INDUSTRY NEWS

SpeedFam, IPEC to snare nearly half of hot CMP tool market with merger

Responding to competitive pressures in the crowded CMP tool segment, SpeedFam International and Integrated Process Equipment Corp. (IPEC) have agreed to merge. The merger combines all operations, technologies, products, and services of both companies under a new management team led by cochairmen of the board.

Called SpeedFam-IPEC, the new company will hold approximately 47.5% of the worldwide CMP market, according to Dataquest figures supplied by SpeedFam. That market share encompasses both stand-alone polishers and integrated CMP/post-CMP cleaning tools. Worldwide sales for both segments totaled $517.7 million in 1997 for all suppliers, according to the Dataquest figures. The new company's closest competitors are, in order, Ebara and Applied Materials.

SpeedFam, based in Chandler, AZ, and Phoenix-based IPEC had combined revenues of $374.3 million for their respective fiscal years ended May 31 and June 30, 1998. SpeedFam-IPEC will have a total installed base of more than 1000 polishing systems in fabs around the world.

Based on closing common stock prices for each supplier on November 19, 1998, the deal is worth approximately $195.9 million. IPEC's shareholders will receive 0.71 share of SpeedFam common stock for each share of IPEC common stock. Following approval by shareholders and the U.S. Federal Trade Commission, the two companies expect to complete the merger by the end of February.

Five members from SpeedFam and four from IPEC will make up the new company's board of directors. Cochairmen will be SpeedFam's James Farley and IPEC's Sanjeev Chitre. The president and CEO will be Richard Faubert of SpeedFam. Roger McDaniel, who held the post of IPEC's president and CEO, will become an outside member of the board.

Lisa Lyscio, director of investor relations for IPEC, says both companies "may have been discussing" a merger for some time, but had not seriously considered it until deciding that now was "the most opportune time." She adds: "We're in a very competitive industry and in order to be competitive in this industry you need to have a critical mass. By bringing these two companies together we have the broadest base of equipment in the market today."

Lyscio says IPEC's AvantGaard system and SpeedFam's Auriga tool are complementary products. "IPEC has an orbital platform which uses an orbital motion and soft pallet to polish a wafer. Orbital motion is the key. SpeedFam's system uses a rotational method, and both of those have their inherent pluses."

The consolidation "has been very well received" by IPEC's shareholders, says Lyscio. "They feel it's a good thing. It gives IPEC a stronger financial position and allows us to continue to invest critical funds into R&D and to continue our competitive leadership."

At least 20 companies are fighting for market share in the CMP tool segment, either as primary polisher suppliers or as vendors of integrated polisher/post-CMP systems. Recent start-ups include Aplex, which is reportedly set to ship its AVera polisher by the end of 1999, and Obsidian, which hopes to pioneer a fixed-abrasive polisher that would eliminate the need for slurries. Meanwhile, Applied's 1996 polisher entry, the Mirra, has nibbled away at some of the share held by competitors like SpeedFam, IPEC, and Strasbaugh. Last October Strasbaugh itself introduced the Harmony cluster tool, a polisher for 300-mm pilot lines and CMP lab use, particularly research in new applications such as copper and dual damascene.

Cabot's microelectronics materials division sells slurries to both IPEC and SpeedFam. Rick Foster, global marketing director for the Illinois-based unit, says he expects the "great relationships" Cabot has had with both firms to continue. He notes the ongoing need to "make advancements as IC features shrink. There's pressure to continually innovate on defectivity, to reduce defects and make improvements in uniformity. . . . That's really nothing new."

Foster says Cabot's tungsten slurries "continue to be a very good market for us," adding that one customer reported "greater than 10% yield improvements" using the material. Some systems "are better suited for metal versus oxide polishing, and vice versa," he points out, and suggests that some consolidation is probably inevitable in a market segment as congested as CMP has become.

Chemical-mechanical polishing is "a very complex process to have in a fragmented tool environment. I'm not sure that the industry is as well served as it would be in a more concentrated environment [with] more focus [and] better characterized processes. . .". He adds: "There are still a lot of opportunities to create value in the form of performance leading to cost-of-ownership advantages." Experts agree that chipmakers using dual-damascene processing, for example, will find CMP is an essential step if they want to maintain competitive yields for ICs with linewidths 0.18 µm.

Asked what effect, if any, the merger might have on his company, Alan Strasbaugh, president of the equipment provider bearing his name, openly dismissed the deal. "We're probably in favor of it. There's room for just so many competitors out there. The fact that the two of them have ganged up I don't think makes them twice as tough as they were individually."

"I think the merger was pursued by the boards at both companies as a sign of desperation," Strasbaugh continued, "because they're both taking a big-time bath from Applied. Applied is gobbling up everybody's business, ours included. They're desperate to make any move that they think might help. I don't think it's going to help."

"The CMP market is a classical young market with over 20 companies presently in the segment," replied Faubert, president and CEO of SpeedFam—IPEC. "Most young markets go through a consolidation phase where companies merge and only a few are left by the time the market matures. This consolidation will enable us to be the number one or number two company, preferably number one, when that happens."

Table Data Courtesy of O'Mara & Associates. Photo Courtesy of SpeedFam.

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