INDUSTRY NEWS

Lam enters CMP biz by buying OnTrak

Lam Research has entered the fastest growing segment of the global chip equipment market by signing a definitive agreement to purchase OnTrak Systems, the world's leading supplier of chemical-mechanical planarization cleaning systems, for $225 million. Announced on March 24 and already approved by the boards of both equipment vendors, the deal still needs SEC and shareholder approvals. Both are regarded as formalities.

James Bagley, OnTrak's chairman and CEO, says the combined companies share the same fiscal year and should begin operating as one business entity by July 1. Bagley will become Lam's CEO and will join Roger Emerick, Lam's chairman and current CEO, in the newly created Office of the Chairman. Way Tu, president of the Fremont, CA­based front-end equipment supplier, will report to Bagley.

"The CMP and wafer-cleaning areas have been attractive to Lam for some time for several reasons," Emerick said. "By adding CMP polishing and cleaning to its process capabilities Lam can leverage its CVD products and global infrastructure to provide superior performance on the wafer."

Bagley, who left his job as COO of Applied Materials to join OnTrak in June 1996, said that the merger "mitigates the risks that OnTrak faces in achieving its potential in the CMP market. . . . over the long term." The executive noted that Lam has more than 40 support offices throughout the world.

Emerick said that the proposed acquisition creates an equipment vendor "with leading positions in three processes essential to the production of the most advanced deep-submicron semiconductor devices: etch, CVD, and CMP, which includes both polishing and cleaning." He noted that the etch and CVD markets combined rack up $6 billion in global sales and are predicted to grow at a compound annual rate of approximately 13% over the next five years. OnTrak dominates the cleaning segment of the CMP market with more than 60% of global sales in that segment. Sales for all segments of the CMP market, which includes polishing and slurry delivery, are forecast to grow 31% annually through 2001.

When the acquisition is completed, OnTrak's shareholders will own 16 to 17% of Lam. Bagley said that OnTrak will remain at its current headquarters and manufacturing site in San Jose at present, but he indicated that the company "may end up moving more of its business to Fremont in the long term." OnTrak also operates an R&D center in Milpitas, CA.

Jerry Cutini, OnTrak's executive vice president of marketing, said that a memorandum of agreement signed in early 1996 by Applied Materials and OnTrak involving Applied's Mirra polisher will continue. The pact permits customers buying the Mirra tool to integrate OnTrak's open-architecture cleaning system into the Mirra. "We never planned to be an OEM supplier to Applied," Cutini pointed out. The arrangement calls for clients who purchase the Mirra system to then, if they wish, buy the cleaner separately from OnTrak for integration into the polishing tool. However, Emerick noted that Lam's wafer exchange program with IPEC/Planar, currently number one in the overall CMP market, "will probably be discontinued, because they're definitely a competitor now."

OnTrak reported revenues of $55.8 million for the fiscal year ended June 30, 1996. Lam noted separately that the company will report a loss its third fiscal quarter because of a rapid transition by customers from its single-chamber etch platforms to its next-generation etch cluster tools. In addition, the vendor expects a shortfall of $10 million to $15 million caused primarily by customer-requested shipment delays.

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