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TWST: What is Varian?
Mr. Halliday: Varian Semiconductor is a public company. Our
headquarters, oddly enough, are in Gloucester, Massachusetts, which was
one of the first seaports in America. We make ion implantation
equipment. Ion implantation equipment is semiconductor capital
equipment. We sell to virtually everybody who makes computer chips in
the world, including Intel, Samsung, TSMC, and Sony. An ion implanter
sells for about $3.5 million, weighs about 6.5 tons, and it's at the
front-end of the fabrication of wafer fabrication process. Varian, as I
said, is a public company. This year we will have record financial year
sales. Most industry analysts have us over $720 million for the year.
Varian, as a company, is doing very well. We are a product-driven
company and our industry is segmented into three types of ion
implanters: high current, medium current, and high energy. We have
dominant market share in high current and medium current, so we are
doing very well. In fact, in calendar 2005, we gained about 9 points of
market share, which was about the most market share gain in our overall
industry. We project to gain additional market share in 2006, and that's
driven primarily by our high current product position, which is
providing higher yields, throughput and more reliable equipment to our
customer base. TWST: What's the differentiator that investors should understand between
your ability to perform and your customer's short-term and mid-term
activities?
Mr. Halliday: The semiconductor capital equipment industry has long been
characterized by a high degree of cyclicality. I think that's still
true, but it is not as cyclical as it used to be. I think it's less
cyclical than it used to be because the end use of computer chips, which
our customers manufacture (and which years ago, used to go into capital
equipment, such as PCs for companies), is now much more diversified in
terms of going into consumer applications, such as cell phones, iPods,
video, and consumer electronics. I think the other two reasons why our
industry is less cyclical than it used to be is that the lead times to
get our equipment up and running are shorter. So whereas it used to be
about seven months and the chip companies would have to buy equipment in
anticipation of an increase in their own demand, now those lead times
are closer to three months. So they don't overbuild capacity and create
cyclicality in the industry because of that need to build the capacity
far in advance. And the third reason I think it's a less cyclical
industry is that our customers have different buying patterns. Some like
Intel intentionally try to be countercyclical. And so, overall, I think
the cyclicality in the industry is somewhat down. Varian is
outperforming the industry, and so we are a little bit independent of
cyclicality. We are gaining a fair amount of market share, particularly
with our high current tools where our tools provide higher yields to
customers as they have transitioned from implanting a batch of wafers
that will be 12 or 13 wafers at one time to one wafer at a time, which
is how we deal with a single wafer tool, and that provides higher
throughput in yields.
Tickers included in this excerpt: VSEA
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