SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the year ended December 31, 2002 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission file number 0-22384 |
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MICRO COMPONENT TECHNOLOGY, INC. |
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(Exact name of registrant as specified in its charter) |
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Minnesota |
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41-0985960 |
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(State or other
jurisdiction of |
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(I.R.S. Employer |
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2340 West County Road C, St. Paul, Minnesota 55113 |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code (651) 697-4000 |
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act: |
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COMMON STOCK, $.01 PAR VALUE |
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(Title of Class) |
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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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. ý
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý
The aggregate market value of the common stock held by non-affiliates of the Registrant as of June 28, 2002 (the business day of the Registrant’s most recently completed second fiscal quarter), was $21.8 million based upon the closing price $2.498 on that date for the shares.
Number of shares outstanding of the Registrant’s Common stock, as of March 27, 2003 is 17,319,389.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the annual meeting of stockholders (the “Proxy Statement”) to be filed within 120 days after the Registrant’s fiscal year ended December 31, 2002, are incorporated by reference into Part III.
MICRO COMPONENT TECHNOLOGY, INC.
TABLE OF CONTENTS
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This Form 10-K contains certain forward-looking statements. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, including those set forth in the section below entitled “Risk Factors.”
General
Unless the context otherwise requires, references in this Report on Form 10-K to “MCT”, “ We”, “Us”, “Registrant” and the “Company” refer to Micro Component Technology, Inc. and its consolidated subsidiaries. MCT was incorporated in Minnesota on June 20, 1972, was reorganized as a Delaware corporation on June 28, 1983 and reorganized as a Minnesota corporation on November 6, 1996. MCT has three wholly owned active operating subsidiaries, Micro Component Technology Asia Pte. Ltd., (“MCT Asia”), MCT Asia (Penang) Sdn. Bhd., (“Penang”), and MCT Philippines, Inc (“Philippines”). Our principal executive offices are located at 2340 West County Road C, St. Paul, Minnesota 55113 and our telephone number at that location is (651) 697-4000.
Our trademarks used in this Form 10-K are: MCT, Infinity Systems, Aseco, Tapestry®, Smart Solutions, SmartMark, SmartSort, SmartTrak, Isocut, MCT 5100, MCT 7632, S-170 and S-130. All other trademarks or trade names referred to in this Form 10-K are the property of their respective owners.
Background
On October 18, 1993, we completed an initial public offering of 2,200,000 shares of common stock resulting in net proceeds to us of $21.7 million.
On June 29, 1999, we acquired certain assets and assumed certain liabilities of the Systems Integration unit of FICO America, Inc., forming the Infinity Systems Division to develop and implement Manufacturing Execution Systems, and factory control systems to customers in the semiconductor industry.
On January 31, 2000, we completed our acquisition of Aseco Corporation, a Massachusetts based manufacturer of handling equipment. The acquisition was structured as a stock-for-stock purchase and was accounted for using the purchase method of accounting. The purchase price totaled $24.0 million, consisting of 2.6 million shares of MCT common stock valued at $22.5 million issued to former Aseco shareholders and $1.5 million of acquisition-related costs.
On April 11, 2000, our Board of Directors elected to change our fiscal year end to a year ending on December 31, effective December 31, 1999. Our interim thirteen-week quarters each end on a Saturday.
On August 16, 2000, we issued 3,000,000 shares of common stock, and on September 18, 2000, we issued 290,000 shares of common stock in a public stock offering. Proceeds from the offering totaled $19.7 million.
On December 24, 2001, we issued $10.0 million of 10% Senior Subordinated Convertible Notes due in 2006 to a group of accredited investors . These Notes are convertible into MCT common stock at a conversion price equal to $2.60 per share. The Notes are redeemable by MCT at any time after January 3, 2004 as long as the market price of our common stock equals or exceeds $3.90 per share. Proceeds of the Notes, net of debt issuance costs, totaled $9.2 million. Holders of the Notes have standard registration rights if they convert the Notes to common stock.
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Introduction
We are a leading supplier of integrated automation solutions for the global semiconductor test and assembly industry. We offer complete and comprehensive equipment automation solutions for the test, laser mark handling equipment, mark inspect, singulation, sort, and packaging for shipment portions of the back-end of the semiconductor manufacturing process that significantly improve our customers’ productivity, yield and throughput. Our solutions include our series of integrated Smart Solutions, automated test handlers, factory automation software and equipment integration services. Our customers include many leading semiconductor companies such as Analog Devices, National Semiconductor, Agere, Phillips Semiconductor, Cypress Semiconductor and ST Microelectronics and many of the leading back-end contract test and assembly companies including Amkor and NS Electronics Bangkok. We believe we have one of the world’s largest installed bases of handlers used to test semiconductor devices.
Semiconductor devices are becoming more complex and are characterized by shrinking semiconductor device sizes, miniaturized packaging, increased circuitry and larger wafer sizes. These trends have led manufacturers to seek new tools and new solutions to meet their demanding requirements. We believe that our complete offering of equipment automation products and services allows manufacturers to effectively address evolving process technologies and packaging formats, such as QFN (quad flat packages with no external leads) and miniaturized packaging.
Beginning in 1999, we broadened our strategy from that of a test handler manufacturer to one of becoming a provider of comprehensive equipment automation solutions for the back-end of the semiconductor manufacturing process. Consistent with this new strategy, we completed two acquisitions. Our acquisition of Infinity Systems in June 1999, a company involved in the development of factory automation software, was integral to the development of our integrated equipment Smart Solutions product suite. In January 2000, we completed our acquisition of Aseco, which provided us with increased machine vision and robotics engineering technology critical to the handling of strips and wafers.
Industry Overview
The semiconductor device industry has grown tremendously over the last decade. This growth has been driven by traditional semiconductor markets like personal computers and data processing, and more recently by the proliferation of semiconductor devices in telecommunications, wireless communications, and consumer electronics, as well as Internet infrastructure equipment. However, the semiconductor capital equipment market, in which we compete, has historically been subject to cyclical periods of high growth and contraction. In the latter part of 2000, the semiconductor capital equipment market went into a deep and prolonged downturn, which has continued through 2002. Although the market appears to have stabilized, there are no assurances that it will return to its historical growth rates.
The process of semiconductor manufacturing is one of the most complicated and logistically challenging manufacturing processes in the world. An advanced semiconductor device can travel thousands of miles and undergo as many as 500 production steps before completion. The semiconductor device manufacturing process is traditionally divided into two parts: the front-end, which includes wafer fabrication from raw materials to a finished wafer; and the back-end, which includes semiconductor device test, assembly and packaging. Front-end and back-end manufacturing facilities are expected to run 24 hours a day, 7 days a week to provide the productivity needed to meet the requirements of the market.
Initially, semiconductor manufacturers concentrated their efforts on improving the more expensive front-end wafer fabrication process. They improved the front-end by first automating the individual production tools and more recently by integrating the various production tools through factory automation software. Tool automation was significant because it replaced most human handling of the wafers with robotics, resulting in dramatically increased yields. Factory automation software is significantly improving productivity, yield and
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throughput in the front-end by utilizing powerful production scheduling, materials handling and process tool control software.
Automation of back-end tools and facilities is severely lagging the front-end. Only recently have manufacturers begun to seek automation solutions for the back-end production process. This is because, historically, the cost of back-end assembly and test processes was only a small portion of the total semiconductor device cost and traditional processes were able to provide adequate throughput. Today the cost of back-end assembly and test per semiconductor device often equals or exceeds the wafer fabrication cost per semiconductor device. We believe that as manufacturers seek to raise the standards of yield, productivity, throughput and cost reduction in the back-end, the growth rate of the newly developing back-end automation market could increase rapidly.
Traditional Semiconductor Manufacturing Process
Semiconductor devices arrive for test in strip or wafer format, with each strip or wafer containing multiple individual devices. Until recently, most semiconductor manufacturers believed it was necessary to test individual semiconductor devices after they were singulated, or cut from the strip or wafer, because singulation could result in damage or contamination to the semiconductor devices. However, as semiconductor device and package sizes have shrunk, they have become extremely difficult to handle individually. For example, manufacturers’ chip scale packages, or CSPs, are nearly the same size as the die they package. Traditional handling tools do not have the precision to adequately address the various semiconductor device size and chip-scale packaging technologies demanded by manufacturers. As a result, handling tools designed for singulated processes have become a bottleneck to throughput.
Manufacturers now acknowledge that post-test singulation can be done, in certain package formats, without damage to the device. This understanding permits manufacturers to process, handle, and test multiple devices while still in strip or wafer format. Strip handling increases process flexibility by permitting the handling and testing of a variety of packages, substrates and semiconductor device sizes. In addition, strip handling significantly increases throughput by reducing the number of process steps and by allowing the tester to easily test multiple semiconductor devices in parallel. We believe that as manufacturers seek to increase productivity, yield and throughput, they will increasingly adopt strip test processing. Consequently, we believe strip test processing technology will be critical to any back-end automation strategy and will facilitate re-tooling of many back end processes.
In implementing broader automation strategies in the back-end, manufacturers face other significant challenges besides the development of strip processing tools. For example, production tools in the back-end historically have not communicated well with one another, if at all, and the transitions between production steps have not been integrated. This lack of communication and integration has prevented back-end manufacturers from realizing many of the benefits of factory automation and has prevented the collection of critical process data.
Our Solution
We seek to provide our customers comprehensive equipment automation solutions for their test and assembly processes. By deploying our products and services, our customers are able to improve their production yields, factory throughput, tool productivity and utilization while reducing product cost. The key components of our solution are:
• Tapestry series automated strip handler,
• Smart Solutions integrated equipment product series,
• Infinity Systems factory automation software and equipment integration services; and
• Complete line of traditional test handlers for singulated processes.
Our solution provides the following benefits to our customers:
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Flexibility to address new form factors, including wafers and strips. We believe that our Tapestry handler is one of the first handlers capable of processing semiconductor devices in strip or wafer formats. Tapestry provides increased flexibility, permitting the handling and testing of a variety of packages, substrates and semiconductor device types. Depending on the application, we believe that our Tapestry handler’s throughput capability is three to ten times greater than existing singulated handling options available today.
Ability to collect critical process data. Our Smart Solutions equipment products utilize our factory automation software to provide both the hardware and software necessary to accurately track important yield events in the test and assembly portion of the back-end process. We use state-of-the-art machine vision technology to accurately track all semiconductor devices as they travel through the test and assembly processes. This technology is not only critical to the precise positioning of strips, but also enables our software to generate critical process data. This information, together with yield information obtained in the assembly process and the front-end facility, can provide real-time data on the entire semiconductor manufacturing process for each wafer, giving manufacturers the information they need to improve their processes and increase their yields.
Deployment of integrated, comprehensive solutions. Our suite of equipment automation tools, software products and services addresses the varied automation needs of individual back-end manufacturing facilities. Our factory automation software has the ability to integrate production tools from various manufacturers into one total solution. This allows our customers to fulfill a significant portion of their test and assembly automation needs through a single supplier, thereby simplifying training, maintenance, capacity expansion and supplier accountability.
Worldwide service and support engineering. We provide worldwide service and support engineering to our customers as part of the purchase of all of our products, which includes comprehensive installation support. As our products have expanded to offer greater functionality, we have provided application engineering support so that our customers can take advantage of these advances to improve their processes.
Strategy
Our objective is to be the leading supplier for the newly developing market of automated solutions for the semiconductor test and assembly market. Key elements of our strategy include:
Providing comprehensive automated solutions. Today, we provide equipment automation solutions for the test and assembly portion of the semiconductor manufacturing process, including test, laser mark handling products, mark inspect, singulation, sort, and packaging for shipment. In addition, we are expanding our automation solutions to include equipment integration solutions compatible with products from a greater number of other equipment manufacturers such as trim, form and singulation system providers. We have enhanced the software component of our automation solutions by adding data analysis and report generating capabilities to increase our customer’s ability to improve their manufacturing process. In the future we plan to expand the Smart Solution suite of products to handle other processes within the semiconductor test and assembly area.
Capitalizing on emerging chip scale packaging, or CSP, process development. Our Smart Solutions and Tapestry products already meet initial chip scale package process requirements through strip handling. However, the vast numbers of new chip scale packages, recently introduced, have imposed additional requirements on semiconductor test and assembly processes, including the ability to perform multi-pass testing and stacked die testing. As a leader in providing equipment automation solutions that address chip scale packaging technologies, we are continuing development of next-generation handling and equipment automation solutions for advanced semiconductor device packaging.
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Strengthening key customer relationships. Our customers include many of the world’s leading providers of semiconductor devices as well as major third-party test and assembly companies. We expect that our customers will look to us to help resolve their process as well as automation problems throughout the back-end. As we solve our customers’ diverse needs, we will deepen our present customer relationships and also build our knowledge base so that we can develop similar relationships with others in the semiconductor manufacturing industry.
Leveraging our strong sales and service capability. We predominantly sell our products through our direct sales force and have established sales and service offices in the world’s major centers of semiconductor manufacturing including Penang, Malaysia and in the Philippines. In addition to our sales and service engineers, we have several applications engineers in key customer support locations. We have placed software engineers in several Asian locations to directly support Infinity Systems’ pursuit of factory automation software sales.
Continuing to develop and support existing singulated test handling solutions and products. We believe that we have one of the largest installed bases of traditional test handlers in the world. We intend to support our customers who use singulated test handling with new product introductions for specialty applications.
Automation Products
Our Smart Solutions equipment suite of products, once integrated with a tester, are designed to automate the entire test process from the point where the semiconductor devices have been packaged, through test, laser mark, inspection, singulation and sort, to the point of shipment to the customer. Our Smart Solutions product family offers semiconductor manufacturers greater flexibility, yield and throughput. These products are designed to meet the back-end semiconductor manufacturer’s demand for greater production efficiency, lower cost of test and manufacturing flexibility. The following table sets forth our key automation product offerings by category, date introduced and application.
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Automation Product Category |
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Introduced |
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Applications |
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Smart Solutions |
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Tapestry |
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February 1999 |
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A next generation handling system for semiconductor devices that are in strip or wafer package formats. |
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Isocut |
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May 2000 |
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Automated system to partially singulate chip scale packages in strip format, electrically isolating the semiconductor devices to accommodate test. |
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SmartMark |
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May 2000 |
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An automated high-speed laser marker for integration with strip handling or for marking strips with 2D codes. |
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SmartSort |
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May 2000 |
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A high speed sorter for offloading chip scale packages when integrated with singulation function. |
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SmartTrak |
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May 2000 |
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Software management system providing a map with information about each semiconductor device in the strip. |
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Input/Output Module (Slotted) |
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February 1999 |
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Automatic loading and unloading module of strips contained in a slotted magazine assembly. |
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Input/Output Module (Stacked) |
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May 2000 |
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Automated loading and unloading of strips contained in a stacked magazine assembly. |
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Automation Software |
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Infinity Systems Software Solutions |
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Acquired in June 1999 |
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Manufacturing software control systems for semiconductor assembly and test plants including equipment integration through overall factory and corporate information systems integration. |
Smart Solutions. Our Smart Solutions equipment product family was introduced to meet the anticipated evolution of back-end manufacturing from singulated handling to strip processing through the final stages of assembly and electrical test. Additionally, our Smart Solutions products are designed with electronic strip
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mapping capability as a cornerstone. As high-density semiconductor strips with tiny chip scale packages become the standard, electronic strip mapping addresses the problem of manually tracking individual semiconductor devices within the strip. The new Smart Solutions systems provide customers enhanced performance in either stand-alone or integrated assembly lines. The current average selling price for Smart Solutions products vary from $300,000 for a single module to approximately $1.5 million for a system that includes all of the components.
Tapestry, our strip handling system introduced in February 1999, is the flagship of the Smart Solution product family. Tapestry is a versatile, high volume, parallel test handling and thermal conditioning system for semiconductor devices that are in strip format. Thermal conditioning is required to ensure that a semiconductor device can operate normally in a wide range of temperatures. Tapestry can condition devices at temperatures ranging from –40 degrees centigrade to +130 degrees centigrade. The system is capable of handling fine pitch chip scale packages as well as traditional leaded semiconductor devices in strip format. Using standard industry interfaces, the system is designed to function as a stand-alone system, or can be integrated into an in-line process with our other Smart Solution products or equipment of other manufacturers.
SmartMark, our intelligent laser marking system, offers customers a method for marking individual semiconductor devices uniquely within strip according to their corresponding electronic strip map. SmartMark utilizes a commercial laser system and two-dimensional reader. We also provide an optional vision system for post-mark inspection.
SmartSort, our high-speed intelligent sorting system, allows customers to sort devices from a strip according to the electronic strip map and place semiconductor devices in a variety of final packaging media for shipment to customers. This new capability is especially critical for small semiconductor devices such as chip scale packages due to their size and difficulty in handling. SmartSort utilizes an innovative multi-site device picking approach, which provides increased throughput advantages as compared to existing sorting methods. Off-load options for SmartSort include bulk, tray, tube or tape. Other options include vision inspection and wash and dry for the saw based system.
Our suite of Smart Solution equipment products includes additional modules to assist companies in automating the back-end of the semiconductor manufacturing process using the new strip format. These include the Isocut module for electrical isolation of semiconductor devices in order to allow them to be tested in strip form. We also have input/output devices for both slotted and stacked magazines used with strips.
Automation Software. Infinity Systems Software Solutions provide highly sophisticated systems integration services to the semiconductor test and assembly industry. Infinity Systems’ solutions assist customers in creating either new manufacturing environments or implementing new methods and control systems in existing ones. These installations allow previously isolated stand-alone equipment to exchange information with other equipment and provide for remote monitoring and control of these systems. Our engineering experience, efficient software development process, strong project management and our understanding of semiconductor handling systems allow us to assist customers in specifying equipment behavior and software interfaces as a proactive component of the design and procurement process.
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Singulated Handling Products
We also provide more traditional singulated handling products utilizing both pick-and-place and gravity-feed technology. As a result of our shift in product strategy to strip-based solutions, we will build our singulated products only when a sales order exists and if technology permits. We continue to support these products for our installed base of systems for consumable and spare parts.
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Singulated Handling Products |
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7632 |
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May 1997 |
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Multiple site test handler for a wide variety of semiconductor devices, able to present up to 32 semiconductor devices for test simultaneously, utilizing tray or tube input and output. |
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Gravity Feed |
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5100 |
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December 1996 |
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High-speed dual site test handler for small outline surface-mount packages, utilizing tube input and output. |
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5105 |
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July 2002 |
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Optimized system for testing RF devices based on the 5100 design. |
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S-170 |
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September 1997 |
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Single site test handler for large surface-mount packages, utilizing tray input and output. |
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S-130 |
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January 1987 |
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Single site test handler for small outline surface-mount packages, utilizing tube input and output. |
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4610 |
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April 1985 |
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Dual site test handler for large surface-mount packages, utilizing tube input and output. |
We continue to support our pick and place handling systems that are in place at customer sites; however, we do not design new systems for shipment. Spare products associated with these lines continue to be maintained.
Our gravity-feed handling products are designed for test handling of surface mount semiconductor devices that are transported in bulk or in plastic tubes. Our handlers rely on gravity to move untested semiconductor devices from the top of the handler, where the temperature of the semiconductor device is modified to temperatures ranging from –55 degrees centigrade to +155 degrees centigrade, depending on the handler, to the test site and then to the output bins based on the quality of the semiconductor device.
Our 5100/5105 gravity feed handlers are capable of testing one or two devices in parallel with throughput of up to 14,400 devices per hour with an index time of only 0.5 seconds. It can be configured to handle a variety of devices with several different kits for varying customer requirements.
Other Products and Services
We provide service and spare parts for all of our current and many of our discontinued products. We have also done significant business in support services for a semiconductor device tester that is still widely used but that was last manufactured by us in 1993.
Research and Development
As an important element of our business strategy, we work closely with our customers to develop new products and enhancements of existing products to meet the evolving needs of the test and assembly market, particularly with respect to emerging semiconductor devices, while striving to provide the lowest cost of test. These efforts, historically focused on test handler products, have resulted in the successful introduction of several new product platforms including, our 5100, S-130 and S-170, the Tapestry strip testing and associated handling modules. In May 2000, we launched our SmartSort and SmartMark products, which are aimed at the automation of a number of the back-end processes and expand our capabilities beyond the core test handler markets.
Although we rely primarily on our internal engineering capabilities to develop new products and enhance existing products, we also utilize contract services to enhance our technical capabilities or temporarily expand our
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resources. In addition, we work closely with several manufacturers of products that are incorporated into our products or are complementary to our products when we believe a higher quality, lower cost product would result.
An ongoing goal of our research and development activities is to reduce the time required to develop new products and bring them to market. As the back-end process becomes increasingly automated and complex, the development of improved software for our products becomes increasingly important.
Our research and development expenses were $4.2 million, $7.9 million, and $9.3 million in the years ended December 31, 2002, 2001 and 2000, respectively. Our combined resources totaled 27 employees and contractors in research and development, or approximately 24% of our entire workforce, at December 31, 2002.
Customers
Our customers include many of the leading manufacturers of semiconductor devices, as well as test and assembly companies in the United States, Europe and Asia. In recent years, our significant customers have shifted from the major semiconductor manufacturers to test and assembly companies, corresponding to the increased utilization of test and assembly companies by the major semiconductor manufacturers. Analog Devices and National Systems accounted for 16% and 15% of our shipments, respectively, in the year ended December 31, 2002. Amkor Technology, Inc. accounted for 17%, Analog Devices 13% and Phillips Semiconductor 11% of our shipments in the year ended December 31, 2001, respectively. Amkor Technology, Inc. accounted for 14% of our shipments in the year ended December 31, 2000.
Our customers tend to limit the number of qualified equipment vendors they purchase from in order to gain the efficiencies of standardization across their production process. We therefore expend substantial efforts to maintain our relationships with our existing major customers to increase the likelihood that they will continue to select our products for their future generations of semiconductor devices. However, when a customer develops a new type of semiconductor device or the customer changes the size or package for a semiconductor device, the customer is more willing to consider purchasing test handling equipment and other automation equipment from a new source.
Marketing, Sales and Worldwide Support
We market our products primarily to semiconductor manufacturers and third party test and assembly companies through our own sales force and in selected markets through independent sales representatives and distributors. Our automation solutions, however, are marketed directly by our employees to the key personnel at customers and potential customers who are in charge of capital equipment for the entire back-end. These sales frequently involve major decisions by the customer as to the configuration and operation of its entire back-end operation. Although in some situations the sales cycle for Smart Solutions products may be longer than for our traditional handler products and the average order amount is generally larger.
We augment our sales efforts with direct customer support/service engineers and application engineers based in the field. These engineers are specialists in our product portfolio and partner with our customers to help determine product requirements. Our service engineers install our equipment and train the customers’ operators and maintenance technicians on the proper use and care of our equipment. Our application engineers help identify emerging markets for new products.
We established a presence in Asia more than 20 years ago, where we operate through our subsidiaries with offices in Singapore and Penang, Malaysia. To supplement the region’s sales and service coverage, we use sales representative companies and distributors in Korea, Taiwan and China. We also established an office in the Philippines to provide better sales and service support and the establishment of a software development group. We have stationed service engineers in Singapore, Malaysia, Thailand and the Philippines for rapid response to customer needs in Asia.
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Manufacturing and Suppliers
In 2002, we began the transition of our high volume manufacturing operations from our St. Paul, Minnesota facility to Penang, Malaysia. It is our belief that our new Malaysian operations will provide cost savings as well as an increased presence in our prime sales geographical area. We combine proprietary software and components developed in our facilities with components and subassemblies obtained from outside suppliers. We have established relationships with suppliers in Malaysia which allow us to out-source manufacturing of our components to a number of different suppliers. We do not maintain any long-term supply agreements with any of our key suppliers.
Competition
The semiconductor device testing and assembly equipment industry is highly competitive, and the market for our automation products and services is expected to become more competitive. We face substantial competition throughout the world primarily from manufacturers in Asia, the United States and Japan. The only companies that we are aware of that currently offer a production grade strip handling solution comparable to our Tapestry product are Fico BV, ASM International, Tesec and Cohu, Inc., whose products were introduced between 1995 and 2002. Fico’s product line currently is used only for leaded semiconductor devices. However, we are aware that other companies are developing strip handling solutions, some have shipped beta versions to customers, and we expect other companies will offer automation systems for the back-end when strip testing technology becomes more accepted. Our primary competitors in the traditional handler market are Advantest Corporation, Aetrium Incorporated, Cohu, Inc., Multitest Electronics Systems GmbH, and Rasco AG. Many of these competitors are considerably larger and have considerably greater financial resources than we do.
The principal elements of competition in our markets include throughput capability, quality, reliability, price, product performance, customer service and support, financial strength, versatility and the ability to deliver on schedule. Although we believe that we compete favorably with respect to each of these factors, new product introductions by our competitors could cause a decline in sales or loss of market acceptance of our existing products. If competitors introduce more technologically advanced products, the demand for our similar products would likely be reduced.
Intellectual Property Rights
We attempt to protect the proprietary aspects of our products with patents, trademarks and copyrights, as well as contractual and other trade secret protection strategies. We have six patents issued and active, three patent applications pending in the U.S., and two patent applications pending within the international patent treaty.
We have developed and are using a number of trademarks, slogans and other commercial symbols to advertise and sell our products. We own two federally registered trademarks, and have four trademark applications pending in the U.S. Patent and Trademark Office. Our proprietary computer programs are protected under federal copyright law as unpublished original works. We also maintain the secrecy of our software source codes through licensing and other restrictions.
We frequently review our inventions and attempt to determine which inventions will provide substantial differentiation between our products and those of our competitors. In certain cases, we may also choose to keep an invention or process a trade secret. Key employees are required to enter into nondisclosure and invention assignment agreements, and customers, vendors and other third parties also must agree to nondisclosure restrictions prior to disclosure of our trade secrets or other confidential or proprietary information.
The intellectual property position of any manufacturer, including us, is subject to uncertainties and may involve complex legal and factual issues. Allowed claims for our existing or future patents issued may be challenged, invalidated or circumvented, and any rights granted by those patents may not provide us with
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