<b>Analyst's Couch:</b> Applied, Novellus vie for 65-nm order at Intel

Steve O'Rourke, an analyst with investment banking firm Piper Jaffray, in the report said that Applied and Novellus are competing for a copper barrier/seed physical-vapor deposition (PVD) tool order at Intel.

"We believe Intel is in the final decision process for 65-nm tools; we believe the final decision has not yet been made, and that Novellus is competing with Applied for the business," O'Rourke said in the report.

The analyst believes that Intel could procure around 20 PVD tools per 20,000 wafer starts per month for its requirements at the 65-nm node. Each PVD tool carries a price tag of $5 million, making the order worth a total of $125 million through the end of 2005.

Applied may have the upper hand in the business, however. "Does Applied have a technical advantage?" he asked. "We do not believe that Applied presently has an advantage with respect to PVD processes for copper barrier/seed. However, we believe Applied's atomic layer deposition (ALD) process could provide a competitive advantage in positioning PVD tools."

The order within Intel represents the latest in a series of PVD battles between rivals Applied and Novellus. Novellus has reportedly garnered a PVD tool order at Taiwan Semiconductor Manufacturing Co. Ltd. "We believe Novellus positioned one PVD tool at TSMC F14, but subsequent orders will likely go to Applied," according to the analyst.

The potential orders are critical for Novellus of San Jose. The company "has under-performed: we believe the relative underperformance of (Novellus) is largely tied to the fundamentals of market share erosion and the inability to adequately monetize acquired assets," he said.

"We believe Novellus has lost share in dielectric CVD, most notably in high density plasma (HDP) CVD, has been unable to gain meaningful market traction in CMP, and has not focused on addressing the chip industry's expanding service market," he said.

The chip analyst believes Novellus' new management should help realign efforts. "We believe that Sass Somekh's appointment as president should help drive a more aggressive product and technology focus, and that Tom St. Denis as exec. VP of sales and customer satisfaction should help better drive a market and customer focus," he said.

"We do not anticipate these management changes to materially impact numbers in this up-cycle, but view them as long-term positives for the company," he said