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In survival mode: gear makers gird for the year ahead "I do think that the industry has pretty well hit bottom. Some have seen a bottom last quarter; the technology leaders are likely to see a bookings trough this quarter," says Ms. Billat. Ms. Billat also uses as an indicator of upturn success how well a company is able to defend or gain market share. She notes that Applied's chemical mechanical planarization (CMP) business went into this downturn with less market share; however, they stand poised to come out of this downturn with more market share in this segment. "KLA-Tencor owns the market they are in and have good product technology and continue to invest in it," says Mr. Hutcheson. Ms. Billat believes bone-crushing downturns such as this one favor larger, diversified gear makers. They can "spread development costs over more products and that is why they favor larger companies," she says. "Smaller companies-unless they have a small franchise-some of the second-tier capital equipment companies, I think it will be harder for them. This is the kind of downturn where you tend to see attrition." "The companies that can actually be standing when it's over will win. Especially if they manage to stay standing and maintain their investment in technology," says Mr. Hutcheson. "At this depth of downturn, almost all companies are having to cut into muscle and bone now; it is no longer cutting into fat," says Mr. Hutcheson. "We are not going to see a big uptick in the next year, so companies are beginning to scale back their operations to manage at a much smaller level." Mr. Hutcheson notes that some equipment companies have "gone back and pulled out their 1990 business plans, just to learn how to run things at a smaller size." Some concern has been expressed regarding Lam Research Corp., as well. "Lam is definitely being squeezed between TEL (Tokyo Electron Ltd.) and Applied," says Mr. Hutcheson, however, "Lam has got really good management right now. The people that are at Lam today are basically the people that architected Applied's rise." "People are suffering 30 percent declines in business. (The semiconductor capital equipment industry) is running at 1988/1989 revenues," says Mr. Hutcheson, who adds, "Try living with your monthly income being half of what you expect. The only hope they have of pulling out of it is new technology; the only problem is that new customers aren't buying that right now." Leading The Way Out Expected to lead the pack out of this equipment industry downturn are two areas, lithography and process diagnostics (high-speed test equipment). According to Semiconductor Equipment & Materials International (SEMI) book-to-bill numbers for September 1998, back-end equipment enjoyed a slight, 4 percent uptick in the September quarter. The trend is expected to continue in October. Lithography, a critical area for advanced semiconductor designs, should lead the front-end equipment industry out of the downturn, according to analysts. It also represents a competitive hotbed that could see its playing field altered by the downturn. "The biggest competitive shift you will see in the next upturn is lithography," says Mr. Hutcheson. He believes that Nikon is in a weak position. For one thing, competitors like to point out that Nikon must produce and sell a higher volume of steppers to make their numbers. "That is part of it," Mr. Hutcheson says, also "Nikon has not fielded a credible 248-nanometer stepper," and have not demonstrated 300- millimeter platform, with some difficulty making their scanner work. "I think that is a sign of cutting back too far at R&D," says Mr. Hutcheson. U.S. equipment suppliers can take solace in the assessment that "the Japanese equipment suppliers have suffered more than their U.S. and European counterparts, because their business has been more Asian- centric, according to Mr. Hutcheson.u Page 2 of 2 |