the exception of the Accent, when you look at the Tevet, UniFire and SPARK, we are really looking at product technologies, we are looking at ways to expand our product platform and getting addition to our core competencies. So if we look at this on kind of step through, the idea is increasing our footprint in the fab. So with the every acquisition, we are able to bring greater number of solutions or more comprehensive set of solution to our customers. And you’ll see that they all going to the fab, they allow us to have conversation with metrology and inspection now with lithography with CMP with the interconnect folks. So, the last couple of slides I just want to talk about our position and performance against the industry. Many of you have probably seen the announcements of the CapEx spending plans in 2012. On the left, we’ve shown the slides the customers which are Samsung, Intel and Hynix which have been last year we're 10% or more customers. All of them announced increases in spending, up until about a day or so ago, all the runs on the right hand side had announced decrease in spending, but TSMC has been up in number and I think they are now talking about rising about another billion to be $7 billion.
And so that would be moved in terms of year-on-year spending. But what’s really important is that if you look at our top three customers, again the Samsung, Intel and Hynix, we’re well positioned with the big spenders. Clearly, they spend twice as much as anybody else either one of them and they also represent over a half of the spending in the industry. Very key, very important to make sure that the people that are spending the money are the ones used in most of your tools.Read the rest of this transcript for free on seekingalpha.com