Preparing for the post-optical era

Electronic News, Feb 2, 1998 by Dylan McGrath

Santa Clara, Calif.--With the practical end of optical lithography on the horizon, the semiconductor industry is worrying over which advanced lithography technology will enable manufacturers to continue to shrink chips. Several technologies, each championed by different companies and scientists, have emerged.

The stakes are high. Companies stand to gain or lose billions of dollars if their current R&D efforts fail when optical lithography is no longer practical, which could be as early as 2003.

No matter which technology wins, certain companies look to be in good shape. Dupont Photomasks, Inc. (DPI) is one such company. Of the five leading candidates to replace optical lithography, only one, electron-beam direct write technology, does not use photomasks. As a result, DPI and competitors like Photronics as well as suppliers like Etec Systems, should be in good shape when it comes time for the changing of the guard.

But being in the right position will be nothing new for DPI. The company is the world-leading photomask manufacturer, commanding as much as a 37 percent share of the market. It operates 10 facilities worldwide to supply its customers, which number in the 200s.

Wall Street has not overlooked this type of success. Since DPI, which had been a wholly-owned subsidiary of E.I. du Pont de Nemours and Co., held its initial public offering (IPO) on June 13, 1996, the company's stock value has grown steadily from $17 per share to a high of $73 per share. However, DPI's stock has collapsed as the Asian flu has worsened, dropping to $29 per share last week.

Recently, DPI Chairman and CEO Michael Hardinger talked with Electronic News over breakfast, outlining DPI's role in the post-optical lithography world and the company's push into Japanese markets.

EN: What's your relationship with E.I. du Pont now?

Mr. Hardinger: "E.I. du Pont owns roughly 70 percent of the company and is represented on our board. As a consequence of that holding, it is very much an arm's-length relationship, in the sense that the management of the company, the day-to-day operations of the company, is run by eight people.

DuPont is not an encumbrance. They're an asset and I mean that in the most sincere way. They've helped us tremendously when we've needed it. When we haven't needed it, they've left us alone."

EN: Is the parent company planning to sell shares of DPI to recoup some of that investment, maybe, on a regular basis? Do you think DuPont will always have an equity stake in DuPont Photomasks?

Mr. Hardinger: "I think they're quite happy -- let me start with that -- with the performance of the company since the IPO. They're very pleased with the financial performance, as well as, I think, the fact that we're providing them with a window into a technology or an industry with fast cycle times. It's a learning experience for them in the context of how they see it operate. And so I think they've been very pleased, up to this stage. But I can't really speak for what they'll do two or four or five years from now. I mean people change. But right now, they're quite pleased with the performance of the company."

EN: Do you have any plans to change the name?

Mr. Hardinger: "We've talked about that and, at the current time, we're trying to decide what to do. There are pro's and con's to changing it, and we're spending a lot of time with people like Edelman (Public relations), trying to figure out what's the best thing to do.

"It brings a lot of value to us with certain customers and in certain parts of the world. In other parts of the world, it's kind of a non-event; it's how well you service the customers that define success. So I don't know what we'll do, to answer your question. That hasn't been decided yet."

EN: Three of your major customers are Korean. What impact have the economic problems there had on your company?

Mr. Hardinger: "I would say that we've looked at our business in Korea as a consequence of what's happened, particularly with the devaluation of the won, and I think there is a high probability that there will be cutbacks in capital spending.

"And on first blush, our read is that it probably will not, believe it or not, have a significant downside on our business out there. And the reason for that is that (our customers there are) going to continue to drive to 64-megs. When you do that, you need masks. You need both prototype-development and commercial masks.

"And if they were to scale back their production capabilities there, our view is that they'll probably continue to shift to more ASIC work and less memory work, which is more mask-intensive. ASICs are more mask-intensive than the memory segment. And there may, in fact, even be the opportunity for them to begin to compete, with excess capacity there, in the context of more foundry work, all of which would be great for our business in Korea.

"So I think the proof of all that, obviously, is yet to be seen, but ... we're discouraged in the sense that this has an impact on our Korean customer base. But on the other side, I don't think it's going to have a significant impact on our business in Korea, in the long run.