Varian Semicondctr Eqpmnt (VSEA)

Varian Semiconductor Equipment Associates, Inc. engages in the design, manufacture, marketing, and servicing of semiconductor processing equipment used in the fabrication of integrated circuits. It primarily offers ion implantation systems required to build the transistors that are the basis of integrated circuits. The company's products include single wafer VIISta 810XP, VIISta 810HP, VIISta 810XE, and VIISta 900 XP ion implanters for medium current sector VIISta HCP series single wafer ion implanters and VIISta HC ion implanters for high current sector and the high energy VIISta 3000 series that features true zero degree implant and low contamination. It also provides VIISta PLAD, which is a multi-chamber tool and VIISta Platform that offers flexibility in managing overall bay productivity. The company serves semiconductor industry manufacturers primarily in North America, Korea, Japan, Europe, and Taiwan. Equipment Associates was founded in 1999 and is headquartered in Gloucester, Massachusetts.

Varian Semiconductor Equipment Associates, Inc.( Varian Semiconductor ) is a supplier of ion implantation equipment used in the fabrication of semiconductor chips. Varian Semiconductor designs, manufactures, markets and services semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the United States, Europe and Asia Pacific. The VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications. Varian Semiconductor offers a full range of ion implanters, categorized within the industry as medium current, high current or high energy, based upon the energy characteristics of the tool. Ion implanters are further categorized as 200milimeters (mm) compatible and 200mm or 300mm compatible.

The semi tools industry can be divided into high energy/low current products, medium energy/medium current products and low energy/high current products. The fastest growing category, high current, accounts for 50% of total industry revenue, medium current accounts for about one-third of the total and high energy is about 17%. Varian sells in all spaces, and their tools cross the segments, use common parts and software tools, affording valuable cost saving opportunities.

Ion implementation equipment essentially injects charged Ions (also called dopants) into the wafer during production.

There are 2 major companies that do Ion implementation along with several Japanese firms: Varian Semiconductor (VSEA) and Axcelis (ACLS).

As technology nodes get smaller. (Fall below 90nm) Axcelis batch technology breaks down and destroys some chips, hurts yields. Varian on the other hand uses a double magnet ribbon system which is a single wafer producer. The Varian product (patent protected and pictured above) does not damage the chips and since Axcelis uses batch there is the possibility that all the chips in the batch are destroyed.

This is a relatively new problem at smaller technology nodes, but once it was introduced many have gone back and checked old problems only to find out that it may have been a problem at larger nodes as well.

Dominating Market share

Over the last year Varian increased its overall market share from 43.2% to 64.5% of the implant market. VSEA increased its high current share from 46% to 78%, and the medium current share from 53% to 57%. Further, the firm maintained 100% share of the ultra high dose or PLAD market, which grew from almost nothing in 2006 to 64 million in 2007. VSEA anticipates that sales of its PLAD tool, which carries higher margins than its other tools, will almost double in fiscal year 2008 from $46 million in fiscal 2007.

Strong Margins

Gross margins have held up for several reasons. One, the firm's gross margins are favorably impacted by the growing upgrades and spare parts business. Secondly, as discussed above the firm faces no competition in the PLAD market, and third VIISta common product platform allows the firm to buy the same parts and assemblies for all of its tools. VSEA continues to reduce product cost as they increase worldwide sourcing activity. As the market picks up in the second half of 2008 we expect gross margins to return to the 50% level.

Share Buybacks

During the second quarter, management announced it had bought back nearly $40 million or 1.2 million shares of our stock. Through the end of the quarter, VSEA has bought back a cumulative total of about 20.1 million shares of outstanding shares from September 30, 2005 at a cost of approximately $653 million. Since the start of the buyback in the first quarter of 2006, management has reduced the net outstanding shares even after the impact of additional option exercises by approximately 14% including 11% in the last 15 months. The Board also authorized an additional $100 million to repurchase more shares.

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