by James Montgomery, News Editor, Solid State Technology

Sept. 9, 2008 – Tom Mika, CEO of Tegal, gives SST some further insights into his company’s proposed acquisition of Alcatel Micro Machining Systems’ (AMMS) deep reactive ion etch (DRIE) and other technologies, part of a plan to tap into higher-growth markets in 3D IC packaging and MEMS devices — including how the company will leverage its existing presence in MEMS, and finding the balance between R&D and production-tool capabilities, and fighting much larger competitors.

– Filling in the etch portfolio. Tegal already has several MEMS customers for both critical and noncritical etch, plus “some IDMs who are getting more active in this arena,” Mika said. One benefit: Tegal can etch platinum and other noble metals, and platinum tends to be incorporated into MEMS devices, he noted.

– Production, not R&D. With ~1500 tools in the field, some still running in fabs for 20 years, and frequent listing on VLSI’s annual customer satisfaction report card, Tegal has a good handle on how to serve customers’ production requirements, and this is part of why it is making inroads into DRIE, Mika said. “When we do the noncritical etches, we do pretty much everything other than deep,” he said. “Over past 2-3 years, customers are ready to say that the tools that they’re buying from leading suppliers are fine for R&D, but when they’re going to production that’s a different story.” He mentioned DRIE market leader STS as an example, specifically started to do R&D tools, “but that’s not where we see the business, where we want to focus.”

This likely means trimming some of the R&D side of AMMS’ business. “We will serve R&D labs where there are strategic commitments that we think are reasonable to make,” Mika said, “but we’re really going to focus on the value of our providing production-worthy tools. Some of those sales, whatever they were, probably will not accrue to us.”

– Where the costs come out. Tegal also has eyes to where it can pare away some costs with this deal. The deal will be acretive in the next fiscal year (April 2009), Mika said, with gross margins exceeding incremental operating expenditures. But he also quickly said that there are “very significant opportunities to increase gross margins” without raising prices: bring AMMS’ manufacturing from France to the US (where Tegal has trimmed its own manufacturing overhead by 50% in the past couple of years), as well as procurement to source through existing suppliers. AMMS outsourced most of its manufacturing to local partners, and Mika said the combined Tegal/AMMS would continue to source some critical components from there, but “by and large the majority of OEM components we’ll procure here, and fab parts the same, and do it in-house.” He noted that having internal assembly and final test is a big advantage; “outsourcing only works when you’re the size of Lam or Applied.”

In another cost-streamlining move, the company also will re-engineer/redesign some AMMS system architecture (though they’ll still be available as-is). For example, the chuck is designed to be flexible for R&D usage, but can be reworked to be engineered on Tegal’s process module and tighter production specs. Also, AMMS’ cluster tool uses a Brooks platform, while Tegal has its own cluster module, Mika said.

– Only the small survive… Some might suggest that making a market move into a market seen as key to one’s future comes with a price — $5M in Tegal’s case, and only $1M of that in cash, and a scan of financial sites suggests some investors see that as a bargain. But the reality is, for semiconductor capital equipment firms, particularly microcaps like Tegal, “you have to preserve cash,” Mika pointed out. “The environent is not one that’s very friendly to raising capital.” He added that the stock-heavy deal also is hoped to spur both sides to future growth — “there’s nothing like ownership in stock to get both sides focused on the right objective: long-term creation of value.”

– …while swimming with the big fish. Mika acknowledged that while the DRIE segment has some small players (e.g. STS), it’s also caught the eye of larger etch firms like Lam and Applied Materials, who certainly target big business on production floors. So where does Tegal fit into this crowding market? “Tegal is well positioned to at least be an alternative supplier,” he said. “We really have to be in markets that are where Lam, Applied, etc. don’t really mind.” While those two will duke it out in 300mm production, “the business nwo is really 200mm, certainly in MEMS and also in integrated devices.” 3D TSVs are also in the 300mm arena, but “probably a couple of years away,” he said, “and that’s where we expect to see Lam as a formidable competitor.”

Mika also downplayed the increased interest in MEMS among pureplay foundries (e.g. TSMC and UMC), as something of a “marginal application — “in a downturn they get interested. Some customers are seduced by that…others are not.” Foundries tend to reuse existing toolsets for new work like this (as with nonvolatile memory), so this is one area where Tegal isn’t as strong, Mika noted. — J.M.