Lam hopes to clean up with SEZ

02/01/2008

By Hank Hogan

Just in time for Christmas last year, Lam Research (Fremont, CA) gave itself a present: the company announced it was buying the SEZ Group (Zurich, Switzerland) in an all-cash deal valued at 641 million Swiss francs (about $568 million). Lam began a public tender offer of 38 Swiss francs (about $34) for SEZ shares in early January that will run through mid-February. The acquisition should close in the first quarter of 2008, subject to regulatory and SEZ share holder approval.

This deal is a way for Lam, which is primarily an etch company, to enter the cleaning market. In a statement issued at the time of the announcement, Lam president and CEO Steve Newberry said, “Together, Lam and SEZ will create a stronger, established presence in the clean segment of the wafer fab equipment industry with the ability to deliver the broadest set of leading edge high productivity clean solutions to
our customers.”

SEZ, with 2007 sales of 330 million Swiss francs (about $292 million), has the world’s largest installed base in the single-wafer wet cleaning market. In buying SEZ, Lam acquires a product line and expertise that don’t overlap its own. It also buys credibility, particularly since the SEZ management team and most, if not all, of the Swiss firm’s products will
be retained.

That stamp of trustworthiness could be very valuable. Dean Freeman, Gartner research vice president, notes that Lam has developed its own proprietary cleaning product line but the company has faced a challenge in penetrating the market. “It’s very conservative because this is the final step the wafers usually see before they see a critical process.”

As for why SEZ agreed to the deal, Freeman notes that it costs a great deal to be a player in the worldwide semiconductor equipment market. Today, that figure could be upwards of $200 million in annual sales. SEZ may have felt that it needed the heft that Lam’s $2.6 billion in sales offered.

The two firms might also have needed each other, or at least each other’s technology. It is expected that semiconductor manufacturers will look to reduce manufacturing costs by better process step integration, particularly with the move from 45- to 32-nm technologies. Etch and clean processes are closely related, and so the capability to combine the two under one roof could prove an important advantage.

There are problems, however, that could derail the acquisition or impede its success. It is possible that another suitor for SEZ could appear. Also, mergers and acquisitions don’t have a good record in the semiconductor equipment manufacturing industry.

On the plus side, Freeman notes that Lam and SEZ are each gaining something from the deal. In addition, both management teams seem to be committed to making the deal work. These positives have to be balanced against the typical merger and acquisition negatives that arise when transplanting corporate cultures, manufacturing systems, and practices from one company to the other.

The deal’s success or lack thereof may not be apparent for some time. “We’ll have to see,” says Freeman.