How to survive a downturn: Find hot niches

By Rachel Robinson, WaferNews Associate Editor

While the downturn in the chip industry has humbled even the mightiest semiconductor equipment companies, there are a handful of firms that have steered into good market niches. While no one is immune to this downturn, some companies are faring better than average due to management decisions fostering market adaptation based on core competencies.

Ultratech Stepper, Trikon Technologies, Amtech Systems and Veeco Instruments have all managed to remain in the black for 2Q01. All four companies have been navigated into particular niches enabling passage through the choppy downturn waters with relative success.

Ultratech, San Jose, CA, reported a net income of nearly $5 million from net sales of $40.7 million for its fiscal 2Q01. Trikon, Newport, UK, earned $3.8 million from net sales of $27.7 million in 2Q01. Tempe, AZ-based Amtech increased its net income from in 2Q01 by 27% over 1Q01, while Veeco, Plainview, NY, earned $10 million in income from $113.5 million in sales for 2Q01.

Finding new niches for core competencies is a trick that companies struggle to master. “We have a mandate in our marketing department to find more applications to extend our core technologies,” Ultratech CFO Bruce Wright told WaferNews. Once the marketing department filters and screens the ideas, the good ones are presented to senior management. Wright explained, “We do a return on value analysis. It’s quantitative. It goes into return on investment, but also what the expected impact would be on our company’s market capitalization.”

Ultratech extended its reach because the company realized that competing with top tier equipment makers was not a good option. “800 lb gorillas came in and we had a tough problem succeeding, so we had to look elsewhere to find growth for the company,” explained Wright.

Elsewhere for Ultratech turned out to be markets in memory storage, MEMS, and taking front-end technology into back-end packaging. According to Wright, Ultratech had already been in the storage industry, and MEMS are an extension of core technologies in photolithography. The packaging technology came as a result of the trend to get away from wire bonding by using bump processing. The beauty of these markets, commented Wright, is that they have different timing cycles than the mainstream semiconductor industry.

Knowing where to go next is a challenge that Veeco has dealt with as well. “We practice strategic roadmap technology sessions with all of our large accounts,” commented Veeco President Ed Braun. “Our CTO meets with their CTOs, and we review a three-year technology roadmap. That gives us visibility into their R&D, and what they require. We then try to align our engineering R&D spending with their technology needs.” Braun added that the practice is also a good way to identify acquisition opportunities.

Veeco is constantly trying to identify technologies that will continue to be required for product development, according to Braun. “It’s the nature of serving information age products,” he commented. “Short product life cycles have required constant new doses of technology.”

Adapting core competencies is something that Trikon has succeeded in also. Trikon has moved into compound semiconductors, optical waveguides and low-k dielectrics. The shifts came, according to Bernard Culverhouse, VP of marketing for Trikon, by “defining and targeting markets, and by being dragged into them.”

Amtech Systems’ VP of finance and CFO Robert Hass agreed that a little luck can go a long way in targeting new markets, as it has for Amtech’s excursion into the optics market. “We’re a supplier to the semiconductor industry, and optics components makers use semiconductor processes, or similar processes. That’s how we’re able to meet their needs. That’s the way transitions occur.”

Hass explained, “Last year, optical components makers were moving into the test phase. We had our stuff where the testing was being done. They contacted us as they spun off, and started forming their own companies. It was partly by design and partly by luck that our equipment was in these facilities.”

Tracking emerging technology calls for flexibility, and the knowledge that taking risks is necessary. Both Wright and Culverhouse acknowledge the challenges as their companies rise up to face them. “If you look at the semiconductor business, change characterizes it. I can’t think of a faster moving area. The culture of the business is, by definition, geared to change,” Culverhouse noted.

Wright agreed. “In order to succeed, you have to be quick and flexible to find trends and market shifts.”

Taking risks and being flexible is key, according to Ultratech’s Wright. “I’m a big booster of taking aggressive calculated risks. There is a big difference between that and branching out into something foolheartedly, but you get payback from risk taking.”


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