Wednesday, July 06, 2011

The Novellus Rumor

Short, sweet, and to the point. The rumors about Novellus becoming part of an M&A transaction seem to surface every couple of years. Will Tokyo Electron step up to the plate? What about the now-infamous rumor of Lam and Novellus merging? That one has been a fixture for probably 15, maybe 16 years. What would they call the company? Lamellus?

Is there anyone else?

Today's story (rumor) comes from Investor's Business Daily:

Chip Process Supplier Novellus: Acquisition Target?

A couple of notable quotes from CEO and Chairman Rick Hill:

"We work with Lam and Tokyo Electron to solve customer needs," he said. "They have etch technology. We have deposition technology. The combination of those two technologies is critical.""

"We're not out hawking the company. We're a public company. Anybody who wants to buy the shares is free to buy the shares," he said. "Nobody in the company is trying to thwart it or make it happen. If it makes sense from a business sense and shareholder value, management always acts in the interests of the shareholders."

Maybe these deals make sense this time around. The rumors about a much-needed consolidation have been around forever - they pretty much spawn the individual transaction stories. Aside from some trading rallies chip equipment companies have pretty much spent the last 10 years in the Wall Street doghouse. A few deals might serve to liven up the sector. Applied Materials, obviously, felt that Varian Semiconductor was reasonably valued. (What happens with this deal remains to be seen - my fear is that Varian's high margins and favorable business position will get compromised a bit once they are fully engulfed by, what some call, the industry's Evil Empire).

We will definitely know more about the state of the chip equipment business next week during Semicon West. That trade show brings back some memories. During the 2002 session semiconductor companies were closing fabs and shutting their pocketbooks. It was dismal. One morning I was crossing Mission Boulevard, on my way to the Applied Materials Analyst Briefing, and who should I run in to but Rick Hill. He was dashing off to a meeting but we had a few words. I asked him, "How's it going?" He replied, "This ain't the 90's."

His comments in the IBD story are much more optimistic:

He likens today's growth cycle to the long one from the mid-90s to early 2000s. That cycle was marked by multiple drivers, not least of which was the worldwide rollout of the Internet.

Hill thinks the current cycle could also last about seven years, with five more to go.

One can hardly argue with the "multiple-driver" state of today's end market for semiconductors. Then again, if the company is truly an M&A candidate would you expect him to be anything less than optimistic?

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