BURLINGTON, Mass. - Semiconductor equipment vendors are retooling their strategies in the face of the industry's declining book-to-bill ratio, which slid to 0.73 in October. The ratio of three-month moving-average bookings to three-month moving-average billings for the North American semiconductor equipment industry was released last week by the Semiconductor Equipment and Materials International (SEMI) trade organization.
The lesson is "get over it, and get nimble," said John Bertucci, chairman, chief executive officer and president of MKS Instruments Inc. (Andover, Mass.), at a SEMI regional meeting here. "Our strategy has been to embrace a lean operation," said Bertucci, whose company provides instruments and integrated subsystems for control and monitoring of critical parameters in semiconductor and other advanced manufacturing process environments. In addition to semiconductors, MKS products are used to make optical filters, flat-panel displays, magnetic and optical storage media, and solar panels, among others.
Today 80 percent of MKS' products serve the semiconductor industry and 20 percent target other industries - a reverse of what the company did in 1979. "We thank every percent that's outside the semiconductor industry in these economic times," said Bertucci.
To see themselves through until recovery, companies should outsource what they can to lower-cost countries and must establish a direct link in China, said Mark Jagiela, vice president of the semiconductor test business group at Teradyne Inc. (Boston). And at all costs, he said, avoid "racing to the bottom" - that is, attempting to gain market share by cutting prices indiscriminately.
"From 1998 to 2002, the semiconductor revenue base went through a 44 percent dive from peak to trough, the overall equipment revenue underwent a 67 percent drop, while the test equipment part of that took a 73 percent hit," Jagiela said. "So after all this we are back to 1998 revenue levels, but with a big difference: IC unit shipments are up 40 percent, close to the 2000 peak; book-to-bill ratios are below 1.0; and labor costs per person are up 20 to 30 percent over 1998 levels."
Jagiela said that equipment makers must stay focused and stay differentiated to gain customer share.
Mary Puma, president and CEO of Axcelis Technologies (Beverly, Mass.), an ion-implant specialist, stood firm on maintaining R&D expenditures at $65 million in 2002, an increase of 21 percent over 2001, despite a 46 percent decline in revenue this year. Because ion implanters fall into the first stages of a semiconductor company's buying cycle, Puma said, Axcelis is more affected than most by the semiconductor boom-and-bust cycle, and managing through this downturn is a daily grind. "We drive to improve peak-to-peak margins almost daily, thereby reducing volatility, and we strive to be flexible and responsive," she said.
Like Teradyne's Jagiela, Puma too emphasized the need to deal in China. Capitalizing on its 20-year partnership with Tritek International, one of China's leading semiconductor equipment distribution and support firms, Axcelis recently bought the Chinese company and has shipped 16 ion implanters to China, she said.
Internally, Axcelis has taken a "share the pain" approach: forced vacations, pay freezes, temporary leaves of absence with full benefits coverage. And "we communicate, communicate, communicate, as we know how important it is to share both the good and the bad with your employees," said Puma.
The most optimistic presentation at the SEMI meeting came from Doug Neugold, president of ATMI (Danbury, Conn.), a company involved in the high-growth, high-profit materials markets. "Materials are driving the semiconductor industry," said Neugold. "We have 317 patents, 80 to 90 of which are revenue generators. Our R&D budget keeps expanding, because the future is in innovation."
Neugold cautioned, however, that like others in the semiconductor industry, ATMI needs to be nimble and do a better job to support the materials life cycle. "We are at the plants making constant recommendation on managing the materials through the processes for maximum efficiency," he said.
As for when the upturn might come, Neugold said he is carefully monitoring wafer starts in Taiwan, "although lately they have been all over the map."