SEMITOOL, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Montana | 81-0384392 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Semitool, Inc.
655 West Reserve Drive, Kalispell, Montana 59901
(406) 752-2107
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2004 (based on the last reported sale price on the Nasdaq National Market as of such date) was $210,485,780.
The number of shares of the registrant’s Common Stock, no par value, outstanding as of December 1, 2004 was 28,690,507.
There is incorporated by reference in Part III of this Annual Report on Form 10-K the information contained in the registrant’s definitive proxy statement for its annual meeting of shareholders to be held February 16, 2005.
PART I
| ITEM 1. ITEM 2. ITEM 3. ITEM 4. |
INTRODUCTION - FORWARD-LOOKING STATEMENTS BUSINESS EXECUTIVE OFFICERS OF THE REGISTRANT PROPERTIES LEGAL PROCEEDINGS SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
PART II
PART III
PART IV
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES SIGNATURES |
Introduction - Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K which are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on management's estimates, projections and assumptions that underlie such statements at the time they are made. Forward-looking statements in the discussion of our business, properties and legal matters include, without limitation, statements regarding:
Other forward-looking statements made below under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere include statements relating to:
Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are detailed under the heading “Factors That Might Affect Our Future Financial Results and Stock Price” and elsewhere in this Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.
We design, manufacture, install and service highly-engineered equipment for use in the fabrication of semiconductor devices. Our products are focused on the wet chemical process steps in integrated circuit, or IC, manufacturing and include systems for wafer surface preparation and electrochemical deposition, or ECD, applications. Our surface preparation systems are designed for wet cleaning, stripping and etching processes, including photoresist and polymer removal and metal etching. Our ECD systems are used for copper and gold plating for the IC’s internal wiring, or interconnects; solder and gold bumps for wafer level packaging applications; and other metals for various semiconductor and related applications. Our products address critical applications within the semiconductor manufacturing process, and help enable our customers to manufacture more advanced semiconductor devices that feature higher levels of performance. The fabrication of semiconductor devices typically requires several hundred manufacturing steps, with the number of steps continuing to increase for advanced devices. Due to the breadth of our product portfolio and advanced technology capabilities, our solutions address over 100 of these manufacturing steps. As we have completed our final audit for ISO certification, we expect to be ISO 9001:2000 certified by the end of December 2004.
Semitool, Inc., a Montana corporation, was founded in 1979 and is headquartered in Kalispell, Montana. Our mailing address is 655 West Reserve Drive, Kalispell, MT 59901 and our telephone number is 406-752-2107. Additional information about the Company is available on our website at http://www.semitool.com. On our Investor Relations page on our website, we post the following filings as soon as practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our own Investor Relations web page are available to be viewed on this page free of charge. Information contained on our website is not part of this annual report on Form 10-K or our other filings with the Securities and Exchange Commission. Our Form 10-K and other filings also are available at the Securities and Exchange Commission’s website at http://www.sec.gov.
Growth in the semiconductor industry is driven by the global demand for semiconductor devices that are incorporated in a broad array of electronics devices such as personal computers, servers, digital televisions, audio systems, personal digital assistants, or PDAs, cellular phones and other wireless communications devices. The market for semiconductor equipment used to fabricate semiconductor devices has also experienced significant growth, driven by greater demand for, and increasingly higher performance of, semiconductor devices. Though subject to a high degree of cyclicality due to periods of excess supply or demand for semiconductor devices, the market for semiconductor equipment is characterized by rapid technological development and product innovation. As a result, to meet new technological advancements, semiconductor device manufacturers may purchase new semiconductor equipment despite the timing of the market cycle.
Semiconductor devices consist of millions of microscopic transistors and other components that store information and allow the execution of instructions used to operate electronic devices. Fabrication of ICs involves hundreds of complex and repetitive process steps, involving an array of sophisticated manufacturing equipment and chemical media. The fabrication process includes, among others, the deposition of multiple layers of dielectric or insulating films and electrically conducting metal films. After the deposition of each film layer, the fabrication process continues with repeated cleaning, stripping and etching processes to prepare the surface for the next step. When completed, the wafer may contain several hundred ICs, which are then separated by a dicing process. The ICs are then packaged by connecting them to pins using metal wires or contacts and encapsulating the ICs in a polymer. In an effort to reduce the size of packaged ICs, some manufacturers are using newer packaging processes such as wafer level packaging, which allows for packaging of ICs before they are separated from the wafer. The packaged semiconductor devices are then placed into an electronic product, such as a cellular phone or other portable electronic device.
Cleaning, stripping, etching or otherwise preparing the wafer surface are steps repeated throughout the semiconductor fabrication process. These processes are important, since the integrity of the next step depends on the effectiveness of prior cleaning, stripping, or etching steps. Immersion and spray are two fundamental means by which surface preparation wet process steps are performed. Immersion processes, or wet benches, use a series of liquid-filled tanks in which wafers are immersed. The wafers are transported from one tank to another tank by robots or human operators. Spray delivery systems subject wafers to sequential spray applications of chemicals inside an enclosed process chamber, where the chemical is brought to the wafers while the wafers are spun. Spray systems can be configured to process wafers in a batch or single-wafer mode.
An IC’s internal wiring, or interconnect, establishes the connections between transistors within an IC. Interconnects are formed by the deposition of metal film layers, such as aluminum, on the surface of a wafer. The deposition step occurs numerous times throughout the manufacturing process, with advanced ICs possessing seven or more metal film layers. As device dimensions continue to shrink, the connections between transistors add noticeably more delay to IC processing speeds, due to the intrinsic resistance and capacitance of the interconnect material. In an effort to increase IC speeds and provide lower power operation, copper is increasingly being used as the interconnect material, due to its lower intrinsic resistivity. However, copper, unlike aluminum, is difficult to handle due to a negative reaction in direct contact with silicon, which leads to lower yield and potentially contaminates other manufacturing processes. As a result, copper-based manufacturing requires more critical surface preparation steps and special processing techniques to provide complete isolation of the copper material.
There are several key trends in the semiconductor manufacturing industry driving growth in demand for wafer surface preparation, ECD and other advanced semiconductor equipment:
Smaller Device Features for Lower Cost and Higher Performance. The increasing trend towards more advanced electronics applications has spurred the industry’s transition to smaller device features, enabling lower cost per IC, or die, as more die can be fabricated on a single wafer. Additionally, smaller device features lead to more advanced semiconductor devices that feature higher IC speeds. However, as the industry moves to 90 nanometer features sizes and below, the IC fabrication process becomes significantly more complex, requiring more stringent manufacturing specifications and lower acceptable margins of error. In particular, the fabrication process becomes more susceptible to ever smaller particles, requiring the use of more advanced surface preparation equipment. Also, manufacturing with smaller IC interconnects requires the use of ECD equipment to form smaller IC interconnects.
New Materials to Fabricate More Advanced Semiconductor Devices. The need to fabricate increasingly advanced semiconductor devices has led to more complex manufacturing processes that use new materials, such as low-k dielectrics and copper to form an IC’s interconnect. The use of copper, in particular, presents significant processing challenges to prevent copper contamination of the wafer at the atomic level. To address these challenges, dedicated processes have been developed to provide better isolation of copper materials in an IC, including dual-damascene, barrier layer formation, and seed layer enhancement. These complex, dedicated processes require the use of ECD equipment for the precise deposition of copper material. Additionally, the introduction of new materials requires a higher number of surface preparation steps, as well as more advanced cleaning processes that are tailored to handle these new materials.
Increased Use of 300mm Wafers to Reduce Manufacturing Costs. Leading semiconductor device manufacturers are investing in 300mm wafer fabs. The increase in surface area over 200mm has led to higher manufacturing efficiency and lower cost per IC due to the economies of scale that IC manufacturers achieve by processing additional die per wafer. Processing a larger surface area requires an additional level of control and precision, which necessitates the purchase of next generation semiconductor equipment that is specifically targeted for the processing of 300mm wafers.
Move to Spray Processing Technologies for Enhanced Surface Preparation. The industry shift towards smaller device dimensions, new materials and 300mm wafer processing has driven the need for more advanced surface preparation technologies and process equipment. For example, spray processing is increasingly being used instead of immersion due to its greater process control, reduced footprint and reduced chemical consumption.
Wafer Level and Other Advanced Packaging to Enable Smaller Portable Products. New packaging technologies, including wafer level packaging, are being developed by the industry to enable smaller portable products such as PDAs, MP3 players, mobile phones and radio frequency identification, or RFID, tags. Advanced packaging is an enabling technology for the semiconductor industry, as it allows the integration of more computing and information processing power in a smaller space than conventional packaging technology. Advanced packaging uses fabrication processes similar to IC fabrication and includes, among others, ECD for connective solder and gold bumps, photoresist stripping and under-bump metal etching.
We are a leading provider of wet chemical processing equipment, targeting wafer surface preparation and ECD applications. As the semiconductor manufacturing process increases in complexity and production parameters become increasingly stringent, semiconductor manufacturers increasingly rely upon manufacturers of semiconductor equipment to achieve improved process control, provide a smaller footprint and lower the cost of ownership of their manufacturing processes. Our solutions address critical applications within the semiconductor manufacturing process, and enable our customers to manufacture more advanced semiconductor devices that feature higher levels of performance. Key elements of our solution include:
Technology Leadership. We are able to leverage our extensive expertise in wet chemical processing and over 25 years of experience building and supporting production-proven semiconductor manufacturing equipment. We utilize our advanced, proprietary computational techniques in the design of our reactors to address an increasingly complex manufacturing process. We have a strong intellectual property portfolio with 257 U.S. patents issued and approximately 191 U.S. patents pending.
Comprehensive Product Portfolio. We provide a broad suite of advanced, highly-engineered, innovative processing systems that include surface preparation and ECD equipment. Our batch and single-wafer processing systems for wet cleaning, stripping and etching feature our proprietary spray technology, as well as our unique, proprietary process chamber designs. We use computational advanced techniques for a variety of applications, including copper interconnect and seed layer enhancement, and our proprietary Capsule technology for back-side and bevel-edge cleaning.
Raider Platform. Our Raider platform is a high-precision, multi-chamber, single-wafer platform that supports surface preparation and ECD applications. Our proprietary linear design, coupled with our own robotic technology, allows for up to 12 interchangeable discrete process chambers. The Raider platform also features no-teach robot technology which results in reduced installation and operating costs.
Vertically-Integrated Manufacturing and Design Capabilities. Our manufacturing operations are selectively vertically-integrated to include metals and plastics fabrication and finishing capabilities, component parts and final product assembly, and extensive product development capabilities. Our manufacturing facilities feature a high-volume manufacturing line that provides short lead time delivery of our products. In addition, we typically perform component manufacturing and product prototyping internally. This strategy reduces our products’ time to market and helps lower our design and manufacturing costs.
Our objective is to be the leading worldwide provider of wet chemical processing equipment, targeting wafer surface preparation and ECD applications. To achieve this goal, we are pursuing the following strategies:
Target Innovative, High-Margin, High-Growth Opportunities with Differentiated Products. Our strategy is to be the first to enter new, high-growth markets with differentiated products. This has provided us with early market and technology leadership and enabled us to achieve strong gross margins. For example, we were among the first to target the rapidly-growing wafer level packaging and ECD markets.
Maintain and Expand Technology Leadership. We intend to continue investing in research and development to maintain and expand our position as a technology leader in surface preparation and ECD. Our goal is to deliver leading-edge technical innovation to our customers by focusing on performance, improved system reliability, yield enhancement and a low cost of ownership. We believe these factors are the most important criteria sought by our customers.
Leverage our Raider Platform to Further Penetrate New Customer and Market Opportunities. Our Raider platform features proprietary surface preparation, ECD, and wafer handling technologies. We continue to enhance the capabilities of our Raider platform and thus broaden its customer appeal by expanding its portfolio of wet chemical processing capabilities. We plan to leverage our Raider platform with both our current and potential new customers, in our existing markets, as well as in new markets.
Integrate Design and Manufacturing Expertise. Our strategy is one of close integration of design and manufacturing, coupled with selective vertical manufacturing to achieve innovative solutions, cost and quality advantages and to reduce the time to market for new products and product enhancements. We believe that the close coordination of our engineering and manufacturing teams provides us with an advantage in developing new products as well as improving the design of our products to increase performance reliability and manufacturing yields while reducing costs. Additionally, our control over selective critical components reduces our dependence on component suppliers.
Leverage Strategic Relationships. Throughout our 25-year history, we have focused on satisfying the needs of worldwide semiconductor device manufacturers and establishing long-term relationships with our customers. We work with select customers at the concept and design stages to identify and respond to their requests for current and future generations of products. These close working relationships allow us to understand and address the performance and cost expectations of our customers. We plan to enhance our relationships with our major customers and identify opportunities to develop similar relationships with additional semiconductor device manufacturers.
Expand Our Asian Market Presence. During the past several years we have expanded our presence in Asia, and revenue from Asia now comprises a significant percentage of our total net sales. We currently have sales organizations in Singapore, Japan, Taiwan, Korea, and China, and we intend to continue to expand our sales and applications support organization to broaden our customer reach. We believe that the Asia region, in particular China, has the potential for additional significant long-term growth. Our sales, marketing and service strategy is to expand our installed base of equipment with existing and potential new customers in these regions.
We are a leader in the design, development and manufacturing of advanced, wet chemical processing equipment. We leverage our 25 years of experience in designing and manufacturing production-proven semiconductor manufacturing equipment to deliver solutions that enable the fabrication of increasingly higher performance semiconductor devices. We have several key technological core competencies, including advanced computational modeling, and have assembled a development team with extensive engineering and modeling expertise to capitalize on these competencies.
Our surface preparation systems incorporate our innovative Capsule technology which features a closed rotating process chamber. Through the use of a closed capsule architecture, our processing chambers are able to process a wafer in a more effective and comprehensive fashion. For example, for cleaning applications, our solutions are able to more effectively clean all aspects of the wafer, including the top, bottom and wafer edge using our bevel-edge cleaning capability. In addition, our closed chamber architecture is able to more efficiently retain evaporable components, thus reducing chemical consumption leading to significant cost savings.
For electroplating applications, we leverage our advanced techniques in the design of our proprietary multiple anode assemblies. Our multiple anode assemblies enable radially controlled current density during the electroplating process, leading to a more controllable process for depositing copper film on the surface of a wafer.
Our broad product suite of highly-engineered, innovative processing systems leverages our core wet chemical processing expertise, and our more than 25 years of experience manufacturing and supporting production-proven semiconductor manufacturing equipment. Our primary wet chemical processing solutions are single-wafer cleaning and batch, stripping and etching equipment and ECD equipment, primarily for the plating of copper, gold and solder.
Our multi-chamber, single-wafer processing systems for wet cleaning, stripping and etching are designed with a linear arrangement of the processing chambers for high volume production and share the Raider platform with our ECD equipment. The platform modularity reduces downtime and increases wafer throughput providing the customer with an overall lower cost of ownership. Our proprietary Capsule process chamber also provides selectable processing for each side of the wafer. These systems are available to accommodate 200mm and 300mm wafer sizes. Selling prices for these systems range from $600,000 to $3.4 million.
Our batch systems for wet cleaning, stripping and etching applications include fully and semi-automated systems and use our proprietary spray technology to deliver the chemicals, deionized water and gases to the wafer surface in an enclosed chamber. The wafers are spun, on axis, and exposed to a sequenced spray of chemicals and heated nitrogen gas to process and dry the wafers. This technology enables precise and uniform application of process chemicals and enhances process reliability and cost effectiveness through reduced particle contamination and process cycle time. Our cost-effective ozone and deionized water-based cleaning process, called HydrOzone, is available on selected systems. This environmentally friendly process can replace traditional processes using sulfuric acid and other hazardous chemicals resulting in lower costs, reduced process cycle time, water consumption, chemical waste costs and risk. These systems are available to accommodate 150mm, 200mm and 300mm wafer sizes in up to 50 wafer batches. Selling prices for these systems range from under $15,000 to $3.2 million.
Our Raider platform is a high-precision, multi-chamber, single-wafer platform that supports surface preparation and ECD applications. Our proprietary linear design, coupled with our robotic technology, allows for up to 12 interchangeable discrete process chambers. The Raider platform also features no-teach robot technology. This results in enhanced tool utilization for reduced installation and operating costs. The flexibility of its linear design makes it one of the most versatile wet cleaning, stripping and etching platforms in the industry. The tool is equipped with our proprietary Capsule chamber, which allows side-selectable processing. In addition, the system can be equipped with spray, immersion, megasonic, or vapor process chambers. Applications include wafer backside, bevel-edge clean for removal of unwanted copper and other contamination, post-etch polymer removal, critical pre-deposition cleans, and metal etching. The Raider SP is available to accommodate 200mm and 300mm wafer sizes.
The Sirius was designed specifically to deliver our proprietary HydrOzone process. HydrOzone, using a minimal amount of deionized water and ozone, is a low cost, low environmental impact process option in comparison to the typical processes used for photoresist stripping, photolithography rework and organic cleans as it does not require the use of sulfuric acid with its related delivery and disposal costs. The Sirius is a manually loaded semi-automated system with a 50 wafer capacity spray processing chamber. The system is available to accommodate both 200mm and 300mm wafer sizes.
The Spectrum is an advanced automated batch processing system for cleaning, stripping and etching applications. Its compact modular design features high throughput, flexible process formats and precise control for low cost of ownership. In addition to our proprietary spray processing modules, the Spectrum can be equipped with immersion and surface tension gradient dry capabilities. It can be configured to use either corrosives, solvents or our proprietary HydrOzone (Spectrum HO) based processes for polymer removal, photoresist strip and critical cleaning applications. The Spectrum is available to accommodate both 200mm and 300mm wafer sizes.
The SAT and SST are manually loaded semi-automated systems for performing sequential processing of 25 wafers per spray process chamber. They are designed for wafer processing using high purity acidic, alkaline and solvent based chemistries to achieve a wide array of cleaning, stripping and etching applications. These systems can be equipped with up to three 200mm process chambers and are ideal for medium to low production volumes and research and development activity. The SRD is a high efficiency cleaning system utilizing deionized water to remove water-soluble contaminants, chemical residue and particulate matter. It is available to accommodate wafer sizes up to 300mm in diameter. The Scepter series is an advancement of these semi-automated products that offers double the productivity of the 25 wafer capacity tools by processing 50 wafers at a time in nearly the same system footprint. The Scepter can process wafer sizes up to 200mm in diameter.
Our single-wafer ECD systems incorporate proprietary electroplating technology on a multi-chamber platform that processes one wafer per chamber. ECD applications include copper interconnect and seed layer enhancement for logic and power ICs, gold bumps for high speed communication ICs, and solder bumps for advanced wafer level packaging. Our leading single-wafer design is modular, with process chambers arranged in a linear orientation, providing flexibility in system configuration. These systems generally include a combination of ECD and surface preparation process chambers to address a customer’s specific application. These systems are available to accommodate wafer diameters from 100mm to 300mm and can be scaled for customers’ capacity requirements. Selling prices of these systems typically range from approximately $2.0 million to $3.1 million.
The Raider ECD is an automated multi-chamber, single-wafer processor for high volume ECD. The specific configuration of its multiple processing chambers determines which semiconductor IC and advanced packaging markets the Raider ECD serves. For copper interconnect, several process steps can be integrated onto a single system such as ECD seed layer enhancement, ECD fill, wafer backside clean, bevel-edge clean, film thickness metrology and rapid thermal anneal. Our proprietary concentric anode chamber design, coupled with our model-based plating controller, allows the user to optimize plating profiles for downstream operations such as better matching of film characteristics to planarization (CMP) equipment, resulting in virtually eliminating CMP rework. Our proprietary Capsule cleaning chamber, which is also used in our Raider SP, is integrated into the tool for bevel-edge and backside copper cleaning to eliminate copper contamination. The modularity of the platform provides our customers with the flexibility to configure the chamber mix to meet their specific needs. Additionally, our Advanced Chemical Management System, or ACMS, an automated electroplating bath control unit, can be fully integrated with the Raider ECD systems. The ACMS maintains the desired chemical balance in the plating baths by automatically analyzing and replenishing the chemical constituents using our proprietary technology and typically services two ECD systems. The primary applications for the Raider ECD are copper, gold, nickel, platinum and solder depositions. It is available to accommodate 200mm and 300mm wafer sizes.
Our customers include leading worldwide semiconductor manufacturers. The following is a representative list of our largest U.S. and international customers in fiscal 2004:
| Advanced Micro Devices Atmel Cree Hewlett Packard IBM Infineon |
Intel Maxim Integrated Products Micron Technology Motorola (Freescale) NEC Seagate |
Semiconductor Mfg. Intl. Corp. Skyworks STMicroelectronics Texas Instruments United Microelectronics Corporation Unitive (Amkor) |
Our top ten customers accounted for 56.9%, 58.4% and 58.6% of net sales in fiscal 2004, 2003 and 2002, respectively. No customer accounted for over 10% of net sales in fiscal 2004. Advanced Micro Devices accounted for 19.4% and 21.2% of our net sales in fiscal 2003 and fiscal 2002, respectively.
International sales, primarily in Europe, Asia and Japan, accounted for approximately 51.8%, 61.4% and 62.6% of net sales for fiscal 2004, 2003 and 2002, respectively. The relative proportion of international sales to total net sales declined in fiscal 2004 because initial marketing efforts and shipments of the Raider systems, and our licensing fees, were in North America in fiscal 2004. We have direct sales and customer support organizations located in the United States, Europe, Japan, Singapore, Korea, Taiwan and China, and for some products, an independent distributor serves Japan. Additionally, we also utilize independent commissioned sales and service representatives in Taiwan and China and selectively in other markets.
Field service personnel and application engineers located in the United States, Europe, Japan and Asia provide warranty service, post-warranty service and equipment installation. We also provide service and maintenance training, as well as process application training for our customers’ personnel, on a fee basis. Spare parts inventories are maintained in outsourced locations throughout the world, which allows us to offer same day or overnight delivery in many instances.
Consolidated orders backlog was $37.7 million as of September 30, 2004. We include in backlog those customer orders for which we have written customer authorization and for which shipment is scheduled within the next 12 months. Orders are generally subject to cancellation or rescheduling by customers with limited or no cancellation fees. During periods of downturns in the semiconductor industry, we have experienced significant cancellations and delays.
Our deferred revenue relates to equipment shipped to customers that has not been accepted by the customer. Revenue on those shipments will be recognized as sales when acceptance is received. As of September 30, 2004, deferred revenue was $44.0 million.
As a result of systems ordered and shipped in the same quarter, possible changes in customer delivery dates, cancellations and shipment delays, and acceptances of shipped equipment carried in deferred revenue, the backlog at any particular date and the orders bookings for any particular period are not necessarily indicative of actual revenue for any succeeding period.
Most of our manufacturing is conducted at our facility located in Kalispell, Montana. Our manufacturing operations are selectively vertically integrated to include metals and plastics fabrication and finishing capabilities, component parts and final product assembly, and extensive product development capabilities. Manufacturing personnel work closely with product development engineers to enhance manufacturability and facilitate the transition from prototype to full-scale production. Our high-volume manufacturing line provides responsive lead time delivery of our products. Component and product prototyping typically is performed internally, reducing the time to market for new products and product enhancements.
We believe that timely development of products is necessary to remain competitive in an equipment market characterized by rapid technological change and product innovation. We devote significant resources to programs directed at developing new and enhanced products, as well as new applications for existing products. We maintain extensive demonstration and process development laboratories at our facilities in Montana, including two clean rooms for demonstrating, testing and developing products. Research and development personnel work directly with customers, vendors, and research institutes to develop new processes and to design and evaluate new equipment.
Expenditures for research and development, which are expensed as incurred, were approximately $15.1 million, $18.1 million and $23.1 million in fiscal 2004, 2003 and 2002, respectively. These expenditures, as a percentage of our net sales, represented approximately 10.8%, 15.5% and 18.7% in each of these fiscal years, respectively.
The semiconductor equipment industry is an intensively competitive market place marked by constant technological change. Significant competitive factors in the semiconductor equipment and related markets in which we compete include: system performance, quality and reliability, cost of using our equipment, ability to ship products in the time required, timeliness and quality of technical support service, our success in developing new and enhanced products, pricing and payment terms. We face substantial competition from established competitors, some of which have greater financial, marketing, technical and other resources, broader and integrated product lines, more extensive customer support capabilities, larger sales organizations and greater installed customer bases. Our primary competitors in ECD include Applied Materials, Inc., Novellus Systems, Inc., and Ebara Corporation.
In wet surface preparation applications, our competition includes Dainippon Screen Manufacturing Co., FSI International, Inc., SEZ Holding, AG, Tokyo Electron, Ltd. and wet bench manufacturers.
We believe that we compete favorably with these manufacturers. We may also face competition from new market entrants.
The semiconductor industry in general is very active in pursuing patent applications for both equipment and processes used in the manufacture of semiconductor devices. Patents are considered important to the protection of intellectual property resulting from a company’s research and development programs and are viewed as a means of gaining market advantages over competitors because the industry often differentiates competitors on the basis of technological criteria.
We place a strong emphasis on the innovative features of our products and, where available, we generally seek patent protection for those features. We currently hold 257 U.S. patents, some with pending foreign counterparts, have approximately 191 U.S. patent applications pending and intend to file additional patent applications, as we deem appropriate. We have had an active patent program since the Company’s inception; consequently, the duration of our patent portfolio is staggered due to various issuance dates for individual patents. Our patent portfolio is not dominated by any particular patents. We consider the strength of the overall portfolio to be more important than the strength of any particular patent. In fact, many patents are part of our “patent families” and it is difficult, if not impossible, to make any assessment regarding the “materiality” of one patent in that family over another. Even if a patent is not used offensively to prevent a competitor from practicing the same art, it may still provide a defense against a competitor’s potential patent infringement claim against us.
There can be no assurance that patents will issue from any of our pending applications or that existing or future patents will be sufficiently broad to protect our technology. While we attempt to protect our intellectual property rights through patents, copyrights and non-disclosure agreements there can be no assurance that we will be able to protect our technology, or that competitors will not be able to develop similar technology independently. In addition, the laws of certain foreign countries may not protect our intellectual property to the same extent as the laws of the United States. Moreover, there can be no assurance that our existing or future patents will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide meaningful competitive advantages to us. In any of such events, our business, financial condition, results of operations and cash flows could be harmed.
There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Although we are not aware of any potential infringement by our products of any patents or proprietary rights of others, further commercialization of our technology could provoke claims of infringement from third parties.
In addition, we rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these agreements may be breached and we may not have adequate remedies. In any case, others may come to know about or determine our trade secrets through a variety of methods.
Now and in the future, litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by us, which by itself could have a material adverse effect on our financial condition, results of operations and cash flows. Further, adverse determinations in such litigation could result in our loss of proprietary rights, subject us to significant liabilities and damages to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of which could harm our business, financial condition, results of operations and cash flows.
As of September 30, 2004, we had 958 full-time and temporary employees worldwide. None of our employees are represented by a labor union, and we have never experienced a work stoppage or strike. We consider our employee relations to be good.
We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous waste. Our compliance with federal, state and local provisions regulating the discharge of materials into the environment, and the remedial actions we have taken with respect to environmental regulations, have not had, and are not expected to have, a material effect on our business, financial condition, result of operations and cash flows.
The following table sets forth certain information with respect to the executive officers of the Company:
| Name | Age | Position |
|---|---|---|
Raymon F. Thompson (1) Timothy C. Dodkin (2) Larry E. Murphy (3) Larry A. Viano (4) Dana R. Scranton (5) Richard P. Schuster (6) |
63 55 45 50 49 48 |
Chairman of the Board, President and Chief Executive Officer Executive Vice President Chief Operating Officer Vice President, Chief Financial Officer Vice President, Surface Preparation Technology Vice President, Global Service |
(1) Raymon F. Thompson founded Semitool in 1979 and serves as our Chairman, President and Chief Executive Officer. In 1979, Mr. Thompson designed, patented and introduced the first on-axis spin rinser/dryer for the semiconductor industry.
(2) Timothy C. Dodkin has been employed by us since 1985 and has served on our Board of Directors since 1998. Mr. Dodkin has held a number of sales-related positions including Senior Vice President, Global Sales and Marketing and, since June 2003, has served as Executive Vice President. Prior to joining us, Mr. Dodkin worked at Cambridge Instruments, a semiconductor equipment manufacturer, for ten years in national and international sales.
(3) Larry E. Murphy joined us in May 2004, and is our Chief Operating Officer. Prior to joining us, Mr. Murphy worked for 15 years at Tosoh SMD, Inc., a U.S. subsidiary of Tosoh Corporation headquartered in Tokyo, Japan. Mr. Murphy was Tosoh SMD’s President and Chief Executive Officer, as well as Chairman of their Taiwanese, Korean and Singapore subsidiaries. Previously at Tosoh SMD, he held several executive positions, including Chief Operating Officer, Vice President of Sales and Marketing and Global Sales Manager.
(4) Larry A. Viano joined us in 1985 and has held various positions with the Company since then. Mr. Viano has been serving as our Vice President, Chief Financial Officer since May 2003. He also serves as our Principal Accounting Officer. He is a Certified Public Accountant.
(5) Dana R. Scranton has served as our Vice President, Surface Preparation Technology since September 2001. Dr. Scranton has 12 years of experience with Semitool in the areas of engineering, product management and marketing. He has a total of 17 years experience in the semiconductor capital equipment business.
(6) Richard P. Schuster joined us in 1984 and has served as our Vice President, Global Service since February 2002. Prior to 2002, Mr. Schuster was our Director of Service for North America.
The executive officers are elected each year by the Board of Directors to serve for a one-year term of office.
We have two manufacturing facilities located on sites in Kalispell, Montana with approximately 200,000 square feet in the aggregate. We also own a facility located in Coopersburg, Pennsylvania, which serves as a manufacturing facility for our Rhetech, Inc. subsidiary. We believe that our existing manufacturing facilities will be adequate to meet our requirements for the foreseeable future and that suitable additional or substitute space will be available as needed. We own an office building in Cambridge, UK, which serves as our European headquarters for sales and customer support. During fiscal 2004, we purchased land near Salzburg, Austria for future facilities. We also lease 12 other smaller facilities worldwide, which are used as sales and customer service centers.
We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used on Semitool’s premises. We believe that we are in material compliance with these regulations and that we have obtained all necessary environmental permits to conduct our business. Nevertheless, current or future regulations could require us to purchase expensive equipment or to incur other substantial expenses to comply with environmental regulations. Any failure by us to control the use of, or adequately restrict the discharge or disposal of, hazardous substances could subject us to future liabilities, result in fines being imposed on us, or result in the suspension of production or cessation of our manufacturing operations.
In June 2001, we filed suit against Novellus Systems, Inc. (“Novellus”) in the United States District Court for the District of Oregon for infringement of our U.S. Patent No. 6,197,181 (the ‘181 Patent). Novellus counterclaimed against us for infringement of four of their patents. On October 11, 2004, we entered into a Settlement Agreement (the “Settlement Agreement”) with Novellus settling this patent litigation. Pursuant to the Settlement Agreement, Novellus paid us $2.9 million and both parties agreed to additional covenants and restrictions related to the patents in dispute in the litigation and the resolution of future patent disputes.
The parties agreed to dismiss with prejudice their respective claims in the litigation, without either party admitting any liability. In addition, Novellus provided covenants not to sue Semitool at any time in the future for any infringement of the four counterclaim patents it asserted in the litigation based on acts either prior to, or after, the effective date of the Settlement Agreement, and Semitool provided a covenant not to sue Novellus for any infringement of the ‘181 Patent based on acts which occurred prior to the effective date of the Settlement Agreement. The parties also agreed to certain dispute resolution procedures in the event of any future patent disputes.
We are subject to other legal proceedings and claims which have arisen in the ordinary course of our business and have not reached final adjudication. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of our management, based upon the information available at this time, that the currently expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
No matters were submitted to the shareholders for a vote during the fourth quarter of the fiscal year.
Our Common Stock is traded under the symbol “SMTL” principally on the Nasdaq National Market. The approximate number of shareholders of record at December 1, 2004 was 138 and the reported last sale price on that date of our common stock on the Nasdaq National Market was $9.21. The high and low sales prices for our common stock reported by the Nasdaq National Market are shown below.
Common Stock Price Range
Fiscal Year
Ended September 30,
| 2004 | 2003 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | High | Low | |||||||||||
First Quarter |
$ | 11.72 | $ | 7.99 | $ | 7.29 | $ | 4.29 | ||||||
| Second Quarter | $ | 14.55 | $ | 10.60 | $ | 7.09 | $ | 4.09 | ||||||
| Third Quarter | $ | 13.32 | $ | 10.24 | $ | 6.00 | $ | 3.98 | ||||||
| Fourth Quarter | $ | 10.85 | $ | 6.87 | $ | 9.59 | $ | 4.84 | ||||||
Since our initial public offering of common stock in February of 1995, we have never declared or paid any cash dividend and we have no intent to do so in the near future.
The following table summarizes our equity compensation plans as of September 30, 2004:
| Number of securities to be issued upon exercise of outstanding options |
Weighted-average exercise price of outstanding options |
Number of securities remaining available for future issuance under stock option plans |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by | |||||||||||
| stockholders | 1,634,925 | $ | 7.08 | 2,984,500 | |||||||
This summary should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Summary Consolidated Financial Information
(in thousands, except per share data)
| Year Ended September 30, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||
Statement of Operations Data: |
|||||||||||||||||
| Net sales | $ | 139,627 | $ | 117,048 | $ | 123,687 | $ | 256,467 | $ | 239,447 | |||||||
| Gross profit (1) | 77,421 | 35,254 | 59,083 | 128,092 | 126,701 | ||||||||||||
| Gain on sale of subsidiary (2) | -- | -- | -- | 31,054 | -- | ||||||||||||
| Income (loss) from operations (3) | 10,876 | (35,269 | ) | (24,463 | ) | 63,563 | 36,669 | ||||||||||
| Net income (loss) before cumulative effect of | |||||||||||||||||
| change in accounting principle | 7,354 | (21,151 | ) | (14,238 | ) | 43,258 | 24,426 | ||||||||||
| Cumulative effect of change in accounting | |||||||||||||||||
| principle (net of tax) (4) | -- | -- | -- | (17,645 | ) | -- | |||||||||||
| Net income (loss) | 7,354 | (21,151 | ) | (14,238 | ) | 25,613 | 24,426 | ||||||||||
| Basic earnings (loss) per share | 0.26 | (0.74 | ) | (0.50 | ) | 0.90 | 0.87 | ||||||||||
| Diluted earnings (loss) per share | 0.25 | (0.74 | ) | (0.50 | ) | 0.89 | 0.85 | ||||||||||
| Weighted average number of basic common shares | 28,570 | 28,446 | 28,410 | 28,333 | 28,062 | ||||||||||||
| Weighted average number of diluted common shares | 29,066 | 28,446 | 28,410 | 28,769 | 28,783 | ||||||||||||
Balance Sheet Data: |
|||||||||||||||||
| Cash, cash equivalents and marketable securities | 22,354 | 27,935 | 40,840 | 46,837 | 6,711 | ||||||||||||
| Working capital (1) | 78,287 | 73,108 | 90,997 | 106,730 | 79,498 | ||||||||||||
| Total assets | 181,300 | 138,774 | 183,663 | 200,090 | 202,660 | ||||||||||||
| Short-term debt | 225 | 228 | 435 | 1,192 | 21,724 | ||||||||||||
| Long-term debt and capital leases | 2,089 | 2,322 | 2,912 | 3,265 | 3,653 | ||||||||||||
| Shareholders' equity | 109,843 | 100,677 | 121,422 | 133,199 | 108,632 | ||||||||||||
| (1) | In the fourth quarter of fiscal 2003, we wrote down inventory by $19.1 million primarily due to a change in forecasted demand for certain of our products due to the successful introduction of our new Raider platform. |
| (2) | We sold our wholly-owned subsidiary, Semy Engineering, Inc., on February 16, 2001. |
| (3) | Fiscal 2001 was reclassified to include the gain on sale of subsidiary in income (loss) from operations, rather than following income (loss) from operations. |
| (4) | The cumulative effect is the result of our adopting the Securities and Exchange Commission’s Staff Accounting Bulletin 101 (SAB 101), “Revenue Recognition in Financial Statements.” Data to reflect the change in accounting principle in accordance with SAB 101 are not available to restate financial information for fiscal years prior to 2001. |
We design, manufacture, install and service highly-engineered equipment for use in the fabrication of semiconductor devices. Our products are focused on the wet chemical process steps in integrated circuit, or IC, manufacturing and include systems for wafer surface preparation and electrochemical deposition, or ECD, applications. Our surface preparation systems are designed for wet cleaning, stripping and etching processes, including photoresist and polymer removal and metal etching. Our ECD systems are used for copper and gold plating for the IC’s internal wiring, or interconnects; solder and gold bumps for wafer level packaging applications; and other metals for various semiconductor and related applications. Our products address critical applications within the semiconductor manufacturing process, and help enable our customers to manufacture more advanced semiconductor devices that feature higher levels of performance. The fabrication of semiconductor devices typically requires several hundred manufacturing steps, with the number of steps continuing to increase for advanced devices. Due to the breadth of our product portfolio and advanced technology capabilities, our solutions address over 100 of these manufacturing steps.
There are several key trends in the semiconductor manufacturing industry driving growth in demand for wafer surface preparation, ECD and other advanced semiconductor equipment:
As the semiconductor manufacturing process increases in complexity and production parameters become more stringent, semiconductor manufacturers have increasingly relied upon providers of semiconductor equipment that features improved process control, smaller footprint and a lower cost of ownership of their manufacturing processes. We provide a broad suite of advanced, highly-engineered, innovative processing systems that include surface preparation and ECD equipment. Our batch and single-wafer processing systems for wet cleaning, stripping and etching feature our proprietary spray technology, as well as our unique process chamber designs. Our EC