EXHIBIT 99.1
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
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 are 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 prohibit 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, 2001, our net loss was $336.7 million, compared to net
income of $1.5 million for the year ended December 31, 2000. The net loss in
2001 reflected the impact of our decline in net sales, and unusual charges of
$209.1 million, including impairment charges, effects of APB 16 inventory
charges, inventory valuation charges and write-downs, restructuring costs and
in-process research and development write-offs. If our actions to date are
insufficient to effectively align our cost structure with prevailing market
conditions, we 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. Our failure to make these investments could seriously harm
our long-term business prospects.
31
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 some customers may experience 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.
The Merger with STEAG and CFM May Fail to Achieve Beneficial Synergies and We
May Be Unable to Efficiently Integrate the Operations of Our Acquisitions.
We entered into the merger transaction with the expectation that it would
result in beneficial synergies between and among the semiconductor equipment
businesses of the three combined companies. Achieving these anticipated
synergies and their potential benefits would depend on a number of factors, some
of which include:
o our ability to timely develop new products and integrate the products
and sales efforts of the combined company; and
o competitive conditions and cyclicality in the semiconductor
manufacturing process equipment market.
If we are able to realize the anticipated benefits of these acquisitions,
the operations of STEAG and CFM must be integrated and combined efficiently.
Although we have commenced these integration activities, the process of
integrating supply and distribution channels, computer and accounting systems
and other aspects of operations, while managing a larger entity, has presented
and is expected to continue to present a significant challenge to our
management. In addition, we have incurred substantial restructuring costs in
order to achieve desired synergies of the transactions, including severance
costs associated with headcount reductions due to duplication; and asset
write-offs associated with manufacturing and facility consolidations. We may
incur additional costs associated with improving existing and implementing new
operational and financial systems, procedures and controls to fully integrate
the three businesses. The dedication of management resources to the integration
has detracted, and may continue to detract, attention from the day-to-day
business. The difficulties of integration are increased by the necessity of
combining personnel with disparate business backgrounds, combining different
corporate cultures and utilizing incompatible financial systems. We may incur
additional costs associated with these activities, which could materially reduce
our short-term earnings.
Even with the integrated operations, there can be no assurance that the
anticipated synergies will be achieved. The failure to achieve such synergies
could have a material adverse effect on our business, results of operations, and
financial condition.
32
We Will Need to Improve or Implement New Systems, Procedures and Controls.
The integration of STEAG and CFM and their operational and financial
systems and controls has placed a significant strain on our management
information systems and our administrative, operational and financial resources.
To efficiently manage the combined company, we must improve our existing and
implement new operational and financial systems, procedures and controls. Since
the merger, we have commenced integration of the businesses, systems and
controls of the three companies, however, each business has historically used a
different financial system, and the resulting integration and consolidation has
placed and will continue to place substantial demands on our management
resources. Improving or implementing new systems, procedures and controls may be
costly, and may place further burdens on our management and internal resources.
If we are unable to improve our existing or implement new systems, procedures
and controls in a timely manner, our business could be seriously harmed.
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. For example, in the quarters ended September
30, 2001 and December 31, 2001, we took inventory valuation charges of $26.4
million. 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 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, then 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. 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.
If We Are Unable to Repay Amounts Due to STEAG in July 2002, Our Business Could
Be Harmed.
In connection with our acquisition of the STEAG Electronics Division, we
assumed certain obligations to STEAG Electronic Systems AG ("SES"), including
certain intercompany indebtedness owed by the acquired subsidiaries to SES, in
exchange for a secured promissory note in the principal amount of $26.9 million,
with an interest rate of 6%. This note is secured by restricted cash in the
amount of $26.9 million. We are also obligated to pay SES approximately Euro
19.2 million (approximately $17.1 million as of December 31, 2001) under a
second promissory note, which is secured by accounts receivable of two of our
subsidiaries in Germany. As this second note is payable in Euros, we have
exposure for exchange rate volatility. Under both of these obligations,
including accrued interest, we owe approximately $44.6 million as of December
31, 2001 to SES, which is due on July 2, 2002. At the due date, we will be
required to repay these obligations in full. If we are unable to repay the
amounts due on the due date, STEAG could foreclose on the loans, resulting in
significant harm to our business and financial condition.
33
Our Financial Reporting may be Delayed and Our Business may be Harmed if Our
Independent Public Accountant, Arthur Andersen LLP, is Unable to Perform
Required Services.
On March 14, 2002, our independent public accounting firm, Arthur Andersen
LLP, was indicted for alleged obstruction of justice arising from the federal
government's investigation of Enron Corporation. Arthur Andersen pleaded not
guilty to the charges, and indicated that it intends to defend itself
vigorously. As a public company, we are required to file with the SEC periodic
financial statements audited or reviewed by an independent, certified public
accountant. The SEC has announced that it will continue accepting financial
statements audited by Arthur Andersen, and interim financial statements reviewed
by it, so long as Arthur Andersen is able to make certain representations to its
clients. Our ability to make timely SEC filings could be impaired if the SEC
ceases accepting financial statements audited by Arthur Andersen, if Arthur
Andersen becomes unable to make required representations to us or if for any
other reason Arthur Andersen is unable to perform required audit-related
services for us in a timely manner. This in turn could damage or delay our
access to the capital markets, and could be disruptive to our operations and
affect the price and liquidity of our securities. Certain investors, including
significant mutual funds and institutional investors, may choose not to hold or
invest in securities of issuers that do not have current financial reports
available. In such a case, we would promptly seek to engage other independent
public accountants or take such other actions as may be necessary to enable us
to timely file required financial reports. In addition, relief that may
otherwise be available to shareholders under the federal securities laws against
auditing firms may not be available as a practical matter against Arthur
Andersen should it cease to operate or become financially impaired.
New Accounting Guidance Under SAB 101 Has Resulted in Delayed
Recognition of 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. During the fourth quarter of 2001, we experienced
lower bookings, significant push outs and cancellation of orders. 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.
If we are unable to collect a receivable from a large customer, our
financial results will be negatively impacted. 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.
34
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 payments of invoices by our customers;
o size and timing of sales and shipments 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
or patent litigation 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 and 2001. 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, and $336.7
million for the year ended December 31, 2001. We expect to continue to incur
significant research and development and selling, general and administrative
expenses and may not return to profitability in 2002. 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. 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 a 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,
we recently restructured our organization and reduced our workforce by 466
full-time positions and 103 consultant positions in 2001. We have incurred costs
of $8.1 million associated with the workforce reduction related to severance and
other employee-related costs in 2001, 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. 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 stock prices. Continuity of personnel can be an important factor in the
successful sales of our products and completion of our development projects, 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.
35
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, and other Asian countries accounted for 47% of our total sales
in 2001, 54% in 2000, and 59% in 1999. During 2001, Europe also emerged as an
important region for our business, contributing 31% of our sales. During 2000
and 1999, sales to customers in Europe accounted for 14% and 11%, respectively.
Our international sales accounted for 78% of our total net sales in 2001, 69% in
2000 and 71% in 1999 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.
36
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. Although we have, adopted a foreign currency
hedging program, to date we have engaged in immaterial amounts hedging
transactions or used derivative financial instruments to mitigate our currency
risks. 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.
37
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.
38
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. Several of our executive officers 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.
39
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 are currently litigating several matters involving our wet division
intellectual property. These legal proceedings, whether with or without merit,
could be time-consuming and expensive to prosecute or defend, and could divert
management's attention and resources. There can be no assurance as to the
outcome of current or future legal proceedings or claims. Defenses or
counterclaims in these proceedings could result in the nullification of any or
all of the subject patents.
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 and
Entry into the Wet Processing Market.
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.
The Effect of Terrorist Threats on the General Economy Could
Decrease Our Revenues.
On September 11, 2001, the United States was subject to terrorist attacks
at the World Trade Center buildings in New York City and the Pentagon in
Washington D.C. The potential near- and long-term impact these attacks may have
in regards to our suppliers and customers, markets for their products and the
U.S. economy are uncertain. There may be other potential adverse effects on our
operating results due to this significant event that we cannot foresee.
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Future Sales of Shares by STEAG Could Adversely Affect the Market Price of Our
Common Stock.
There are approximately 37.0 million shares of our common stock
outstanding as of December 31, 2001, of which approximately 11.8 million (or
32%) 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;
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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.
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