Vendors seek to hold line after Asian, DRAM woes

Electronic News, March 9, 1998 by Dylan McGrath

SAN JOSE, CALIF. -- If nothing else, stormy weather calls for a change in routinne. The last few weeks have been anything but business as usual in Silicon Valley, as semi-conductor equipment vendors -- battered by the pesky Asian financial crisis (AFC), the El Nino of the semiconductor industry -- have begun to tighten their belts and batten down the hatches in preparation for a long, cold winter.

The outlook is less than promising. Even some optimistic forecasters have backed off from their 1998 predictions. No matter which way you slice it, almost all equipment companies are feeling the chill brought about by AFC currency devaluation and bottomless DRAM prices.

Some companies have taken drastic measures to insulate themselves from the cold. Last month, Lam Research laid off 700 employees (EN, Feb. 16), Semitool cut about 85 jobs (EN, Feb. 2) and Watkins-Johnson axed 72 from its payroll (EN, Feb. 2).

More layoffs were announced last week. Intevac, a Santa Clara, Calif.-based supplier of sputtering systems and related equipment, said it would trim its workforce by about 20 percent, some 100 employees, and shut down a facility in Rocklin, Calif. Previously, the company announced its 2Q98 revenues would be significantly lower than expected due to an order push-out. "In view of the situation as explained last week, we have elected to significantly reduce our overhead with the goal of being able to continue our important R&D programs while remaining profitable through a period of significantly reduced revenues," said Intevac CEO Norman Pond. Mr. Pond said the layoffs would take place in Santa Clara, Rocklin and Los Gatos, Calif., and in Taiwan.

Advanced Semiconductor Materials International (ASMI) issued its 4Q97 financial release last week, revealing that, despite a 19 percent increase in fourth-quarter sales, the company conducted a "small" restructuring early this year, eliminating an undeclared number of U.S. workers.

Instead of cutting back on employees, many companies are attempting to cut back in other areas in hopes that layoffs and dramatic changes can be avoided. Recently, reports have surfaced that Applied Materials is cutting back on attending trade shows and will shut down production for as many as 12 scheduled days in 1998, offering employees the option of taking vacation time or unpaid holidays.

"We're very confident about the long-term outlook," said Jeff Lettes, a spokesman for the company. "We've been working aggressively to cut expenses." Mr. Lettes said the company will implement the shutdown days and cut back on trade shows and other non-essential travel. He also said the company has no plans for any type of layoff. "Other people have done far more dramatic things," he said. "But we are working hard to try to minimize spending."

Sue Billat, a senior capital equipment analyst for BancAmerica Robertson Stephens & Co., a San Francisco-based investment banking firm, said these types of cost-cutting strategies make sense for equipment vendors in lean times. "I think Applied is doing a very logical thing," she said. "I think we'll see more and more cost-cutting moves implemented as the year moves on. I don't think we'll necessarily see the sharp reductions in R&D spending that we've seen other downturns, because I think the pressure is really on equipment companies and the move to 300mm wafers is so crucial."

Ms. Billat said she is personally aware of several equipment companies that are implementing cost-cutting strategies similar to what Applied Materials is doing, but could not disclose them. In one example, she said a company got rid of an its paper cups with handles on them in favor of cups without handles. "That is kind of an extreme example," she said. But it really delivers a message to employees every time they get a drink of water that it's important to watch every penny."

Few companies seem willing to discuss penny-pinching policies being implemented. Several companies, particularly those with strong ties to Asian customers, acknowledged cost-cutting measures were in place, but would not comment on specifies. While Applied, the world's largest semiconductor equipment company, is freely admitting to pinching a penny or two, some companies fear such acknowledgments would damage fragile business.

"Applied is cutting trade shows; a lot of us don't have that luxury," said Andy Kirkpatrick, VP of marketing for GaSonics International. "Applied doesn't show up at a trade show, and people think, `Well, because they can.' GaSonics doesn't show up and customers get upset and they start wondering, `Are they in trouble?"'

Mr. Kirkpatrick said GaSonic's is cutting back in some areas, taking advantage of the quiet time to look for ways to reduce the cost of materials and cut manufacturing man-hours (although he did not mention possible reduction in the labor force). But he characterized GaSonics' penny-pinching tactics as limited. For example, while many equipment companies have thrown the brakes on new hiring, GaSonics is still "selectively" hiring. "We can't do anything too drastic," Mr. Kirkpatrick said. "We are really at a critical juncture in company history. We are refocusing the direction of the company."