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TWST: Could you perhaps begin with a quick historical sketch of Surface Technology Systems (London:SRTS.L) and an overview of where you are today?

Mr. Smith: Surface Technology Systems was originally a division of a US owned company called Electrotech based in South Wales. Electrotech is now known as Trikon, which is Nasdaq quoted. The business was founded in 1984 and now operates from a purpose built factory here in Newport, South Wales, employing 250 people here and a further 40 or so people in our two subsidiaries in Silicon Valley, California and in Germany. The Company has grown steadily and is now fully quoted on AIM, the Alternative Investment Market, at the London Stock Exchange. We completed the flotation in December, 2000. We manufacture plasma etching and deposition machines. These machines deposit material on to the surface of wafers, typically silicon wafers, or etch material from them. These are semiconductor based processes, but our machines are used for different applications for emerging industry sectors peripheral to the semiconductor industry.

TWST: How have the last 12 months fared for the company, given the serious slowdown in the semiconductor space especially?

Mr. Smith: To put that in context, what we try to say is that we are not a semiconductor company, although we use semiconductor processes. We are selling to companies that are operating in niche sectors. The MEMS (Micro-Electro-Mechanical Systems) industry is in fact holding up very well. MEMS is an emerging sector. It is growing steadily and companies that are buying machines to make MEMS devices are really making “technology buys” as opposed to “capacity buys” so that market is holding up well. The photonics market has suffered badly. Everybody knows that that market boomed a couple of years ago and has now fallen back largely due to telecoms companies running out of cash to spend on capital equipment. So the photonics sector is not so good for us at the moment. The mobile phone market is starting to show some signs of an early return to growth. So we believe we are in the right sectors, medium to long term, but this particular 12 month period will show a lower level of sales than last year and that’s what our market expectations are.

TWST: Would MEMS be the area that you would expect most significant growth going forward?

Mr. Smith: Yes, we would. MEMS is about half of our revenues at present. Just to give you an example of the potential, the MEMS industry group in the US has stated that there is probably one MEMS device per person in the US at present and by the year 2006 there will be five MEMS devices per person. So that rate of growth is quite strong and that will be mirrored with equipment companies like ourselves who are supplying the enabling technology for MEMS devices in the first place.

TWST: Are there any other key growth drivers that you can speak to?

Mr. Smith: We are starting to sell machines now which again incorporate etch technology, but for the packaging sector within the mainstream semiconductor industry. The industry has historically undertaken a packaging process by designing devices on wafers and then packaging each individual device. The trend in the industry now is to try and go through those packaging processes on the wafer scale. In other words, before the individual device gets separated. The ability to be able to package devices on a wafer scale and then dice them up later will depend on etching processes to separate each individual device. We are beginning to see some sales of our machines now for that kind of application and that could be a big growth area for us.

TWST: Could you sketch out your strategic direction for the next few years?

Mr. Smith: The main part of our strategy, not surprisingly for the markets we are in, is to make sure we capitalize on the organic growth that we will see. Having said that, although the etch and deposition equipment that we supply provides key processes in enabling these devices to be made, these are only two processes out of many. There are, for example, high quality companies that supply equipment for photo-lithography, for metrology and measurement processes. What we are going to be looking at is the possibility of strategic alliances with other complimentary equipment suppliers to see if we can provide more of a total process solution than just the etch and a deposition capability. But I wouldn’t say that that was absorbing all our time. Most of our time is spent on making sure we exploit and capitalize on the organic growth that we expect to see.