AMAT snaps up Brooks’ fab software division

November 6, 2006 – In a bid to widen its reach in factory control software, Applied Materials has acquired the Brooks Software division of Brooks Automation Inc. for $125 million in cash. After the close of the deal, the business and employees will be folded into Applied’s Global Services division.

For Brooks, the deal renews a focus on core semiconductor-related hardware offerings (automation moules and systems, and process enabling subsystems, for semiconductor fabs and equipment manufacturers), and strengthens the company’s balance sheet, according to president/CEO Edward Grady. Applied, meanwhile, beefs up its portfolio of fab management software, adding new applications for scheduling/dispatching, material control, and advanced process control.

In a teleconference with analysts and investors, Grady explained that the company had weighed three alternatives for the software unit’s long-term strategy, and all fell short. Growing it organically would require incremental investments, building to about $200-$300 million with 15%-20% operating margins (vs. current levels of $23M in sales and 10% margins). Other options were less attractive — no suitable candidate could be found to beef up the business via acquisition, and simply “cash-cowing” the business with no further investments added no value to shareholders, he said.

Grady added that “a large number of other parties” had expressed an interest in obtaining the software business, but the AMAT deal was deemed “the best for our shareholders.” The only direct overlap in product lines could be in the MES space, he added, but previous competition had been “in limited cases,” and since most 300mm customers have already made purchasing decisions for fab software, no direct competition had been seen for several months.

Brooks CFO Bob Woodbury noted that most of the sale price will go straight to profits of ~$120 million net cash. Taking the software unit off the company’s balance sheets will also remove about ~$40 million in assets, about 4% of total assets, almost all of which is in intangibles. The unit employs about 600 people out of Brooks’ 2150 full-time and contract employees, Woodbury added.

“The combination of both companies’ software applications and Applied’s strong service capabilities will allow us to create a powerful, pre-integrated CIM solution that can be rapidly deployed and continuously supported across the entire lifecycle of a factory,” stated Manfred Kerschbaum, SVP and GM of Applied Global Services, adding that the combined offerings should be an attractive alternative to costly, highly customized solutions.

Brooks’ recent financials show the software unit has maintained 9%-11% revenue growth over the past several quarters ($22.8 million in the company’s fiscal 3Q ended in June, vs. $20.4 million in its March quarter and $18.7 million in its December 2005 quarter). The division’s gross margins have also steadily improved through the year, from 61.4% in December to 71.3% in June, while reversing an operating deficit of -15.2% into a 10.4% plus. Brooks will announce its 4Q financials on Nov. 9.


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