Nanometrics Management Hosts At 14th Annual Pacific Crest Global Leadership Technology Forum (Transcript)

Nanometrics Inc. (NANO)

14th Annual Pacific Crest Global Leadership Technology Forum Conference

August 13, 2012 3:00 PM ET


Ron Kisling – CFO


Unidentified Company Representative

All right. Let’s go ahead and get started. So, we have with us today, Ron Kisling, the CFO of Nanometrics to talk about the company.

Nanometrics has been gaining significant share over the couple of years but growth has stalled a little bit this year, with the spending slowdown at Intel, Samsung and Hynix for Nano’s concentrated. The biggest controversies around the company are right now, one, whether Nano will fully recover from a margin hit taken when the customers are pushed for a rapid ramp of new tool this year. Number two, whether Nanometrics will win more foundry business. Number three, whether Nano becomes a takeout target.

So, we’ll have Ron open up with sort of the overview of the company and then we’ll jump right into Q&A. Ron?

Ron Kisling

Good afternoon, thanks for coming. First up, just real highlight, we’ll be talking a little bit about some forward-looking statements and predictions that we believe that we believe to be accurate, that are guaranteed.

So, talking about our unique strategy, technology changes today are driving an increasing demand in the industry for OCD, which is creating secular growth in our core markets. In addition to that, we’ve expanded our market – assured market through R&D investments as well as strategic acquisitions and I’ll talk a little bit about those and how those are driving our growth. And then lastly, market share gains through competitive wins, particularly with our two largest customers. They are also supplemented by targeted wins at other customers.

Just a quick overview of Nanometrics. We offer a complete suite of non-destructive optical technologies that we use in our products such as our Atlas product, which is our flagship OCD tool. The UniFire which is a product we acquired from Zygo in 2009 which is focused on the advanced Wafer Scale packaging market. And Spark which we acquired from Nanda in November of 2011.

We share multiple markets and the main value proposition of our process control tools is to increase yields, accelerate the ramp of new technologies and overall reduce manufacturing costs, which is becoming increasingly more important as the value in capsulated and wafers continues to increase.

There is, a number of drivers that are creating specific growth opportunities for Nanometrics. One is, as the chips become smaller, the strings and node sizes become smaller, more process steps are added. And as you add more process steps, there is a number of Mac-in labels increase substantially and this shows the increase from 130 to the 1X nodes, 100% more process steps and 200% increase in sampling and dye sampling.

The other driver is that OCD is replacing conditional metrologies in the fab space, increasing to almost half the market. And the thing that’s really driving the displacement by OCD is the appearance of 3D device structures such as Intel’s Intercept, vertical memory devices such as Samsung’s, DNAND.

And then lastly, the 3D packaging market or the advanced wafer-scale packaging in terms of micro bump, through-silicon via, their UniFire tool, is directly focused on our another opportunity for significant growth for Nano.

Just real quickly, OCD has become a disruptive force because OCD is the only technology that provides a 3D visibility across all the layers of device, in a very fast online methodology that’s non-destructive.

This chart shows a number of OCD measurements or recipes that are in production with our customers using our systems. And what I’d like to point out is this is separated by node, and you can see the rapid growth over time in the number of recipes in production as the 2X node. And the 2X node is really where OCD started to gain traction and a deep presence in the fab. We’re also starting to see an increase in growth in recipes for the 1X node in the fab. And then, later this month, we’ll be shipping our first 450 tool to the industry.

In November, we acquired Spark from Nanda Technologies, which is a new approach to inspection. Conditional macro inspection tools, scan across the wafer with a very small view of collection, making them very slow creating a trade-off we need to make between what sort of speed do you want versus what’s the level of sensitivity that you want in this brightfield only.

The Nanda tool approaches it completely differently by basic illuminating and capturing the entire wafer in one shot, much quicker, you get the high-sensitivity, high throughput. And it’s both brightfield and darkfield. And where this does, it really bridges the gap between the micro-inspection which is slow but extremely high resolution. The existing macro which is very fast, but limited resolution to what’s a dance macro, which retains the speed and throughput that all macro tools have today but with significantly better sensitivity in the market.

And it’s precisely this advance macro space that in our nine months of OEM has allowed us to see in deep conversations with our customers, new applications where this Spark tool can be used, such as backside inspection which is particularly important with the emergence of EUV, where particles can be a fatal issue in terms of imaging on the wafers, CD mapping which is very complementary to our existing OCD.

And lastly, advanced packaging, where the Spark tool works particularly well in certain elements of the advanced packaging. And we have a tool that’s undergoing qualifications in that particular space right now.

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