"I have been joking for five years that this merger would happen when Rick [Hill] and Steve [Newberry] retire as you then have the egos out of the way and you can effectively merge the companies," said Dean Freeman, an analyst with market research firm Gartner Inc. "Looms like this is Steve and Rick's swan song."
Freeman said rumors of a Lam-Novellus merger have been circulating the industry since 1992, but that he found it a bit surprising that it's actually happening. According to Freeman, Hill had been shopping Novellus to Tokyo Electron Corp., but the company's valuation was too high for TEL's taste.
A combined Lam-Novellus will give customers an alternative to Applied Materials Inc.'s through-silcon-via (TSV) process and result in a company that can create some synergy between the etch and deposition processes, providing more competition for Applied, Freeman said.
"As a whole I view it as an positive for Lam and Novellus, and[Applied] will need to step up their game to make sure they donít lose share," Freeman said.
With Lam's strengths in silicon etch and cleaning processes and Novellus' strengths in chemical vapor deposition and metallization layers, the merged company will have a complete TSV process with the exception of chemical mechanical planarization (CMP). Customers can turn to Applied or Ebara Corp. for CMP, Freeman said.
"Lam has always been strong in customer service and strong in product development," Freeman said. "If they can leverage this expertise to the Novellus side it could enable Novellus to see greater penetration in the memory space and with customers Novellus has shunned in the past."
Freeman also noted that Novellus does strong business at No. 1 chip vendor Intel Corp. This could provide a benefit to Lam, which has historically had trouble cracking the Intel account with its etch product, despite its technical superiority, Freeman said.
But Freeman said there could also be challenges associated with the acquisition. Lam has a culture of operational excellence, something the legacy Novellus employees will have to get used to, he said. Novellus has tended to be a company that avoids early R&D, instead waiting until a process hits production before jumping into the market, Freeman said.
Freeman also wondered if the merger could possibly divert Lam's focus from its core competency, etch.
Finally, Freeman said the acquisition could have an impact on several other chip gear vendors. ASM International NV, for example, would be isolated further by Lam's acquisition of Novellus, he said. He suggested that ASM International could be acquired by TEL.
"TEL has been looking for a merger," Freeman said. "Looks like this one [Novellus] got away."
Too bad that Novellus screwed up the SpeedFam acquisition as at the time they had the "best" CMP platform. That would have completed the suite of process tools for the combined Lam-Novellus org as Dean accurately observes.
This will generate very fun dialogue during next month's annual SEMI ISS program
Since Dean missed the significance of the AMD Athlon when it was overtaking the clock limited Pentium 3, I posit here he misses that too many fab customers buy Applied Materials solutions just because it is from a company of Applied Materials size.
TEL does not have the dynamism of any of these firms, in fact regularly lags on all kinds of execution metrics ( defensive postures ).
A merger of Lam and Novellus is great (they both have silicon valley genes that have driven the industry), yet a merger can falter if teamwork is not fostered properly (not hard to do well despite Dean's second guessing with FUD), yet a merger also can win big for the combined firm with gaining a critical mass that is impossible to possess if they operate independently without merging.
My take is the merger is a good opportunity for the combined firm to offer solutions to customers that will have greater appeal to the user base, from better support, better R&D and greater economies of scale.
As prior long ago, - ignoring actual customer dynamics can lead to unjustified disparagement of a new opportunity - whether it was the heydey for AMD's competitive revival, or here the opportunity of synergy of a larger more competitive combined Lam/Novellus.
They can mess up the opportunity as Dean emphasizes, yet my impression is they have every motivation to make a good go of it, and succeed to challenge AMAT where prior not taken seriously as independents due to the size of AMAT.
Consulting firms are only as good as their comprehension of product and customer dynamics, with no bearing of influence by client relationships.
I vote for Lam and Novellus combined to experience a good revival of impressive growth, far greater than Mr. Freeman seems to disparage.
And I am a long time process engineer, hands on a predicted the success of the early Athlon that Dean disparaged for some unknown reasons long ago.
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