Lam Presses on with New Products; Company now focused on etch, CMP and cleaning

Electronic News, July 26, 1999 by Jeff Dorsch

Austin-1998 was a very tough year for Lam Research Corp.

The Fremont, Calif.-based company had to lay off more than 1,200 employees and take restructuring charges totaling about $200 million during the calendar year. It abandoned the chemical vapor deposition and flat panel display (FPD) etching equipment markets to narrow its focus on semiconductor etching, chemical mechanical planarization (CMP) and post-CMP cleaning equipment.

One of the few bright spots in 1998 was the introduction of the Teres integrated polishing/cleaning CMP system. Earlier this month, Lam reported Advanced Micro Devices Inc. (AMD) will use the Teres in production of its Athlon microprocessor (formerly the K7) at AMD's Fab 25 in Austin, and the chipmaker will install the system at its Submicron Development Center in Sunnyvale, Calif.

In any case, 1998 was a tough year for a lot of capital equipment companies. Even Applied Materials Inc., Lam's perennial etch competitor, decided last year to get out of the FPD production equipment business.

As Lam stands ready to report results this week from its 1999 fiscal year (the company has a July 1-June 30 fiscal year), the financial report will partly reflect the troubles of calendar 1998, but it should also show how much better business is now for the company.

Earlier this month, Susan H Billa, BancBoston Robertson Stephens managing director and senior semiconductor equipment analyst, reiterated her "strong buy" recommendation on Lam, citing the AMD Teres order and saying there may be upside potential to earnings estimates for the current fiscal year.

"This is a breakthrough order for Lam because, from our point of view, it validates Lam's entry in the rapidly growing CMP market," said Billat. "We note that Lam's entry into the CMP market was delayed by design issues relating to its highly innovative linear, vs. orbital, approach to wafer polishing. In our view, the AMD win, as well as the positive initial results that we believe Lam is experiencing with its polisher at other chipmakers, further validates the company's unique and proprietary approach to polisher design."

Based on discussions that Billat has had with several of Lam's customers, she expects additional multisystem orders to follow AMD's in the near term.

Steve Newberry, Lam's president and chief operating officer, is cautiously optimistic about the company's prospects. He joined Lam two years ago as executive vice president and COO from Applied Materials (where Lam Chairman and Chief Executive Officer Jim Bagley worked for many years), and was promoted to president a year ago.

Newberry sees the recovering semiconductor industry shifting its priorities to logic devices, rather than the long-dominant memory devices-and making a simultaneous transition to shorter design cycles. "There's a whole slew of companies that are going to position themselves for logic products," he said last week. "Both semiconductor manufacturers and equipment suppliers have to get geared up for shorter product cycles."

And Lam hasn't missed the trend toward the rising role of silicon foundries. "Foundry customers are extremely important," Newberry said. "As cost requirements go up, you see a lot more companies put their standard products into a foundry environment.

"It's been a primary, targeted area for us. Our market share in foundries is very good."

In developing the Teres and the more recently introduced Exelan etch system, Lam has adopted the attributes of a "global lean enterprise," Newberry has been telling the financial community. The company is implementing a corporate enterprise resource planning system from SAP AG, incorporating some third-party applications for SAP. Lam has reduced its supplier base to about 400 companies, including 60 identified as "critical suppliers."

When Teres and Exelan didn't initially meet certain requirements on pricing, speed, consumables and general capabilities, "we sent both products back to the drawing board," Newberry said. Among the attributes of the Exelan are 60 percent fewer parts than preceding etchers, no moving parts in the process chamber and reduced consumables, he added.

Business is better than a year ago, in general. "We've seen the order environment change dramatically," Newberry said. "The order picture has been very strong."

Newberry finally notes, "Lam has come through a tough period. What people see is a very tough competitor."