You may have noticed a newcomer to the 3D InCites community. But Onto Innovation is not a new company. It is the result of the 2019 merger of equals of two successful process control solutions providers who wanted to expand to serve the semiconductor manufacturing supply chain from end to end. I recently interviewed Mike Sheaffer, senior director of corporate communications for Onto Innovation, to get the story.
Before Onto Innovation
According to Sheaffer, the merger of Nanometrics and Rudolph Technologies has been rumored for over 10 years, ever since the two companies made a play for August Technology (which was ultimately acquired by Rudolph).
“It’s been a long time coming. Both companies were doing metrology and other process control and were heavily involved in optics and software, yet there were no overlapping products,” he said. “(People said) why don’t these two companies come together?”
Nanometrics’ success comes from targeting front-end advanced nodes. 3D optical metrology is its “bread and butter” said Sheaffer. Its niche is sub-10nm inline metrology for advanced logic and 3D NAND devices. Its tools can measure and inspect every layer of a 3D NAND structure. The company never forayed into the advanced packaging application space.
On the other hand, Rudolph’s macro defect inspection capabilities are well known in the advanced packaging world, as well as its MetaPULSE metal film measurement tools for RF front-end modules and MEMS devices. The company also plays in the lithography space for wafer and panel-level packaging, thanks to a 2012 portfolio acquisition. The Firefly system leverages Rudolph’s optics and software to integrate optical die position measurements with the stepper to address the die shift issue for fan-out wafer-level packaging.
A Merger of Equals
After years of discussion between the two boards about one company acquiring the other, the match ended as a merger of equals, with no money changing hands and $320M cash on the balance sheet, said Sheaffer. Nanometrics stock was the surviving stock, and the company adopted Rudolph’s accounting practices.
“In addition to our combined optics and software core technologies, we’re bringing together an extremely powerful R&D organization that we can leverage for future projects,” explained Sheaffer. “$500-600M in revenue gives us the ability to serve major manufacturers. It’s important to have enough resources to provide products for our roadmap.”
So how has the merger been received by employees? “It’s been really exciting for both teams, especially the R&D and business unit managers. They’re like kids in a candy store. Suddenly they have more stuff to play with. What’s more, customers are asking us to put the technologies together and come up with a tool that competes head-to-head with KLA, because they don’t like relying on a single source.”
The Big Reveal
Rather than adopt one of the two names, the company went through a rebrand project, settling on a name that inspires forward motion and moving onto innovation, quite literally. A new brand allows them to keep their options open to further expansion, explained Sheaffer.
“Nanometrics” is a great brand name for the products they sell, because it speaks to nano-scale technology, but it didn’t fit into advanced packaging. And while Rudolph is well-known, it references the old founder’s name and it’s time to move on. “What do you do when you acquire another company? We are planning ahead,” he said. However, nothing is imminent. Shaeffer said they want to make sure Onto Innovation is firing on all cylinders and on solid footing before any more M&A activities.
Industry Consolidation Continues
In the past 10 years, the semiconductor industry has seen an almost frenzied pace of mergers and acquisitions, (M&A), from chip manufacturers, to packaging houses, to original equipment manufacturers (OEMs) and materials suppliers. The general consensus is that by aligning synergies, companies can operate more profitably. According to a 2019 article on Seeking Alpha contributed by Grinder Capital, over the last decade we’ve gone from an industry of 130 public semiconductor companies to 72 at the end of 2018. The article predicts that this will continue, and in the next 3-5 years there will be half as many publicly listed companies versus current levels.
Off the top of my head, in addition to Onto Innovation, I can tick off half a dozen that either completed or kicked off in 2019 alone: The completion of the DowDupont merger; KLA’s completion of the Orbotech/SPTS Technologies acquisition; Nepes acquisition of Deca Technologies manufacturing operations; Merck/EMD Performance Materials acquisition of Versum and Intermolecular; and most recently, Formfactor’s acquisition of FRT- The art of Metrology.
Despite the fact that 2019 was a down year for many, the motivation driving this recent wave appears to be growth combined with a strategy to serve the changing needs of the electronics manufacturing industry. It is certainly the case for Onto Innovation.
Moving Onto 2020
The slow-down in 2019 was not a concern for Onto Innovation when timing the merger, says Shaeffer. Moreover, he is optimistic about 2020, as he sees stability returning to the industry thanks to the promise of 5G and the recovering memory market.
“Automotive and artificial intelligence (AI) applications are driving node shrinks and advanced processing as well as graphics processing,” he said. “That all gets inspected. Our front-end business is driven by complexity. The more complex the die, the tighter the inspection requirements.” He added that the back-end is also an exciting place, as volumes in 5G handsets are expected to grow from all the key manufacturers.
For example, bump inspection alone is a tremendous growth driver because sampling rates are high, and it requires 3D metrology. “You can’t just sample a few spots to ensure reliability,” he explained. “Our business is driven by volumes and sampling rates. The more you sample, the more tools you need.” This is also being driven by reliability needs in automotive electronics, which is also driving a need for enterprise-wide software.
Sheaffer says because of customer requests, Onto Innovation plans to develop a new tool in 2020 for thin-film metrology. The company already offers solutions for bare wafer inspection, which is another growth area driven by extreme ultraviolet (EUV) lithography. Bare wafers headed to EUV lithography must be guaranteed clean, so now the wafer suppliers need to ensure that 90% of wafers are inspected on top, edge, and backside.
Offerings that span the spectrum of inspection from bare wafer through to advanced packaging is unique to Onto Innovation, says Sheaffer. The company has a share across all three markets and anticipates growth in 2020.
“EUV is driving huge silicon demand. Logic is driving complexity for our front-end tools for optical critical dimension measurements, and then there is packaging in the back end,” he said. “We’re pretty happy where we are sitting right now: #4 US supplier and #15 in the world. We’ve moved into a key supplier tier that makes it an exciting place to play.”
I don’t know about you. But I think they might be onto something. ~ FvT