Novellus Systems' approach to business is hardly novel: high-end products, built to last, sold to the largest possible customers. The company is a top maker of semiconductor production equipment, including chemical vapor deposition systems that layer dielectric (insulating) material on semiconductor wafers, physical vapor deposition systems that layer conductive metals, and electrofill systems that deposit copper layers. It also makes surface preparation systems that clean wafers before each round of deposition. Novellus Systems gets about two-thirds of its sales from the Asia/Pacific region. In 2012 the company was bought by rival Lam Research for $3.3 billion in stock.
Novellus Systems rebounded in 2010 following the global economic recession, returning to profitability and experiencing an overall sales growth of more than 110%. Still, the offer by Lam values Novellus' stock at $44 a share. Novellus shareholders will receive 1.125 shares of Lam Research common stock for each share of Novellus in a tax-free exchange. After the deal is finalized, Novellus will delist from the NASDAQ and be merged into Lam Research.
Amid worldwide financial troubles and plummeting prices and demand for its wares in 2008, Novellus followed many of its peers in announcing job cuts and a reduction in executive pay. CEO Richard Hill agreed to take only half his salary and no bonuses or stock options for 2009.
Industry conditions worsened in 2009, as the global recession and credit crisis lingered. Novellus ultimately reduced its workforce by nearly a third during 2008 and 2009 as its sales fell by almost 36% in 2008 and by about 37% in 2009. Long one of the most consistently profitable companies in the semiconductor production equipment sector, Novellus went into the red for both years as chip makers cut their capital expenditures in the face of the recession's harsh effect on sales of chips for consumer electronics and other products.
The semiconductor industry is notoriously cyclical, regardless of macroeconomic trends, but the recession pushed chip makers (and their suppliers) into the worst downturn in a decade. Novellus began to see improvements in equipment orders during 2009, yet it remains unclear how well the recovery will take hold in 2010 and the future. Many chip makers, seeing increased demand as the recession eases, are signaling plans to expand capacity, a positive development for equipment companies. Novellus has a highly concentrated customer base, and it is becoming more concentrated under the current economic conditions as semiconductor industry consolidation continues.
Novellus outsources the manufacture of major subassemblies to minimize its fixed costs and capital expenditures. Among its customers are chip giants Intel (20% of sales), Samsung Electronics (16%), and Taiwan Semiconductor Manufacturing (17%); Novellus has sold its wares to all of the world's top chip manufacturers. – less