Exhibit 99.3
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Semiconductor Equipment Industry is Cyclical, is Currently Experiencing a
Severe and Prolonged Downturn, and Causes Our Operating Results to Fluctuate
Significantly.
The semiconductor industry is highly cyclical and has historically
experienced periodic downturns, whether the result of general economic changes
or capacity growth temporarily exceeding growth in demand for semiconductor
devices. During periods of declining demand for semiconductor manufacturing
equipment, customers typically reduce purchases, delay delivery of products
and/or cancel orders. Increased price competition may result, causing pressure
on our net sales, gross margin and net income. We are experiencing
cancellations, delays and push-outs of orders, which reduce our revenues, cause
delays in our ability to recognize revenue on the orders and reduce backlog.
Further order cancellations, reductions in order size or delays in orders will
materially adversely affect our business and results of operations.
Following the very strong year in 2000, the semiconductor industry is now,
since 2001, in the midst of a significant and prolonged downturn, and we and
other industry participants are experiencing lower bookings, significant push
outs and cancellations of orders. The severity and duration of the downturn are
unknown, but is impairing our ability to sell our systems and to operate
profitably. If demand for semiconductor devices and our systems remains
depressed for an extended period, it will seriously harm our business.
As a result of the acquisition of the STEAG Semiconductor Division and CFM
at the beginning of 2001, we grew to be a larger, more geographically diverse
company, less able to react quickly to the cyclicality of the semiconductor
business, particularly in Europe and other regions where restrictive laws
relating to termination of employees prohibited us from quickly reducing costs
in order to meet the downturn. Accordingly, during this latest downturn we have
been unable to reduce our expenses quickly enough to avoid incurring a loss. For
the fiscal year ended December 31, 2002 and 2001, our net loss was $94.3 million
and $336.7 million, respectively, compared to net income of $1.5 million for the
year ended December 31, 2000. The net loss in 2002 primarily reflected the
impact of our continuing decline in net sales. Subsequent to December 31, 2002,
we have sold the Wet Business to SCP, which business had originally been
acquired as part of our acquisition of the STEAG Semiconductor Division and CFM.
If our actions to date, including our recent sale to SCP of the Wet Business,
are insufficient to effectively align our cost structure with prevailing market
conditionswe may be required to undertake additional cost-cutting measures, and
may be unable to continue to invest in marketing, research and development and
engineering at the levels we believe are necessary to maintain our competitive
position in our remaining core businesses. Our failure to make these investments
could seriously harm our long-term business prospects.
We are Exposed to the Risks Associated with Industry Overcapacity, Including
Reduced Capital Expenditures, Decreased Demand for Our Products and the
Inability of Many of Our Customers to Pay for Our Products.
As a result of the recent economic downturn, inventory buildups in
telecommunication products and slower than expected personal computer sales have
resulted in overcapacity of semiconductor devices and has caused semiconductor
manufacturers to experience cash flow problems and reduce their capital
spending. As our business depends in significant part upon capital expenditures
by manufacturers of semiconductor devices, including manufacturers that open new
or expand existing facilities, continued overcapacity and reductions in capital
expenditures by our customers could cause further delays or decreased demand for
our products. If existing fabrication facilities are not expanded or new
facilities are not built, demand for our systems may not develop or increase,
and we may be unable to generate significant new orders for our systems. If we
are unable to develop new orders for our systems, we will not achieve
anticipated net sales levels.
In addition, many semiconductor manufacturers are continuing to forecast
that revenues in the short-term will remain flat or lower than in previous
high-demand years, and we believe that we may continue to see some customers
experiencing cash flow problems. As a result, if customers are not successful
generating sufficient revenue or securing alternative financing arrangements, we
may be unable to close sales or collect accounts receivables from such customers
or potential customers, and may be required to take additional reserves against
our accounts receivables.
We Are Implementing New Financial Systems, and Will Need to Continue to Improve
or Implement New Systems, Procedures and Controls.
We are implementing new financial systems used in the consolidation of our
financial results, in order to further automate processes and align the
disparate systems used by our acquired businesses. The integration of the STEAG
Semiconductor Division and CFM and their operational and financial systems and
controls after the merger in 2001 placed a significant strain on our management
information systems and our administrative, operational and financial resources,
requiring us to improve our systems and implement new operational and financial
systems, procedures and controls. Since that acquisition, we have been pursuing
integration of the businesses, systems and controls of the three companies, as
each business historically used a different financial system. We have recently
implemented new financial systems to aid in the consolidation of our financial
reporting operations. These financial systems are new and not yet fully
operational, and we have not had extensive experience with them. We may
encounter unexpected difficulties, costs or other challenges that make
implementation and use of these systems more difficult or costly than expected,
may cause the consolidation and reporting of our financial results to be more
time-consuming than expected, and may require additional management resources
than expected before they are fully implemented and operating smoothly. In
addition, the sale of our Wet Business to SCP will continue to place a
significant strain on our management information systems and our administrative,
operational and financial resources as we separate out the Wet Business as a
discontinued operations from our core businesses. Continued improvement or
implementation of new systems, procedures and controls may be required, and
could cause us to incur additional costs, and place further burdens on our
management and internal resources. If our new financial systems do not result in
the expected improvements, or if we are unable to fully implement these systems,
procedures and controls in a timely manner, our business could be harmed.
In addition, as a result of new requirements proposed by the Securities and
Exchange Commission, in response to the passage of the Sarbanes-Oxley Act of
2002, requiring annual review and evaluation of our internal control systems,
and attestation of these systems by our independent auditors, we are currently
reviewing our internal control procedures, and working with our auditors to
implement any enhancements of such procedures, or further documentation of such
procedures, that may be necessary. Any improvements in our internal control
systems or in documentation of such internal control systems could be costly to
prepare or implement, divert attention of management or finance staff, and may
cause our operating expenses to increase over the ensuing year.
The Sale of Our Wet Business to SCP May Fail to Result in the Benefits We
Anticipate, and May Cause Us to Incur Greater Costs Than Anticipated.
We may not obtain the benefits we expect as a result of the sale of the Wet
Business to SCP, such as greater strategic focus on our core businesses. Our
agreement with SCP may require an adjustment to the initial purchase price, if
the net working capital of the Wet Business after the sale is not within a
specified range, and could result in a reduction of the purchase price to us. We
expect the purchase price adjustment based on the net working capital at closing
to result in a payment to SCP, in an amount less than $1.0 million. We have
agreed with SCP to (i) fund salary and severance costs for certain reductions in
force to be implemented in Germany after the closing, (ii) assume real property
leases relating to our former Pliezhausen facilities, subject to a sublease of
all or a portion of such facilities to SCP, (iii) pay legal fees up to a maximum
of $1 million in connection with certain pending patent litigation, and (iv)
reimburse SCP for amounts to cover specified arrangements and responsibilities
with customers and other costs. We expect to record reserves in the aggregate
amount of approximately $14.0 million to $15.0 million to cover our potential
liability under these items. However, our actual costs and expenses could be
greater or lesser than expected, and if greater, could materially adversely
affect our results of operation in future periods.
In addition, our consolidated financial statements do not reflect what our
financial position, results of operations and cash flows would have been had the
Wet Business been a separate stand-alone entity during the periods presented.
Therefore, we cannot predict with certainty what the effects of the divestiture
might be on ongoing operations and results, and whether the expected cost
savings will materialize, or whether the transaction may have a material effect
on our financial position, results of operations or cash flows taken as a whole,
or whether the transaction will contribute to our financial results differently
from the investment community's expectations. Our divestiture of the Wet
Business may also result in the cancellation of orders by customers who may be
unhappy that we are discontinuing the product line, particularly if the customer
has previously purchased wet processing products from us. We may lose future
orders if customers are wary or unsure of our long-term plans, or become
concerned that we will discontinue other product lines, or they elect to
purchase products from suppliers that appear to have a broader product offering.
Customers of our wet processing products may attempt to return the products if
they fear that ongoing maintenance and support of the product will not be
available.
The divestiture may also prove more costly or difficult than expected,
could cause us to lose key employees, and divert management attention and
resources from our other core businesses, particularly over the next several
quarters. In addition to the employees and facilities transferred to SCP as part
of the divestiture, we are shutting down other facilities in the United States
previously devoted largely to the Wet Business, and terminating additional
employees not hired by SCP who had predominantly worked in the Wet Business. In
order to achieve the desired cost savings from the divestiture, we will need to
incur substantial restructuring costs, including severance costs associated with
headcount reductions, and asset write-offs associated with manufacturing and
facility closures. We may incur additional costs associated with the
discontinued operations, and the dedication of management resources to the sale
has distracted and may continue to distract attention from our remaining core
businesses. We may incur additional costs associated with these activities,
which could materially reduce our short term earnings.
Our Results of Operations May Suffer if We Do Not Effectively Manage Our
Inventory.
To achieve commercial success with our product lines, we will need to
manage our inventory of component parts and finished goods effectively to meet
changing customer requirements. Some of our products and supplies have in the
past and may in the future become obsolete while in inventory due to rapidly
changing customer specifications. If we are not successfully able to manage our
inventory, including our spare parts inventory, we may need to write off
unsaleable or obsolete inventory, which would adversely affect our results of
operations.
Warranty Claims in Excess of Our Projections Could Seriously Harm Our Business.
We offer a warranty on our products. The cost associated with our warranty
is significant, and in the event our projections and estimates of this cost are
inaccurate our financial performance could be seriously harmed. In addition, if
we experienced product failures at an unexpectedly high level, our reputation in
the marketplace could be damaged, customers may decline to place new or
additional orders with us, and our business would suffer.
We May Need Additional Capital, Which May Not Be Available and Which Could Be
Dilutive to Existing Stockholders.
Based on current projections, we believe that our current cash and
investments along with cash generated through operations will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
the next 12 months. Management's projections are based on our ability to manage
inventories and collect accounts receivable balances in this market downturn. If
we are unable to manage our inventories or accounts receivable balances, or if
we otherwise experience higher operating costs or lower revenue than we
anticipate, we may be required to seek alternative sources of financing. We may
need to raise additional funds in future periods through public or private
financing or other sources to fund our operations. We may not be able to obtain
adequate or favorable financing when needed. If we fail to raise capital when
needed, we would be unable to continue operating our business as we plan, or at
all. In addition, we may need to continue reducing costs, which could cause us
to curtail research and development activities, resulting in a delay in new
product introduction or enhancement. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced. In addition, any future equity securities may have rights,
preferences or privileges senior to our common stock. Furthermore, debt
financing, if available, may involve restrictive covenants on our operations.
Accounting Guidance Under SAB 101 May Result in Wide Fluctuation in Our Revenue.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. Among other
things, SAB 101 has resulted in a change from the established practice of
recognizing revenue at the time of shipment of a system, and instead delaying
revenue recognition in part or totally until the time of customer acceptance. We
adopted SAB 101 effective in the fourth quarter of fiscal 2000, retroactive to
January 1, 2000, with the impact recorded as a cumulative effect in the first
quarter of 2000. In some situations, application of this accounting guidance
delays the recognition of revenue that would otherwise have been recognized in
earlier periods. As a result, our reported revenue may fluctuate more widely and
reported revenue for a particular fiscal period might not meet the expectations
of financial analysts or investors. A delay in recognition of revenue resulting
from application of this guidance, while not affecting our cash flow, could
adversely affect our results of operations, which could cause the value of our
common stock to fall.
We Depend on Large Purchases From a Few Customers, and Any Loss, Cancellation,
Reduction or Delay in Purchases By, or Failure to Collect Receivables From,
These Customers Could Harm Our Business.
Currently, we derive most of our revenues from the sale of a relatively
small number of systems to a relatively small number of customers, which makes
our relationship with each customer critical to our business. The list prices on
our systems range from $500,000 to over $2.2 million. Our lengthy sales cycle
for each system, coupled with customers' capital budget considerations, make the
timing of customer orders uneven and difficult to predict. In addition, our
backlog at the beginning of a quarter is not expected to include all orders
required to achieve our sales objectives for that quarter. As a result, our net
sales and operating results for a quarter depend on our ability to ship orders
as scheduled during that quarter as well as obtain new orders for systems to be
shipped in that same quarter. Any delay in scheduled shipments or in acceptances
of shipped products would delay our ability to recognize revenue, collect
outstanding accounts receivable, and would materially adversely affect our
operating results for that quarter. A delay in a shipment or customer acceptance
near the end of a quarter may cause net sales in that quarter to fall below our
expectations and the expectations of market analysts or investors.
Our list of major customers changes substantially from year to year, and we
cannot predict whether a major customer in one year will make significant
purchases from us in future years. Accordingly, it is difficult for us to
accurately forecast our revenues and operating results from year to year. If we
are unable to collect a receivable from a large customer, our financial results
will be negatively impacted.
Our Quarterly Operating Results Fluctuate Significantly and Are Difficult to
Predict, and May Fall Short of Anticipated Levels, Which Could Cause Our Stock
Price to Decline.
Our quarterly revenue and operating results have varied significantly in
the past and are likely to vary significantly in the future, which makes it
difficult for us to predict our future operating results. This fluctuation is
due to a number of factors, including:
o cyclicality of the semiconductor industry;
o delays, cancellations and push-outs of orders by our customers;
o delayed product acceptance or payments of invoices by our customers;
o size and timing of sales, shipments and acceptance of our products;
o entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
o sudden changes in component prices or availability;
o variability in the mix of products sold;
o manufacturing inefficiencies caused by uneven or unpredictable order
patterns, reducing our gross margins;
o higher fixed costs due to increased levels of research and development
costs; and
o successful expansion of our worldwide sales and marketing
organization.
A substantial percentage of our operating expenses are fixed in the short
term and we may be unable to adjust spending to compensate for an unexpected
shortfall in revenues. As a result, any delay in generating or recognizing
revenues could cause our operating results to be below the expectations of
market analysts or investors, which could cause the price of our common stock to
decline.
We Incurred Net Operating Losses for the Fiscal Years 1998, 1999, 2001 and 2002.
We May Not Achieve or Maintain Profitability on an Annual Basis, and If We Do
Not, We May Not Utilize Deferred Tax Assets.
We incurred net losses of approximately $22.4 million for the year ended
December 31, 1998, $0.8 million for the year ended December 31, 1999, $336.7
million for the year ended December 31, 2001 and $94.3 million for the year
ended December 31, 2002. We expect to continue to incur significant research and
development and selling, general and administrative expenses and may not return
to profitability in 2003. We will need to generate significant increases in net
sales to achieve and maintain profitability on an annual basis, and we may not
be able to do so. In addition, our ability to realize our deferred tax assets in
future periods will depend on our ability to achieve and maintain profitability
on an annual basis.
As a Result of the Industry Downturn, We Have Implemented Restructuring and
Workforce Reductions, Which May Adversely Affect the Morale and Performance of
our Personnel and our Ability to Hire New Personnel.
In connection with our efforts to streamline operations, reduce costs and
bring our staffing and structure in line with current demand for our products,
during 2002 we restructured our organization and reduced our workforce by 257
positions. We have incurred costs of $3.4 million associated with the workforce
reduction related to severance and other employee-related costs in 2002, and may
incur further costs if additional restructuring is needed to right size our
business further or bring our costs down to respond to continued industry and
economic slowdowns. Our restructuring may also yield unanticipated consequences,
such as attrition beyond our planned reduction in workforce and loss of employee
morale and decreased performance. The effects of the restructuring may be
further exacerbated by our sale of the Wet Business to SCP, which involved the
transfer or termination of employment of our employees engaged in the Wet
Business. In addition, the recent trading levels of our common stock have
decreased the value of our stock options granted to employees pursuant to our
stock option plan. As a result of these factors, our remaining personnel may
seek employment with larger, more established companies or companies they
perceive as having less volatile operations or stock prices. Continuity of
personnel can be an important factor in the successful sales of our products and
completion of our development projects in our ongoing core businesses, and
ongoing turnover in our sales and research and development personnel could
materially and adversely impact our sales, development and marketing efforts. We
believe that hiring and retaining qualified individuals at all levels is
essential to our success, and there can be no assurance that we will be
successful in attracting and retaining the necessary personnel.
Our Lengthy Sales Cycle Increases Our Costs and Reduces the Predictability of
Our Revenue.
Sales of our systems depend upon the decision of a prospective customer to
increase or replace manufacturing capacity, typically involving a significant
capital commitment. Accordingly, the decision to purchase our systems requires
time consuming internal procedures associated with the evaluation, testing,
implementation, and introduction of new technologies into our customers'
manufacturing facilities. Potential new customers evaluate the need to acquire
new semiconductor manufacturing equipment infrequently. Even after the customer
determines that our systems meet their qualification criteria, we experience
delays finalizing system sales while the customer obtains approval for the
purchase and constructs new facilities or expands its existing facilities. We
may expend significant sales and marketing expenses during this evaluation
period. The time between our first contact with a customer regarding a specific
potential purchase and the customer's placing its first order may last from nine
to twelve months or longer. In this difficult economic climate, the average
sales cycle has lengthened even further and is expected to continue to make it
difficult to accurately forecast future sales. If sales forecasted from a
specific customer for a particular quarter are not realized, we may experience
an unplanned shortfall in revenues and our quarterly and annual revenue and
operating results may fluctuate significantly from period to period.
We Are Highly Dependent on Our International Sales, and Face Significant
Economic and Regulatory Risks Because a Majority of Our Net Sales Are From
Outside the United States.
Asia has been a particularly important region for our business, and we
anticipate that it will continue to be important as we expand our sales and
marketing efforts by opening an office in China. Our sales to customers located
in Taiwan, Japan, other Asian countries and recently China accounted for 47% of
our total sales in 2002, 47% in 2001 and 54% in 2000. During 2001, Europe also
emerged as an important region for our business. During 2002, 2001 and 2000,
sales to customers in Europe accounted for 27%, 31% and 14%, respectively. Our
international sales accounted for 74% of our total net sales in 2002, 78% in
2001 and 69% in 2000 and we anticipate international sales will continue to
account for a significant portion of our future net sales. Because of our
continuing dependence upon international sales, however, we are subject to a
number of risks associated with international business activities, including:
o unexpected changes in law or regulations resulting in more burdensome
governmental controls, tariffs, restrictions, embargoes, or export
license requirements;
o exchange rate volatility;
o the need to comply with a wide variety of foreign and U.S. export
laws;
o political and economic instability, particularly in Asia;
o differing labor regulations;
o reduced protection for intellectual property;
o difficulties in accounts receivable collections;
o difficulties in managing distributors or representatives;
o difficulties in staffing and managing foreign subsidiary operations;
and
o changes in tariffs or taxes.
In the U.S., our sales to date have been denominated primarily in U.S.
dollars, while our sales in Japan are usually denominated in Japanese Yen. Our
sales to date in Europe have been denominated in various currencies, currently
primarily U.S. dollars and the Euro. Our sales in foreign currencies are subject
to risks of currency fluctuation. For U.S. dollar sales in foreign countries,
our products become less price-competitive where the local currency is declining
in value compared to the dollar. This could cause us to lose sales or force us
to lower our prices, which would reduce our gross margins.
In addition, we are exposed to the risks of operating a global business,
and maintain certain manufacturing facilities in Germany. Managing our global
operations presents challenges, including varying business conditions and
demands, political instability, export restrictions and fluctuations in interest
and currency exchange rates.
We May Not Achieve Anticipated Revenue Growth if We Are Not Selected as "Vendor
Of Choice" for New or Expanded Fabrication Facilities or If Our Systems and
Products Do Not Achieve Broader Market Acceptance.
Because semiconductor manufacturers must make a substantial investment to
install and integrate capital equipment into a semiconductor fabrication
facility, these manufacturers will tend to choose semiconductor equipment
manufacturers based on established relationships, product compatibility, and
proven financial performance.
Once a semiconductor manufacturer selects a particular vendor's capital
equipment, the manufacturer generally relies for a significant period of time
upon equipment from this "vendor of choice" for the specific production line
application. In addition, the semiconductor manufacturer frequently will attempt
to consolidate its other capital equipment requirements with the same vendor.
Accordingly, we may face narrow windows of opportunity to be selected as the
"vendor of choice" by substantial new customers. It may be difficult for us to
sell to a particular customer for a significant period of time once that
customer selects a competitor's product, and we may not be successful in
obtaining broader acceptance of our systems and technology. If we are unable to
achieve broader market acceptance of our systems and technology, we may be
unable to grow our business and our operating results and financial condition
will be adversely affected.
Unless We Can Continue To Develop and Introduce New Systems that Compete
Effectively On the Basis of Price and Performance, We May Lose Future Sales and
Customers, Our Business May Suffer, and Our Stock Price May Decline.
Because of continual changes in the markets in which our customers and we
compete, our future success will depend in part upon our ability to continue to
improve our systems and technologies. These markets are characterized by rapidly
changing technology, evolving industry standards, and continuous improvements in
products and services. Due to the continual changes in these markets, our
success will also depend upon our ability to develop new technologies and
systems that compete effectively on the basis of price and performance and that
adequately address customer requirements. In addition, we must adapt our systems
and processes to support emerging target market industry standards.
The success of any new systems we introduce is dependent on a number of
factors, including timely completion of new system designs accepted by the
market, and may be adversely affected by manufacturing inefficiencies and the
challenge of producing systems in volume which meet customer requirements. We
may not be able to improve our existing systems or develop new technologies or
systems in a timely manner. In particular, the transition of the market to 300
mm wafers will present us with both an opportunity and a risk. To the extent
that we are unable to introduce 300mm systems that meet customer requirements on
a timely basis, our business could be harmed. We may exceed the budgeted cost of
reaching our research, development and engineering objectives, and estimated
product development schedules may require extension. Any delays or additional
development costs could have a material adverse effect on our business and
results of operations. Because of the complexity of our systems, significant
delays can occur between the introduction of systems or system enhancements and
the commencement of commercial shipments.
The Timing of the Transition to 300mm Technology is Uncertain and Competition
May Be Intense.
We have invested, and are continuing to invest, substantial resources to
develop new systems and technologies to automate the processing of 300mm wafers.
However, the timing of the industry's transition to 300mm manufacturing
technology is uncertain, partly as a result of the recent period of reduced
demand for semiconductors. Delay in the transition to 300mm manufacturing
technology could adversely affect our potential revenues and opportunities for
future growth. Moreover, delay in the transition to 300mm technology could
permit our competitors to introduce competing or superior 300mm products at more
competitive prices, causing competition to become more vigorous.
Delays or Technical and Manufacturing Difficulties Incurred in the Introduction
of New Products Could Be Costly and Adversely Affect Our Customer Relationships.
From time to time, we have experienced delays in the introduction of, and
certain technical and manufacturing difficulties with, certain systems and
enhancements, and may experience such delays and technical and manufacturing
difficulties in future introductions or volume production of new systems or
enhancements. For example, our inability to overcome such difficulties, to meet
the technical specifications of any new systems or enhancements, or to
manufacture and ship these systems or enhancements in volume and in a timely
manner, would materially adversely affect our business and results of
operations, as well as our customer relationships. In addition, we may from time
to time incur unanticipated costs to ensure the functionality and reliability of
our products early in their life cycles, which costs can be substantial. If new
products or enhancements experience reliability or quality problems, we could
encounter a number of difficulties, including reduced orders, higher
manufacturing costs, delays in collection of accounts receivable, and additional
service and warranty expenses, all of which could materially adversely affect
our business and results of operations.
We May Not Be Able To Continue To Successfully Compete in the Highly Competitive
Semiconductor Industry.
The semiconductor equipment industry is both highly competitive and subject
to rapid technological change. Significant competitive factors include the
following:
o system performance;
o cost of ownership;
o size of installed base;
o breadth of product line; and
o customer support.
The following characteristics of our major competitors' systems may give
them a competitive advantage over us:
o broader product lines;
o longer operating history;
o greater experience with high volume manufacturing;
o broader name recognition;
o substantially larger customer bases; and
o substantially greater financial, technical, and marketing resources.
In addition, to expand our sales we must often replace the systems of our
competitors or sell new systems to customers of our competitors. Our
competitors may develop new or enhanced competitive products that will offer
price or performance features that are superior to our systems. Our competitors
may also be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion, and sale of their product lines. We may not be able to
maintain or expand our sales if competition increases and we are unable to
respond effectively.
We Depend Upon a Limited Number of Suppliers for Some Components and
Subassemblies, and Supply Shortages or the Loss of These Suppliers Could Result
In Increased Cost or Delays in Manufacture and Sale of Our Products.
We rely to a substantial extent on outside vendors to manufacture many of
the components and subassemblies of our systems. We obtain some of these
components and subassemblies from a sole source or a limited group of suppliers.
Because of our anticipated reliance on outside vendors generally, and on a sole
or a limited group of suppliers in particular, we may be unable to obtain an
adequate supply of required components. Although we currently experience minimal
delays in receiving goods from our suppliers, when demand for semiconductor
equipment is strong, as it was in 2000, our suppliers strained to provide
components on a timely basis.
In addition, during periods of shortages of components, we may have reduced
control over pricing and timely delivery of components. We often quote prices to
our customers and accept customer orders for our products prior to purchasing
components and subassemblies from our suppliers. If our suppliers increase the
cost of components or subassemblies, we may not have alternative sources of
supply and may no longer be able to increase the cost of the system being
evaluated by our customers to cover all or part of the increased cost of
components.
The manufacture of some of these components and subassemblies is an
extremely complex process and requires long lead times. As a result, we have in
the past and we may in the future experience delays or shortages. If we are
unable to obtain adequate and timely deliveries of our required components or
subassemblies, we may have to seek alternative sources of supply or manufacture
such components internally. This could delay our ability to manufacture or
timely ship our systems, causing us to lose sales, incur additional costs, delay
new product introductions, and harm our reputation.
We Are Highly Dependent on Our Key Personnel to Manage Our Business and Their
Knowledge of Our Business, Management Skills, and Technical Expertise Would Be
Difficult to Replace.
Our success will depend to a large extent upon the efforts and abilities of
our executive officers, our current management and our technical staff, any of
whom would be difficult to replace. We have had significant turnover among our
executive officers and key employees, and several have recently joined us or
have assumed new responsibilities at the company. The addition, reassignment or
loss of key employees could limit or delay our ability to develop new products
and adapt existing products to our customers' evolving requirements and result
in lost sales and diversion of management resources.
Because of Competition for Additional Qualified Personnel, We May Not Be Able To
Recruit or Retain Necessary Personnel, Which Could Impede Development or Sales
of Our Products.
Our growth will depend on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, technical, financial, sales, and marketing personnel in our
industry. In particular, we must attract and retain highly skilled design and
process engineers. Historically, competition for such personnel has been intense
in all of our locations, but particularly in the San Francisco Bay
Area where our headquarters is located. If we are unable to retain existing key
personnel, or attract and retain additional qualified personnel, we may from
time to time experience inadequate levels of staffing to develop and market our
products and perform services for our customers. As a result, our growth could
be limited due to our lack of capacity to develop and market our products to our
customers, or we could fail to meet our delivery commitments or experience
deterioration in service levels or decreased customer satisfaction.
If the current downturn ends suddenly, we may not have enough personnel to
promptly return to our previous production levels. If we are unable to expand
our existing manufacturing capacity to meet demand, a customer's placement of a
large order for our products during a particular period might deter other
customers from placing similar orders with us for the same period. It could be
difficult for us to rapidly recruit and train substantial numbers of qualified
technical personnel to meet increased demand.
If We Are Unable to Protect Our Intellectual Property, We May Lose a Valuable
Asset, Experience Reduced Market Share, and Efforts to Protect Our Intellectual
Property May Require Additional Costly Litigation.
We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements, and other intellectual property protection
methods to protect our proprietary technology. Despite our efforts to protect
our intellectual property, our competitors may be able to legitimately ascertain
the non-patented proprietary technology embedded in our systems. If this occurs,
we may not be able to prevent the use of such technology. Our means of
protecting our proprietary rights may not be adequate and our patents may not be
sufficiently broad to protect our technology. In addition, any patents owned by
us could be challenged, invalidated, or circumvented and any rights granted
under any patent may not provide adequate protection to us. Furthermore, we may
not have sufficient resources to protect our rights. Our competitors may
independently develop similar technology, duplicate our products, or design
around patents that may be issued to us. In addition, the laws of some foreign
countries may not protect our proprietary rights to as great an extent as do the
laws of the United States and it may be more difficult to monitor the use of our
products in such foreign countries. As a result of these threats to our
proprietary technology, we may have to resort to costly litigation to enforce
our intellectual property rights.
We had been litigating certain matters involving our Wet Business
intellectual property, which has been sold to SCP. Although SCP has assumed the
responsibility for these legal proceedings, we remain a party to these
litigations, and we have agreed to reimburse SCP for the costs of such
litigation up to the amount of $1 million.
We Might Face Intellectual Property Infringement Claims that May Be Costly to
Resolve and Could Divert Management Attention Including the Potential for Patent
Infringement Litigation as a Result of Our Increased Market Strength in RTP.
We may from time to time be subject to claims of infringement of other
parties' proprietary rights. Competitors alleging infringement of such
competitors' patents have in the past sued our acquired company, STEAG
Semiconductor Division. Although all such historic lawsuits have been settled or
terminated, the risk of further intellectual property litigation for us may be
increased following the expansion of our business after the merger.
Our involvement in any patent dispute or other intellectual property
dispute or action to protect trade secrets, even if the claims are without
merit, could be very expensive to defend and could divert the attention of our
management. Adverse determinations in any litigation could subject us to
significant liabilities to third parties, require us to seek costly licenses
from third parties, and prevent us from manufacturing and selling our products.
Royalty or license agreements, if required, may not be available on terms
acceptable to us or at all. Any of these situations could have a material
adverse effect on our business and operating results in one or more countries.
Our Failure to Comply with Environmental Regulations Could Result in Substantial
Liability.
We are subject to a variety of federal, state, local, and foreign laws,
rules, and regulations relating to environmental protection. These laws, rules,
and regulations govern the use, storage, discharge, and disposal of hazardous
chemicals during manufacturing, research and development and sales
demonstrations. If we fail to comply with present or future regulations, we
could be subject to substantial liability for clean up efforts, personal injury,
and fines or suspension or cessation of our operations. We may be subject to
liability if our acquired companies have past violations. Restrictions on our
ability to expand or continue to operate our present locations could be imposed
upon us or we could be required to acquire costly remediation equipment or incur
other significant expenses.
Future Sales of Shares by STEAG Could Adversely Affect the Market Price of Our
Common Stock.
There are approximately 44.9 million shares of our common stock outstanding
as of December 31, 2002, of which approximately 13.2 million (or 29.4%) are held
beneficially by STEAG. STEAG has agreed to restrictions on its ability to
acquire additional shares of our stock, other than to maintain its percentage
ownership in us, and from soliciting proxies and certain other standstill
restrictions in connection with voting shares of our common stock, for a period
of five years after its acquisition of the stock. STEAG may sell these shares in
the public markets from time to time, subject to certain limitations on the
timing, amount and method of such sales imposed by SEC regulations, and STEAG
has the right to require us to register for resale all or a portion of the
shares they hold. If STEAG were to sell a large number of shares, the market
price of our common stock could decline. Moreover, the perception in the public
markets that such sales by STEAG might occur could also adversely affect the
market price of our common stock.
The Price of Our Common Stock Has Fluctuated in the Past and May Continue to
Fluctuate Significantly in the Future, Which May Lead to Losses By Investors or
to Securities Litigation.
The market price of our common stock has been highly volatile in the past,
and our stock price may decline in the future. We believe that a number of
factors could cause the price of our common stock to fluctuate, perhaps
substantially, including:
o general conditions in the semiconductor industry or in the worldwide
economy;
o announcements of developments related to our business;
o fluctuations in our operating results and order levels;
o announcements of technological innovations by us or by our
competitors;
o new products or product enhancements by us or by our competitors;
o developments in patent litigation or other intellectual property
rights; or
o developments in our relationships with our customers, distributors,
and suppliers.
In addition, in recent years the stock market in general, and the market
for shares of high technology stocks in particular, have experienced extreme
price fluctuations. These fluctuations have frequently been unrelated to the
operating performance of the affected companies. Such fluctuations could
adversely affect the market price of our common stock. In the past, securities
class action litigation has often been instituted against a company following
periods of volatility in its stock price. This type of litigation, if filed
against us, could result in substantial costs and divert our management's
attention and resources.
Any Future Business Acquisitions May Disrupt Our Business, Dilute Stockholder
Value, or Distract Management Attention.
As part of our ongoing business strategy, we may consider additional
acquisitions of, or significant investments in, businesses that offer products,
services, and technologies complementary to our own. Such acquisitions could
materially adversely affect our operating results and/or the price of our common
stock. Acquisitions also entail numerous risks, including:
o difficulty of assimilating the operations, products, and personnel of
the acquired businesses;
o potential disruption of our ongoing business;
o unanticipated costs associated with the acquisition;
o inability of management to manage the financial and strategic position
of acquired or developed products, services, and technologies;
o inability to maintain uniform standards, controls, policies, and
procedures; and
o impairment of relationships with employees and customers that may
occur as a result of integration of the acquired business.
To the extent that shares of our stock or other rights to purchase stock
are issued in connection with any future acquisitions, dilution to our existing
stockholders will result and our earnings per share may suffer. Any future
acquisitions may not generate additional revenue or provide any benefit to our
business, and we may not achieve a satisfactory return on our investment in any
acquired businesses.
The Effect of Terrorism, the War in Iraq, and Political Instability Could Harm
our Results of Operation.
The threat of terrorism targeted at the regions of the world in which we do
business, including the United States, increases the uncertainty in our markets
and may delay any recovery in the general economy. Any delay in the recovery of
the economy and the semiconductor industry could seriously impact our business.
Increased international political instability, as demonstrated by the September
2001 terrorist attacks, disruption in air transportation and further enhanced
security measures as a result of the terrorist attacks, and the effects of war
in Iraq, may hinder our ability to do business and may increase our costs of
operations. Such continuing instability could cause us to incur increased costs
in transportation, make such transportation unreliable, increase our insurance
costs, and cause international currency markets to fluctuate. This same
instability could have the same effects on our suppliers and their ability to
timely deliver their products. If this international political instability
continues or increases, our business and results of operations could be harmed.