Lam-Novellus Deal to Create Economies of Scale
By Mark LaPedus, SemiMD senior editor
Lam Research Corp.’s recent move to buy Novellus Systems Inc. will enable the combined entity to create economies of scale and accelerate its efforts in the fab tool arena, according to a top executive at the firm.
As reported, moving to compete against Applied Materials Inc. and Tokyo Electron Ltd. (TEL) in the broad line fab tool sector, Lam late last year entered into a definitive agreement to acquire Novellus in an all-stock transaction valued at approximately $3.3 billion.
The deal represents a major shift for Lam. For years, Lam focused on primarily one segment — etch — but the company later expanded into the cleaning market by buying SEZ in 2007. With the acquisition of Novellus, Lam has entered into several new and competitive areas, such as chemical vapor deposition (CVD), physical vapor deposition (PVD), electrochemical deposition (ECD) and dry strip.
In a brief interview at SEMI’s Industry Strategy Symposium (ISS), Steve Newberry, vice chairman of Lam, said he did not want to discuss the exact details of the acquisition. In general terms, Newberry said the combined entity will bring economies of scale — and best of breed tools — to the mix. Lam’s claim to fame is providing the best of breed tools in etch, where it is a market leader.
Customers “will still look at best of breed tools,” he told SemiMD, but chip makers also want larger suppliers with a global presence. “Scale matters,” he said. “If you are not globally strong, you will not make the cut.”
During a presentation at ISS, he dropped hints about another motiving factor in the ongoing consolidation among fab tool suppliers. “Equipment company customers are becoming larger with more complexity,” he said. “Spending is consolidating to fewer IC manufacturers and will become more acute as industry moves to 450mm. Fewer dollars need to be concentrated with fewer suppliers.”
Bob Johnson, an analyst with Gartner Inc., said the Lam-Novellus deal makes sense on several levels, including the ability to pool their respective resources in 450mm. “They need size to play in the 450mm area,” he said.
Going forward, look for more consolidation in the fab tool space, as the leading-edge IC makers will require more “scale and scope” with their tool vendors, said Mike Splinter, chief executive of Applied Materials Inc., in a separate presentation at ISS.
C.J. Muse, an analyst with Barclays Capital, said: “The top 5 capex spenders’ proportion of overall industry semi capex has grown from the 40s in the early 2000s to 60 plus percent in 2011.”
On the equipment side, “over the last 10 years the industry has been characterized by increasing concentration. The top 5 equipment players worldwide now control 60 percent of the market, verses the low 50s levels pre-2005,” he said. “And given the recent M&A in the space, we look for this upward trend to continue. Net-net, we see this concentration in the space as normalizing industry profitability across the semi cycle, driven by less duplicated R&D investment, reduced pricing pressure, etc.”
Big fab tool vendors are getting bigger
