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The MICRO Interview

KLA-Tencor’s Rick Wallace

Some companies seek executive talent from the outside, others groom their own. For Rick Wallace, KLA-Tencor’s new CEO, it’s been a long, rewarding ascent inside the company. After graduating with a degree in electrical engineering from the University of Michigan, he worked for Procter & Gamble’s paper business, Ultratech Stepper, and Cypress Semiconductor, before joining KLA Instruments in 1988 as an applications engineer. His climb through the ranks reads like an organizational chart. He’s held executive vice president, vice president, CTO, and general manager positions with the company’s wafer inspection, lithography control, reticle and photomask inspection, films and surface technology, and software and customer groups. Along the way he also picked up a master’s in engineering management from Santa Clara University; after getting his degree, he also managed to find the time to teach courses on strategic marketing and global competitiveness.

I caught up with Wallace at his San Jose office on a rainy morning in early April as he was preparing to leave for Europe. In the following exclusive interview, he gives copious credit to his mentors, the leadership team who built KLA and then KLA-Tencor into a semiconductor equipment powerhouse and helped guide and mold the young manager into executive material. The discussion with Wallace ranges from his take on the importance of knowing your customers’ ever-changing needs, organizational and manufacturing adjustments at KLA-Tencor, supplier relations, the pending acquisition of ADE, and changes in the inspection, metrology, and process control marketplace.—TC

MICRO: As someone who’s been with the organization for a long time, you’ve had many mentors along the way, from your junior days on through to management, all the way up to the C-level. What did you learn from these guys?

WALLACE: I think Ken (Levy), Ken (Schroeder), and Gary (Dickerson) were the three. Some of the early lessons were pretty critical. Only later did I learn to appreciate them. Things like the importance of your credibility in this industry, to be careful because it’s the same group of people. It turns out that, after 18 years at KLA-Tencor, there are people I have been on the other side of the table of for that entire time. Any company that’s going to be successful has to recognize that it’s a long-term relationship that you have with your customers. The customer base is so consolidated and so dependent on the equipment suppliers, as the equipment suppliers are dependent on them. So very early on, I learned that you have to get to know your customers, spend time with them, and try to understand what makes them work. We also used to talk about this idea: Don’t put your customers at risk. It’s very important as a company that you explain your capabilities [to your customers], and talk about what you can do, and more importantly, talk about what you’re not going to be able to do, if they have a specific deadline.

From Ken Levy, there was a lot about strategy early on, about strategic planning, about insight into understanding where the business is going to go, what you need to do. Levy’s definition of strategy, the essence of strategy, is what you’re not going to do. The choices you make about decisions not to go after particular segments or markets, but maintaining the focus on what you can do really well. I think that served KLA-Tencor very well over the past several years.

MICRO: How would you differentiate that strategy of exclusion?

WALLACE: Pick the things that you can do well and focus on them. Either individually or as a company. Don’t get caught up in thinking you have to do everything for everybody, in terms of a company strategy. At KLA-Tencor, we find problems that we can solve uniquely, where we can add value for the customer, since there always has to be value for the customer in order for us to get value from it as well. So that’s a big part of it, is how do we create unique solutions to problems? In many cases the history of the company has been to kind of create and invent markets as they come along, as opposed to participating in markets that are well established and try and unseat a large incumbent. We haven’t done that very much. It’s mostly about creating new markets and finding new opportunities.

MICRO: Can you look back on any specific experiences that really improved your level of education about the job?

WALLACE: Yeah, I was very fortunate, with a lot of being in the right place at the right time. Including even from before I came to this industry, I was in the process industry, doing process controls for a paper company. I worked at Procter & Gamble, and I was a controls engineer coming out of school, and they had had automated manufacturing in the paper industry for many years before that.

Then I came in [to this industry], and I got a job at Cypress in the photo area, mainly because I was willing to work weekends and I had a photo background. It struck me that nobody was doing anything about process control in this industry, which was supposedly high tech. People were manually inspecting things, and I was shocked. Then one of the first tools I saw was a KLA inspection tool, and I remember telling a friend of mine, “I want to work on that piece of equipment and go to work for that company.” Because my view was that they were going to do something in this industry that other industries had already been through, which is the idea of feedback, feedforward, and control and inspection. Manual inspection, the idea that you could build, at this time, a couple hundred-million-dollar factories and not know if the yield was going to get there…no other industry would do that!

MICRO: Black science.

WALLACE: [Laughs] Exactly. We almost had a yield bust at one point that almost killed the company. You look back on that, and you say, wow, it was highly leveraged. So KLA came along, and it was pretty easy to make the switch to the equipment side. Because I wanted to be in business, and I wanted to help customers solve problems, so I came in as a customer and did applications engineering. And I got very lucky: I was on some great projects at the right time.

When we brought out the 2100 series, I was the product manager. That was the first really high-speed wafer inspection system. My job was to try to make it a production tool. It had been an off-line engineering tool. Ken Levy and Ken Schroeder did this great thing with me. I was running a marketing group and made the mistake of going off on vacation at the end of a strategic planning process, which was a bad idea here.

When I came back, I got this speech that went something like this: “We really need to drive this line monitor.” And I said, “You bet.” “No, we need somebody really to focus on it.” And I said, “I agree, we sure do.” And they said, “We were thinking of you.” But I already had a job, I was running a big marketing group. And I said, “What do you mean?” They said, “We want you to focus full time on that, on how we take our product from engineering and put it into production.” And I said, “What about budget?” They said, “Tell us what you need.”

So they took away the two constraints that most people always have: time and money. They said, “This is all you should focus on, don’t do anything else. As far as budget, you tell us what you need to do.” So you back up and you say, “I don’t have any excuses. Now what I am going to do?”

I did an off-site in Monterey and pulled in all those people who had [experience with] adoption in new markets. I pulled in Rob Leachman from UC Berkeley, who had been doing global competitiveness studies. I was trying to figure out how KLA could move on a different level. Instead of just selling inspection, what problems were we trying to solve? And we said, well, we’re really trying to address the problem of competitiveness for semiconductor manufacturers. The trick there was that Leachman had figured out that the people who were the most competitive were the ones who had the fastest learning rates in terms of yield. My belief was that you could correlate those learning rates to inspection and measurement. So we funded research under Leachman, as part of that program, to try to understand the correlation between inspection and measurement and driving competitiveness. We did all these things because I was told, this is your job.

MICRO: What year are we talking about?

WALLACE: This was around 1994. Another thing we did is we started yield management consulting as a result. We said, what we really need to do is teach people how to do this. Levy and Schroeder’s idea was that expanding the pie was more important than KLA’s specific interest in it. Making yield management something that people talk about and people do became more important because KLA was in it, we were going to benefit.

MICRO: At this point, it was just KLA, however.

WALLACE: But Tencor kind of benefited from that as well and plugged right in once we got going. I was very fortunate to be put on that assignment, because we had an incredible product at the right time. It’s a little daunting though.

MICRO: Why daunting?

WALLACE: It’s daunting because usually you’re constrained, and that’s the excuse people have, right? “Well, they only gave me so much money.” I thought it was very enlightened of both Ken and Ken to say, “Look, what we’re trying to do is to change an industry. To do that, we need to invest.” Hey, KLA at the time didn’t do much advertising.… Tencor did advertise, they bought the back cover, and they had a great brand.

But [we asked ourselves], how do we reach companies and help them justify creating yield management departments? Because a lot of them didn’t have one at the time, they didn’t have a specific yield management group. What they often had was litho engineers, because our tool looked kind of like a stepper, so the litho guys got ahold of them. We partnered with a number of companies as a result, and we really got in and started learning about how they did yield management, what worked for them, what didn’t work.

MICRO: At that point, who were the leaders in that thought process?

WALLACE: The guys that broke it for us were Samsung, Line 5. They did 16-meg DRAM. They invested very heavily in our tools, and one of our guys who is now our Korean president, Richard Hong, was the apps engineer at Samsung. He worked closely with them. This was a case of listening to what they needed, showing them what we had, and working very closely. It drove us to really support and learn what needed to be in-line. But we also got an understanding of how it paid back, and the returns for our customers were very clear.

MICRO: I’m thinking back to the 1995 or 1997 roadmap, where they finally had a yield enhancement section, where it actually got its own identity and wasn’t just blended in with the other stuff. Some companies, such as AMD, had a CFM (contamination free manufacturing) group, and then they took the next step to yield enhancement or yield management.

WALLACE: There were always the product engineering guys, and the line would go back and do yield, and some had CFM like you mentioned, but there were very few that were integrated and had a lot of power within the organization back at that time. Now they do, of course, and yield management has become integral to what people do. They won’t release something if they don’t get good yield or defectivity on it.

MICRO: Moving forward over the next few quarters to few years, what do you see as some of your key challenges and opportunities?

WALLACE: The problems are not getting easier. We do a customer survey every year and we go out and ask, how does it compare this year versus last year, is it getting harder, easier, or the same? And my joke is, 87% say harder, 7% say the same, and 7% don’t understand the question. It always gets harder, because as soon as you make progress, the design guys take it away. Whatever margin you get in the process, somebody takes it away from you, because now they want to get better performance. Immersion lithography is a great example of a new technology that is going to strain yield pretty significantly. As are some of the other material changes that are coming, and there are a lot of material changes coming.

MICRO: Yeah, only half the periodic table or so.

WALLACE: Right. [Laughs] Copper was a huge demonstration for how much yield can be impacted by material change. Although copper started happening at 180 nm, the yield problems didn’t show up until 130 nm for a lot of people. So they didn’t understand that you couldn’t just do what you did and assume it was going to scale. The lithography challenge in general, beyond immersion, this whole area of printability and yieldability of some of what’s going on in litho and the design world, also puts a lot of pressure on our customers.

So let me back up and talk about some of the macro trends happening and how they impact us. Clearly, manufacturing has moved to Asia, and it’s unlikely to come back as a percentage. I think we’ll still have activities in the United States and Europe, but by and large, I think it’s not going to come back. There’s this increasing emphasis on cost, because our customer’s customer is increasingly the consumer, and they’re more cost sensitive and time-to-market sensitive than probably the IT world was, if you look back a few years.

You also have the costs of development causing people to do these development partnerships and then try to fan that technology out and transfer it to manufacturing. Interesting yield challenges there, because very few do development with exactly the same toolset that they do manufacturing. In most cases, they have different toolsets. And there are two sides. One is just transferring and the other is scaling, ramping up. A lot of times people find out that low-level volume yield is different from high-level volume yield, since they’ve added a bunch of tools that they have to run in parallel, and so they’ve lost process margin as a result. Those are all trends that affect the industry and certainly affect us as both challenges and opportunities.

Then there’s the march down Moore’s Law, recognizing there’s a larger tail than there was in the past. We have to service the very leading-edge guys, but also the people that aren’t going to move quite as quickly. Foundries have already made their mark in terms of changing the dynamics, and that will probably keep going.

MICRO: I’ve heard complaints in years past from people in the wafer, mask, and second-tier chipmaking businesses about K-T’s level of attention to them. They felt like they were getting short shrift sometimes. What kinds of things have you done to address these issues?

WALLACE: That was the area I just referred to. In the field, the organizational change that we made was around two things: getting closer to the customer, but also identifying those customers that have different needs and realizing that having a one-size-fits-all model doesn’t work in the field. For example, we don’t have the same structure in place for the wafer manufacturers or the reticle manufacturers that we do for the fabs. But also we delineated the fab guys between those who are building 300 mm and the other people that have important projects but who are not using the most advanced technology.

MICRO: How is the ADE acquisition going to leverage the new elements from the company into the existing base?

WALLACE: That’s pretty straightforward. For the wafer people, these are the same people that are buying our products out of Surfscan, so I think we’ll get some additional leverage out of being able to sell more solutions to them. One of the other opportunities is to take the products that ADE makes and sell them to our other customers. There’s some applications work that will happen there and also some marketing work and obviously the selling work, and maybe even some engineering.

MICRO: How much overlap is there with the product lines?

WALLACE: Very little.

MICRO: What about the PhaseShift part of ADE?

WALLACE: The geometry piece? That’s the up-and-coming part of that business, and it looks very good.

MICRO: You were around for the big merger between KLA and Tencor. You’ve picked up Candela and some other people along the way, but this is really the first time since KLA and Tencor got together that something of this magnitude is going on. What kinds of lessons learned from the 1997 merger can you apply to the ADE acquisition?

WALLACE: One is, we really had a lot of respect for the Tencor management team and business model when we did the KLA Tencor deal. I think that was important, because it was a very well-run company, and part of what made it work was just going in with that kind of perspective. I think the same is true of ADE. They run the business well, the financials are solid, and from K-T’s standpoint the question is really how can we augment what they have, and how can we help them be more successful.

Candela’s maybe more of a closer match. Although it was very small, we had a similar attitude of, how do we go and preserve what’s been successful about them but at the same time give them access to the channel and the technologies that we have inside? That’s going to be our approach. The challenge that’s a little different [with ADE] than with Tencor is the geographical one—Tencor was down the street and it was pretty straightforward. This time, we’re dealing with two locations, Tucson and Boston, so we just have to be mindful that it’s not Silicon Valley.

MICRO: The market space you’re in has really consolidated over the past several months. You made your play for August and were unsuccessful, and now Rudolph and August are one company. Nanometrics has gone out and made a couple of acquisitions, and now with your buy of ADE, there has been a real change. Many people thought it would happen eventually, and now it’s happening. Have you changed your market strategies or your view of the competition as a result?

WALLACE: I don’t think it changes our view on the market very significantly. We already have large competitors and have for some time, so the changes you’re talking about won’t affect us so much. From a competitive standpoint, we have plenty of competition, and that started really many years ago.

For us, the bigger change is how to stay relevant to our customers. That’s less about competition and more about how do we stay in front of the needs our customers have. Metrology and inspection is the one area where people choose how much they buy. Unlike lithography or etch, where you’ve got capacity and you’ve basically got to be able to process your wafers, with inspection and metrology, often it’s a choice. How much do you inspect, how much do you measure? Our job is to help provide more value, because in the end our customers aren’t going to do it if they don’t have return on it. I probably spend more of my energy on that than I do worrying about the consolidation.

MICRO: One of the bigger issues in some fabs is the move toward higher product mixes and smaller lot sizes, because you’re dealing not just with a few different designs running through the process, but dozens, scores, hundreds in some factories. Sometimes it’s a single lot or less per design being processed. What knobs do you turn and how do you adjust to that?

WALLACE: Plus all the sampling theory that goes on with that. There’s also the whole question of what things drive your yield, systematic versus random defects, etc. What are the challenges associated with power management? While people might not be chasing shrinks, there are many performance attributes that they are trying to affect. How do we play in those roles? For us, that is by far, job one: to try and figure that out and stay ahead of the customers’ needs.

MICRO: The trend has been toward fewer random and more systematic defects, as far as the yield limiters. Are you seeing any variations on that? In processes that are introducing a lot of new materials, suddenly you don’t know what the process and material interactions are going to be and how they integrate, therefore the random numbers jump up again. Is that part of what you see going on out there?

WALLACE: It is, but we’re also trying to figure out how we can learn faster and up front to distinguish just those things. There’s a theory that there are no random defects, that all defects come from somewhere, and that just because you can’t explain them doesn’t mean they’re random. We are doing things in our tools, technological things, to try and better understand the wafers. There’s also partnerships that we can do, where we’re up front at materials manufacturers and resist manufacturers, in places like IMEC, working closely with people doing early development to understand how to characterize their process early. Our strategy is that early on, we figure out we’re just not smart enough to figure out how things are going to play out, so we need to cover bets and be engaged with people upstream.

MICRO: How are things going in your own factories? What kinds of programs do you have to improve your own productivity, your own cycle times? What kinds of results have you seen?

WALLACE: For a number of years we’ve been very focused on how to become more responsive to our customers’ needs. That has to do with cycle time, and as you know the average lead time and customers’ requirements for when they want to turn on capability has come down over time. We have to be in a position to be able to respond to that. We’ve done a number of things in manufacturing toward consolidating not just the manufacturing flow, but also a move toward common platforms, a move toward fewer suppliers, and leveraging those capabilities. Since 2004, we’ve been able to reduce our manufacturing cycle time on average by 25%, even though we’ve introduced new products with significantly greater degrees of complexity.

Of course, quality has been another thing we’ve focused on. It’s always been important, but with 300 mm, it becomes more important, since the investments have become so much more highly leveraged for our customers. We have an E-Quality program that tracks all our subsystems and all our circuit boards, and we can track them back and have traceability back into the factory. We’ve used that to drive up our quality as we’ve been shipping product to the field. Then on the installation time, everybody wants installs to be shorter and shorter, and we focus on theoretical installs, how we can best support customers when the tool comes in, having the right people and the right parts at the right time, doing all that.

MICRO: How do you work with suppliers, your subsystems and components people, to get them to work at the same high level, to reduce their cycle times?

WALLACE: We learned from some of our customers. We also hired some people who had that experience from other places and brought them in to do a similar thing. We have supplier ratings and supplier executive committee meetings, go through key metrics, track them, and reward additional business based on the supplier’s ability to hit those numbers. Over the last several years, we’ve shifted our supplier strategy and reduced the number of suppliers by 50% in response to improving product quality and material availability to continue to meet the needs of our customers. We’ve tried to concentrate it, but we still have thousands of suppliers, and we’re trying to consolidate that even more. But we end up with the key 25–40 suppliers that we work very closely with.

MICRO: Final question: what are your favorite things about the job?

WALLACE: I’ve been here for so long, it’s just very exciting to see this company go through this management transition and be part of the new team. On the one hand, Ken and Ken were great mentors in that role; on the other hand, there’s a group of us that feel like we’ve now graduated. We’re at the helm. I certainly don’t view it as my unique position. I lead the team, we’ve got a management team that’s come up through the ranks, and that is the most exciting part: working with the new team and having this incredible franchise that’s been built, this great opportunity to see where we can take it.

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