AMAT buys Semitool, deepens inroads into AP, Cu for memory

November 17, 2009 – Applied Materials has agreed to acquire Semitool for about $364M in cash, or $11/share, a 31% premium over Friday’s closing price — though this was almost entirely erased just hours after the announcement.

The combination seeks to take advantage of perceived "inflection points" of transition in two key areas of semiconductor manufacturing technologies: from die-level to wafer-level packaging (WLP), including 3D stacks and through-silicon vias (TSV); and the transition from aluminum to copper-based interconnects for memory manufacturers. Specific to the products enabling these transitions, Semitool’s Raider platform for single-wafer auto multichamber process steps is the common platform for many such markets, and illustrates the transition away from batch processing to single-wafer processing, noted AMAT CEO Mike Splinter, in a conference call discussing details of the acquisition.

The two companies have been working together since 2007, codeveloping integrated technologies for both advanced packaging and semiconductor manufacturing, noted Randhir Thakur, SVP/GM of AMAT’s silicon systems group (SSG), within which Semitool will operate as a separate business unit. There are expectations of maintaining and improving "both revenue and cost efficiencies" by combining infrastructures and processes — Thakur indicated there are some synergies to be leveraged "right away to accelerate production activities" that use AMAT’s global infrastructure to support Semitool’s work in Kalispell, MT. Also, Semitool has its own separate services unit, and this structure would likely persist under the AMAT umbrella, added AMAT CFO George Davis. Semitool CEO Ray Thompson added that Applied’s strength in the market place, notably its "very high ASP product," gives it "muscle" that "will enhance our order rate considerably. I really expect that."

To the packaging end, Semitool has "strong relationships" with packaging houses, while Applied is strong with supplying deposition, planarization, and etch processing tools for chipmakers, many of whom are themselves pursuing wafer-level packaging, noted Thakur. Customers "are already seeing the transition where wafer-level packaging is becoming important," he said, e.g. with TSVs and underbump metallizations, and the lines are blurring between what’s need with "inside-fab activities" and packaging. Thakur pointed to Dataquest numbers suggesting a served market of $500M in 2010 for such technologies (about half of that is electroplating for packaging), growing to about $800M in 2012.

For the memory side, the plan is for a great platform that combines integrated clean and electroplating, Thakur noted. The memory side has been later to the copper-interconnect transition party than the logic side of the industry, but what has so far been technology buys for equipment and processes will eventually move to capacity buys, he noted — probably in the latter half of 2010 and 2011. "Everywhere in the world [that's ramping] either TSV or wafer-level packaging in the memory sector, we’re partaking in that right now," added Semitool president/COO Larry Murphy.

Financially speaking, the acquisition is expected to close before calendar year’s end (pending regulatory approval); more specific guidance about integration details (e.g., potential "synergies" i.e. what stays and what goes) will be provided at that time, according to Davis. (A question from an analyst about Semitool’s tool application toward solar manufacturing fell into this "to be announced" category.") He noted the combination will be "cash accretive" in the coming year, and GAAP-accretive within two years. (Semitool also reportedly would pay AMAT about $18M in breakup fees if it backs out and/or pursues a separate M&A deal.)

Asked whether AMAT is still shopping around for some deals in the current industry environment, Davis pointed to recent M&A moves in display and solar, but this is "the first deal for some time in the semiconductor space where the fit is so good [...] if we find other opportunities like this, we’ll act on them as well."

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