UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

 

Commission file number:  0-23150

 

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

None.

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common Stock, $.008 Par Value Per Share

(Title of class)

 

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  ý     No  o

 

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.     ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes  ý     No  o

 

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) on February 25, 2004 was $147,626,116 based on the last sale price as reported by the Nasdaq National Market System.

 

As of February 25, 2004, the registrant had 10,651,170 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2004.

 

 

PART I

 

Item 1.    BUSINESS

 

Business Outlook

 

This Form 10-K contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” or “continue” or the negative of such terms or other comparable terminology, although not all forward-looking statements contain such terms.  In addition, these forward-looking statements include, but are not limited to, statements regarding, among other things, Ibis’ belief in the potential acceptance of and demand for Ibis-produced SIMOX-SOI wafers for mainstream commercial applications, the potential acceptance of and demand for Ibis’ implanters, the evolution of Ibis’ business model from supplying mainly SIMOX-SOI wafers to semiconductor fabs to supplying mainly implanters to wafer manufacturers who will supply SIMOX-SOI wafers to the fabs, our intent to pursue, and our ability to maintain, further strategic relationships, partnerships and alliances with third parties, our ability to obtain intellectual property rights necessary to produce certain kinds of wafers, our intention to add products and advance our process technology, our ability to protect our proprietary technology, the potential trends in wafer sales and the semiconductor industry generally, the capabilities of and anticipated benefits of the i2000, including the ability of the i2000 to support volume production of high quality SIMOX-SOI wafers, the ability of the i2000 to reduce costs, and the ease with which the i2000 can be installed and qualified in fabrication facilities, the likelihood that implanters, if ordered, will be qualified and accepted by customers, the likelihood and timing of revenue recognition on such transactions, our ability to obtain the components and materials necessary to manufacture wafers and/or implanters, and the sufficiency of our capital resources.  Such statements are neither promises nor guarantees but rather are subject to a number of risks and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.  Such factors and uncertainties include, but are not limited to those set forth below in “Business — Risk Factors” and elsewhere throughout this Form 10-K. All information set forth in this Form 10-K is as of the date of this Form 10-K, and Ibis undertakes no duty to update this information, unless required by law.

 

Introduction

 

Ibis Technology Corporation (“Ibis”) develops, manufactures and markets SIMOX-SOI implantation equipment and wafers for the worldwide semiconductor industry. SIMOX, which stands for Separation by IMplantation of Oxygen, is a form of silicon-on-insulator, or SOI, technology that creates an insulating barrier below the top surface of a silicon wafer. Our proprietary oxygen implanters produce SIMOX-SOI wafers by implanting oxygen atoms just below the surface of a silicon wafer to create a very thin layer of silicon dioxide between the thin operating region of the transistor at the surface and the underlying silicon wafer itself.  The buried layer of silicon dioxide acts as an insulator for the devices fabricated on the surface of the silicon wafer and reduces the electrical current leakage which otherwise slows integrated circuit performance and increases the loss of power during circuit operation.  Through this process our customers can produce integrated circuits, which we believe, offer significant advantages over circuits constructed on conventional silicon wafers.  We believe that these advantages include:

 

•                                      substantially improved speed for microprocessors and other logic integrated circuits,

•                                      reduced power consumption,

•                                      reduced soft error rate, and

•                                      higher temperature operation.

 

We believe these characteristics make SIMOX-SOI wafers, and the finished integrated circuits, well-suited for many commercial applications, including:

 

•                                      servers and workstations,

•                                      portable and desktop computers,

 

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•                                      wireless communications and battery powered feature rich hand held devices and cell phones,  and

•                                      harsh-environment electronics.

 

When Ibis began operations in 1988, much of our revenue was derived from research and development contracts and sales of wafers for military applications. Over the years, there was a shift in revenue to sales of SIMOX-SOI wafers for commercial applications and the nature of our business has evolved through stages where sometimes our revenue was primarily derived from selling wafers for evaluation purposes, and at other times it was primarily derived from equipment sales. This is a normal path to follow while developing and promoting a fundamental new technology, especially when it relates to the semiconductor industry embracing any change that affects fabrication operations. This trend is expected to continue in the near term as our customers continue to sample SOI and the early adopters work to achieve stable production processes and enter pilot production. We believe that we are in the technology rollout stage of our corporate life cycle with respect to our i2000 SIMOX-SOI implanters.

 

Our fundamental SIMOX-SOI technology has been developed, refined, and tested over the last dozen years. In 2002, Ibis introduced the current-generation of SIMOX-SOI technology, which included our second generation oxygen implanter (i2000ä) and the modified low dose (“MLD”) SIMOX wafer process which was licensed to us by IBM. The i2000’s flexibility, automation and operator-friendly controls allow this tool to produce a wide range of SIMOX-SOI wafer products, including Advantox^® MLD and Advantox MLD-UT wafers. We believe the ability of the i2000 implanter to produce eight and twelve-inch (or 200 and 300 mm) SIMOX-SOI wafers coupled with the MLD process positions us to capitalize on the growing SOI market. In September 2002, we received an order valued at approximately $8 million for an i2000 oxygen implanter from a major semiconductor manufacturer.  During the second quarter ended June 30, 2003, our largest customer accepted the i2000 implanter that we shipped to them late last year. As a result of this acceptance, we recognized revenue of approximately $8 million in the second quarter ended June 30, 2003.

 

During February 2004, we announced the receipt of an order for one Ibis i2000 SIMOX implanter, with an option to purchase a second i2000, from a leading international silicon wafer manufacturer. Although no assurances can be given, we expect to ship this system in the second quarter of 2004 depending on completion of the tool and customer acceptance of the tool at our facility. Revenue recognition for this implanter order will be based on final customer acceptance at their facility, the timing of which may vary depending on a number of factors, which include the customer’s site being properly facilitized (power, water, air) and performance of the tool.

 

We believe that strategic alliances with existing and potential customers will continue to play an important role in developing a worldwide commercial market for our SIMOX-SOI wafers and implanters. We currently have agreements with IBM and MEMC.

 

Over the past three years, we have sold SIMOX-SOI wafers to many of the world’s leading commercial semiconductor manufacturers and foundries, including Advanced Micro Devices, Honeywell, IBM, Intel, Motorola, Samsung, Texas Instruments, and TSMC. We have also shipped limited quantities of SIMOX-SOI wafers to the world’s largest silicon wafer manufacturers, including Komatsu, MEMC Electronic Materials, Inc. (“MEMC”), Wacker-NSCE Corporation, Shin-Etsu Handotai Co., Ltd. (“SEH”) and Sumitomo Mitsubishi Silicon Corporation (“SUMCO”). In addition, we have sold SIMOX implanters to IBM, SUMCO and Shanghai Simgui (“Simgui”).

 

We were incorporated in Massachusetts in October 1987 and commenced operations in January 1988. Our executive offices are located at 32 Cherry Hill Drive, Danvers, Massachusetts 01923 and our telephone number is (978) 777-4247.  Our web site is located at www.ibis.com.. We make our periodic reports on Form 10-K, Form 10-Q and Form 8-K (and any amendments) available on the web site, free of charge, as soon as reasonably practicable after these reports are filed with or furnished to the Securities and Exchange Commission. We have not incorporated by reference into this document the information on our web site and you should not consider it to be a part of this document. Our web site address is included in the document as an

 

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inactive textual reference only. Unless the context otherwise requires, the terms “Ibis”, “we”, “us”, and “our” refer to Ibis Technology.

 

Our Strategy

 

Ibis’ primary goal is to be the dominant supplier of oxygen implantation equipment to the world’s silicon wafer manufacturers so they can, in turn, efficiently and cost-effectively supply SOI wafers to the global semiconductor industry. We will continue to supply wafers, including for test and evaluation purposes, but we expect that our primary emphasis will be on implanter sales and support.  We also plan on continuing process development for SIMOX-SOI wafers.  Key elements of our strategy for achieving this objective include:

 

•                  Capitalizing on Fundamental Trends in Semiconductor Manufacturing. We believe that semiconductor manufacturers face an increasing demand for faster integrated circuit speed, reduced power consumption, smaller feature size and immunity to soft errors, which are changes in logic state due to exposure to radiation. In our experience, these manufacturers prefer to satisfy the demand with minimal additions or modifications to their existing equipment base. We believe that SIMOX-SOI technology is a leading alternative to address these requirements and that there will be a migration of SOI wafer manufacturing into the major silicon wafer suppliers.  We reach this conclusion for a number of reasons.  First, we believe that tremendous price pressure exists on commodity type products, such as silicon wafers, and this pressure is already eroding the price of SOI wafers.  Because the starting wafer represents a significant component of the SOI wafer cost, silicon wafer manufacturers should have a natural cost structure advantage leading to a higher gross margin, and therefore can manage such price pressure better than stand-alone SOI producers that do not also produce the silicon wafer itself.  Second, we expect that the price pressure will encourage silicon wafer manufacturers to seek out higher margin products, like SOI wafers, to increase their margins.  Third, we believe that silicon wafer manufacturers have traditionally developed proprietary intellectual property in silicon materials science, which can be applied to designing optimal starting wafers for SOI production.  This should give them an advantage in both minimizing wafer cost and maximizing SOI wafer quality and yield.  Fourth, our experience suggests that silicon wafer manufacturers already have a well-developed infrastructure for manufacturing, sales and marketing large volumes of substrates.  Lastly, we believe that there is greater efficiency in producing the SOI wafer as part of the wafer manufacturers existing product flow, specifically avoiding the need to repackage, reclean, reinspect and reship substrates twice, once as starting silicon wafers, and a second time as SOI wafers. Therefore, as a result of these trends, we expect our ultimate customers will be drawn from these silicon wafer manufacturers and we plan to focus a majority of our technical and marketing resources on the leading silicon wafer manufacturers and our major key customers in the semiconductor industry who are the leaders in the adoption of SOI technology. We expect that implanter sales to chipmakers should be minimal, but focused on SOI processes, which the chipmaker wishes to keep proprietary, such as selective (or patterned) SIMOX, or other specialty substrates.

 

•                  Pursuing Strategic Marketing, Manufacturing, Distribution and Development Alliances. We intend to continue to pursue relationships through which third parties will distribute some of our products and/or assist us in research and development activities. In January 2003, we entered into an agreement with IBM to develop an enhanced, modified low-dose (“MLD”) process for the manufacture of SIMOX-SOI wafers. We also plan to continue our joint development activities with our customers.

 

•                  Enhancing and Extending Current Product Offerings. We intend to continue to use our resources and our strategic partners’ technical expertise to improve our existing products, expand our core product functionality, add products to our existing product line and further advance our process technology. Our implanter research and development programs are aimed at increasing throughput and thereby reducing the cost of SIMOX-SOI wafers.

 

•                  Increasing Our SIMOX-SOI Manufacturing Capacity. During 2002 and 2003, we put in place a second line for 300 mm SIMOX wafer manufacturing that consists of balance-of-process (anneal,

 

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clean and metrology) equipment. Going forward we intend to gauge SIMOX-SOI equipment demand from the silicon wafer manufacturers and adjust our equipment manufacturing capacity accordingly. We currently have capacity to build ten to fifteen implanters per year in our existing space.

 

Marketing, Sales and Customers

 

Over the last several years, Ibis has focused on integrating SIMOX-SOI wafers into commercial applications. We believe that commercial shipments of our wafers have been used principally for evaluation purposes or pilot production in products, including microprocessors, gate arrays, ASICs (application specific integrated circuits), and memories (DRAMs, SRAMs, etc.). We believe that one of our customers is using our SIMOX-SOI wafers in commercial production and that a number of our customers are sampling SIMOX wafers or are developing prototype products.

 

Our primary focus today is on getting the silicon wafer manufacturers to embrace SIMOX-SOI technology. To date, where we have succeeded, we have accomplished this through joint research and development programs, sales representative agreements, and providing SIMOX-SOI wafer foundry services to them. We intend to assist the wafer manufacturers in becoming the producers of SIMOX-SOI wafers by selling and servicing oxygen implanters along with continuing to improve SIMOX wafer processing technology via our SIMOX consulting group.

 

In February 2001, Ibis entered into an agreement with MEMC, pursuant to which MEMC became a global sales representative for Ibis’ SIMOX-SOI wafers. We believe that MEMC has a worldwide presence of sales and applications personnel and operates manufacturing facilities directly, or through joint ventures, in Italy, Japan, Malaysia, South Korea, Taiwan and the United States.

 

Our internal sales personnel generally focus on our potential or existing equipment customers, largest SIMOX-SOI wafer customers, silicon wafer manufacturers, as well as supporting our strategic partners. Our objective in these broad-based sales efforts is to promote the adoption of SIMOX-SOI technology on an industry-wide basis.

 

Overseas, we rely on our internal sales personnel and our strategic partners to market and sell our products. We also have a SIMOX implanter sales representation agreement with IRAM Systems Co., Ltd, a Korean corporation, to solicit orders for our Ibis 1000 implanters from customers located in China.

 

The following table sets forth, in thousands of dollars, the amount of revenue derived from our significant customers during the fiscal years ended December 31, 2001, 2002 and 2003, as well as the percent of our revenue represented by these customers’ purchases:

 

		2001					2002					2003
Customer		Dollars			Percent		Dollars			Percent		Dollars			Percent
IBM		$	806		11	%	$	4,632		33	%	$	16,887		92	%
SUMCO		1,288			17	%	172			1	%	183			1	%
Bookham		2,097			28	%	947			7	%	85			—
Simgui		—			—		5,555			40	%	526			3	%

 

The sales to IBM in 2003 resulted primarily from the sale of an i2000 oxygen implanter at a sale price of approximately $8 million and sales of 300 mm SIMOX-SOI wafers. Revenues from Simgui in 2002 represent the sale of an Ibis 1000 oxygen implanter and certain parts.

 

Sales to overseas customers in 2001, 2002 and 2003 were 52%, 56% and 7%, of total revenue, respectively. In 2001, 2002 and 2003 sales to the United Kingdom were 28%, 7% and less than 1%, respectively, of total revenue, which was attributable to Bookham Technology.  In 2002, sales to China were 40% of total revenue, which was attributable to Simgui.

 

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Strategic Alliances

 

Ibis has entered into a number of strategic alliances that we believe enable us to better address our target market, to advance our technology more effectively, and to match our technical developments and production expansion to the needs of our key customers. We believe that strategic alliances with existing and potential customers will continue to play an important role in developing a worldwide commercial market for our SIMOX-SOI wafers and implanters.

 

We have a long-standing relationship with SUMCO which began as a sales distribution arrangement, progressed to a joint research and development effort, and ultimately SUMCO purchased an Ibis 1000 oxygen implanter in order to establish a Japanese-based manufacturing facility for SIMOX-SOI wafers. This implanter was installed in SUMCO’s wafer manufacturing facility in Chiba, Japan in July 2001. In 1999, we completed an agreement to license our standard and Advantox SIMOX-SOI wafer fabrication process to SUMCO.  Under this agreement we received an initial royalty fee and are entitled to future royalties based on a percentage of SUMCO’s Advantox SIMOX-SOI wafer sales.

 

In January 2003, we announced the signing of a Joint Development Agreement with IBM. The objective of the agreement is to develop an enhanced, MLD process for the manufacture of SIMOX-SOI wafers, which are used as the starting material in the manufacture of advanced integrated circuits (“ICs”). Aimed at producing lower-cost, higher quality SIMOX-SOI wafers with thinner top silicon layers, the joint development work is being conducted at both Ibis and IBM. We believe that both companies bring extensive expertise and experience regarding SIMOX-SOI technology to the joint effort. IBM, a pioneer in the development and adoption of SOI technology, developed the original MLD process for high quality, low cost SIMOX-SOI wafers. IBM then licensed Ibis to manufacture SIMOX-SOI wafers using the production-proven MLD process for sale to IBM and all other Ibis customers. Advantox MLD wafers are being broadly marketed to integrated circuit manufacturers looking to accelerate their SOI adoption process.

 

Since 2001 MEMC has been a global sales representative for our entire SIMOX-SOI wafer product line, including Advantox MLD, and the primary supplier to us of silicon substrate material. In February 2002, Ibis and MEMC expanded this alliance by entering into a Technical Cooperation Agreement aimed at developing advanced SIMOX-SOI wafers for semiconductor manufacturers worldwide. The alliance also grants MEMC the right to license our SIMOX-SOI wafer technology and to purchase oxygen implanters manufactured by us. Such rights are designed to provide MEMC with the option to produce and sell SIMOX-SOI wafers at some point in the future.

 

Research and Development

 

Ibis has active research and development programs in both equipment and wafer process technology. For the past two years a primary focus has been developing capacity to produce 300 mm SIMOX wafers. This required the development of a new generation oxygen implanter, the i2000, and the procurement and qualification of annealing, cleaning, and metrology tools for balance of process at 300 mm.

 

The proprietary i2000 was designed to support the volume production of high quality SIMOX-SOI 200 and 300 mm wafers for the global semiconductor industry. We began shipping 300 mm SIMOX wafers in early 2002. The i2000 duplicates the process environment of the Ibis 1000. To minimize process risks; however, it incorporates a number of features designed to improve throughput and reduce costs. These include increased beam current, faster wafer handling, off-hub wafer cooling, and modular construction, which we believe will enable improved serviceability and diagnostics, while simplifying the assembly and shipping of the machine. We also believe that the simpler beam line design of the i2000 also offers extensive capabilities, facilitating the manufacture of the Advantox product portfolio. We believe that taken together, these features increase productivity of the i2000 over the Ibis 1000 by a factor greater than two.  Finally, the i2000 is designed to be far more fab friendly than the Ibis 1000. It is designed to be bulkhead or ballroom mounted in the clean room, offers front-opening unified pod (FOUP) capability and meets SEMI safety and ergonomic guidelines. We also believe that the i2000’s improved automation and operator-friendly controls will improve product yield and afford ease-of-use.

 

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Our wafer technology R&D has concentrated on enhancing the range of potential commercial applications for Ibis’ SIMOX-SOI wafers by:

 

•                                          Refining techniques to produce SIMOX-SOI wafers of higher quality;

•                                          Developing new processes to produce SIMOX-SOI wafers with thinner top silicon and buried oxide layers at lower cost, to a large extent expanding and improving the MLD process;

•                                          Jointly developing a technology for manufacturing high resistivity SIMOX-SOI wafers for mixed signal and radio frequency (“RF”) applications with a major silicon wafer manufacturer. With this alliance, we developed advancements in SIMOX wafer manufacturing, including reduced wafer cost, scalability to 300 mm and stability of the material’s high resistivity characteristic through thermal cycling common in integrated circuit manufacturing. We filed a joint patent application entitled Method of Producing a High Resistivity SIMOX Silicon Substrate in May 2003;

•                                          Integrating strained silicon (another emerging wafer-materials technology) with SOI (“SSOI” wafers), an innovation enabling a further significant boost of complementary metal oxide semiconductor (“CMOS”) device speed. Improved electron mobility in strained silicon leads to an increased drive current in MOS devices and is complemented by benefits provided by SOI, such as reduction of parasitic capacitances in CMOS devices. We assist our customers in their development of SSOI SIMOX wafers and are seeing increased activity in this area; and

•                                          Responding to specific customer requirements and emerging industry trends, such as the development of our Advantox MLD-UT (ultra thin) product line to address requirements for fully depleted devices. Fully depleted is a MOS transistor structure in which the depletion region under normal operation extends as far as a buried insulator layer. We believe that ultra-thin SOI wafers provide superior results, especially in terms of increased power efficiency and heat reduction in the manufacture of fully depleted substrate transistors for next generation semiconductor devices.

 

During the fiscal years ended December 31, 2001, 2002 and 2003, Ibis’ internally funded research and development expenses were approximately $5,119,000, $6,258,000 and $5,381,000 or 69%, 45% and 29% of our revenues, respectively.

 

Competition

 

We believe we face three general sources of competition: (1) direct SIMOX-SOI competition, (2) competing SOI technologies, and (3) competing non-SOI technologies.

 

(1) Among direct SIMOX-SOI competitors, we believe we are presently the only U.S. manufacturer of SIMOX-SOI implanters.  To our knowledge, Hitachi, Ltd. of Japan is the only other company manufacturing SIMOX implanters and has sold a limited number of tools to date. We are not aware of plans by any of the major ion implant manufacturers to design and develop oxygen ion implanters, but they may already have such plans, or may develop them in the future.  We believe that it would take one to three years to develop such an implanter.

 

We also believe that SUMCO, Wacker Nippon Steel Corporation (“WNC”), Komatsu and Simgui are manufacturing or marketing SIMOX wafers. We expect that the availability of SIMOX-SOI wafers from silicon wafer manufacturers will help address customer concerns about adequate sources of supply and their desire to purchase all of their silicon wafer requirements (e.g., bulk silicon, epitaxial, strained silicon and SOI wafers) from the same company. Increased direct SIMOX-SOI competition would adversely affect our SIMOX wafer sales; however, our strategy is to be the dominant supplier of SIMOX implanters to the world’s silicon wafer manufacturers so they can, in turn, efficiently and cost-effectively supply SOI wafers to the global semiconductor industry.  In addition, we believe these wafer manufacturers could be potential equipment customers of ours.

 

(2) The second source of competition for us is the development of alternative SOI materials. The approach that most directly competes with SIMOX is thin-film bonded SOI wafers. SOITEC, a French-based company that spun off from LETI, a French government research lab, uses a bonded method. SOITEC has, to date, been our major wafer product competitor and has sold larger volumes of SOI wafers than us. The thin-

 

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film bonded approach uses two silicon wafers, one or both having a thermally-grown oxide layer, which are first bonded together to form the silicon/silicon dioxide/silicon structure. A majority of one of the wafers is removed or separated from the double-wafer structure, and the remaining portion serves as the device layer of the SOI wafer. The most popular method is to transfer the thin layer using wafer splitting techniques, allowing the rest of the wafer to be reclaimed and reused. Regions of stress are first created using implantation and/or epitaxial growth. The wafer is split along the stress interface by the application of heat (SOITEC’s Smartcut® process), a gas jet (Silicon Genesis’ process), or a water jet (Canon’s ELTRAN® process).  SEH also offers a thin SOI Unibond® wafer manufactured with the SmartCut® process, which is licensed from SOITEC. Our evidence to date suggests that both SIMOX and bonded wafers perform equally well. We believe, however, that the SIMOX process results in a lower manufacturing cost. We also believe that, at this stage in the market’s development, multiple SOI suppliers will help accelerate the adoption of SOI technology.

 

(3) The third source of competition is derived from alternative non-SOI technologies designed to obtain benefits similar to those of SOI, including improvements to existing technologies. Significant resources are continually expended to improve epitaxial and conventional silicon wafers.

 

The semiconductor industry has demonstrated its resourcefulness in improving materials through creative circuit design and manufacturing techniques, thereby extending the useful life of conventional substrates, and we cannot be sure that it will not continue to do so. The relatively lower cost of these substrates provides an incentive to the semiconductor industry to continuously improve existing material without moving to new, more advanced substrates. In addition, complex variations of more conventional approaches, such as elaborate circuit structures built on conventional silicon substrates, and compound materials (silicon-germanium, gallium-arsenide, indium phosphide, etc.), are other alternative substrate choices. Strained silicon is a technology that can be used to increase the operating speed of computer chips, such as microprocessors. The spacing between Si atoms is stretched – or strained - farther apart, allowing electrons to flow with less resistance, leading to chips that are faster, as reported by IBM. The fact that strained silicon is an emerging wafer-materials technology raises questions about how it compares to SOI, another emerging wafer-materials technology. Although both strained silicon and SOI are wafer-materials technologies that can increase chip speed, they work in different – and complementary – ways and if combined can provide additional benefits.

 

Strained silicon increases transistor speed by increasing the mobility of electrons traveling through the top silicon. On the other hand, SOI increases transistor speed by reducing parasitic capacitances associated with source and drain junctions. So, strained silicon and SOI are complementary and mutually enhancing - not competing – technologies, although one technology may be adopted without the other. We believe the real wave of the future will be combining these two complementary technologies, much like the way copper interconnects, low k dielectric materials and SOI substrates have been combined.

 

Backlog

 

Ibis’ backlog consists of written orders for SIMOX-SOI wafers expected to be delivered during 2004, equipment revenue expected to be recognized during 2004 and other contracts expected to be performed during 2004.  The backlog is as follows:

 

		As of February 28,
		2003					2004
		Dollars			Percent		Dollars			Percent
Wafer orders:
100 mm		$	44,000		1	%	$	—		—
150 mm		28,000			—		—			—
200 mm		183,000			2	%	70,000			1	%
300 mm		7,913,000			97	%	6,332,000			92	%
Total wafer orders		$	8,168,000		100	%	$	6,402,000		100	%
Equipment related orders		$	8,054,000				$	7,000,000
Contracts/service		$	688,000				$	271,000

 

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Approximately 98% of the wafer backlog is comprised of orders from one customer of Ibis. All customer orders are subject to modification or cancellation by the customers.  Backlog can, and often does, fluctuate greatly based upon, among other matters, the timing of receipt of orders, especially equipment orders. Therefore, variations in backlog may not represent a fair indication of future business trends.

 

Patents and Proprietary Rights

 

During 2003, Ibis added three patents to its intellectual property portfolio and we have more than two-dozen patents pending relating to our proprietary i2000 oxygen implanter or the SIMOX fabrication process.

 

Ibis has an exclusive worldwide sublicense to the proprietary beam scanning system developed and patented by a consultant to us during the development of the Ibis 1000. Our beam scanning system sublicense agreement also grants us certain rights to further sublicense the beam scanning system for certain applications other than oxygen implantation. Pursuant to these rights, we have entered into four non-exclusive sublicense agreements that permit the respective sublicensees to manufacture, use and sell implantation machines incorporating the beam scanning system so long as such machines are not designed for the production of oxygen implanted wafers. Each sublicensee has paid us a non-refundable option fee upon signing an agreement and an initial license fee when it exercised its option to use the licensed technology. In addition, each sublicensee will pay a royalty fee with respect to each implantation machine manufactured, used or sold after its option fee and initial license fee has been applied. License fees received by us from sublicenses are to be shared on a substantially equal basis with the licensor of the beam scanning system. As of December 31, 2003, Ibis had received approximately $1,631,000 in net license fees, after deducting amounts paid to the licensor.

 

Ibis also obtained an exclusive license to technology that facilitates the presentation of wafers to ion beams developed by Superion Limited, a United Kingdom corporation. Through December 31, 2003, Ibis has paid $552,000 for license fees for implantation machines that have been manufactured by us.  Under the terms of this agreement, Superion Limited has retained the right to utilize the technology for uses not involving oxygen implantation of silicon or other semiconductor materials.  During 2001, this agreement was modified to incorporate i2000 implantation machines. Ibis also entered into a Sublicense Agreement during 2001 which gives our customer a royalty-bearing, non-exclusive license to utilize this technology for ion implantation machines, excluding oxygen implanters.

 

During 1998, we entered into an equipment licensing and development agreement which gives the customer the right to a royalty-bearing, non-exclusive license to supplement our equipment manufacturing capacity.  We have received no royalties under this agreement.

 

During 1999, we completed an agreement to license our standard and Advantox SIMOX-SOI wafer fabrication process to SUMCO. The agreement consisted of an initial royalty fee. Future royalties shall be payable based on a percentage of SUMCO’s SIMOX-SOI wafers sold which are manufactured using the licensed process.

 

In 2000, we licensed from IBM the right to manufacture and sell SIMOX-SOI wafers, using IBM’s proprietary SIMOX process, to IBM and to all our other customers. Under the royalty-bearing license agreement, we may use IBM’s process to produce SIMOX-SOI wafers which we market as Advantox MLD. Advantox MLD wafers are broadly marketed to integrated circuit manufacturers looking to accelerate their SOI adoption process.  Under the agreement we granted IBM rights to our patents utilized in the modified low dose, or MLD process.  We believe that other SIMOX-SOI wafer processing methods exist and are being used today, however, our existing or potential equipment customers that would like to use the MLD process to manufacture SIMOX-SOI wafers using our implanters would be required to license this technology directly from IBM.  Two silicon wafer manufacturer have already licensed this technology from IBM and others have developed their own SIMOX process. However, no assurances are given that our equipment customers and IBM would come to terms acceptable to both parties in a timely manner, or at all. These MLD process license issues have caused delays in receiving an order from one customer and could cause delays with other customers in the future if they plan to license this technology.