Exclusive Interview With The CEO And Director: Rudolph Technologies, Inc. (RTEC) - Paul F. McLaughlin
June 8, 2012 - The Wall Street Transcript has just published Semiconductors Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Paul F. McLaughlin has served as Chairman since January 2000 and Chief Executive Officer and as a Director of Rudolph Technologies, Inc., since June 1996. He has more than 20 years of experience in the semiconductor capital equipment business, including six years as Vice President at PerkinElmer Inc., a pioneer in optical lithography. Mr. McLaughlin holds a B.S. in metallurgical engineering from Rensselaer Polytechnic Institute, an M.S. in metallurgy and materials science from Lehigh University and an MBA from Harvard University, Graduate School of Business Administration.
TWST: Would you begin with a brief description of what Rudolph Technologies looks like today, and then give us a history of the company?
Mr. McLaughlin: Rudolph Technologies (RTEC) has actually changed quite dramatically in the last few years. We went public in 1999 with a primary focus on supplying semiconductor capital equipment to the front-end-of-line manufacturers, also known as the front end. Over time, the company has strategically shifted its operations to serve a combination of both front-end and back-end markets, roughly in the proportions of 60% front end and 40% back end. In that mixture, the 60/40 is broken up into three business units. The largest business unit is inspection, which accounts for approximately 60% of Rudolph's business. The metrology business unit is about 30% of our business, and the software unit business is about 10%.The strategic importance of this mix lies in the fact that front-end and back-end markets are off cycle to each other. And we believe that combined with increasing capital intensity for our next-generation products, it will provide us with more stability in the rapidly changing markets in which we participate.
TWST: Rudolph Technologies announced earnings this week, and it's clear the company's order book is strong. What's driving the company's overall growth and its confidence into 2012?
Mr. McLaughlin: I think fundamentally what's driving growth is the major shift that is taking place within the industry - with the focus more on the back end than it has historically been. In order to create ever-smaller form factors and to move in conjunction with Moore's Law, the semiconductor industry is increasing its capital intensity as each new technology is introduced. The difference now from prior cycles is the fact that front-end spending is centered on manufacturing at smaller geometries, while the back-end spending is predominantly focused on advanced packaging. Advanced packaging, and particularly wafer-level processing, now require new and more sophisticated manufacturing technologies by both IDMs and OSATs. These new requirements are driven, in large part, by the demands of mobility applications, such as the technology used in tablets and smartphones. The form factor now required to meet these consumer mobility requirements leads to new technologies to make chip packages thinner than ever before. This form factor has changed the very nature of the back end of the semiconductor manufacturing process, particularly as it relates to wafer-level processing. Many of the new technologies being used in the back end have their roots in front-end chip manufacturing.
TWST: As you said, Rudolph Technologies is unique in that the company has exposure to the front-end and back-end businesses of the semiconductor manufacturing process. The back end historically has had lower margins, but Rudolph is making the back end more like the front end. Would you explain that, and what competitive advantages does this mix give the company?
Mr. McLaughlin: We think it gives us a tremendous competitive advantage to bring front-end-related yield-management technologies and techniques to the back end - in fact, a very unique advantage. Most companies in our space are focused on one or the other. They are either front-end or back-end companies. We have a very strategically balanced mix of both. And as I mentioned, this dynamic positions the company to capture maximum benefits from both front-end and back-end investment cycles. Our diversification strategy is a highly competitive advantage that can help bring more certainty to our performance, and consequently more comfort to our shareholders.
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