Semitool Sale’s Impact on Local Workforce

By Beacon Staff

As Semitool Inc.’s entire Montana staff gathered for a meeting on the morning of Nov. 17, many of the 500 workers filing in had no idea they were about to hear that their company was being sold. In front of them stood Ray Thompson, the 68-year-old founder and chairman of Semitool, who moved the high-tech firm from California to the Flathead Valley in 1979, where it has grown into one of the biggest employers in the region.

Joining Thompson was Semitool’s president and chief operating officer Larry Murphy. Next to Semitool’s leaders stood a team of executives from Applied Materials Inc., the Santa Clara, Calif.-based company that had announced earlier that morning it was offering to buy Semitool for $364 million in cash. Leading the Applied Materials team was Randhir Thakur, senior vice president and general manager of its Silicon Systems Group, the business unit Semitool will join.

On a conference call with investors hours earlier, Applied, the largest manufacturer of semiconductor equipment in the industry, announced that it was offering Semitool’s shareholders $11 per share, a 31 percent premium over the previous day’s closing price of $8.40. While Semitool workers were learning the news, the proposal was making national headlines. Most analysts regarded the acquisition as another sign that the industry in which Semitool and Applied inhabit – both companies manufacture capital equipment that makes microchips – was consolidating further.

For the deal to be approved, Applied Materials needs two-thirds of Semitool shareholders to accept the offer. About 32 percent of Semitool’s shares are held by its directors and executives, who have already agreed to tender their stake.

But while the purchase of Semitool by Applied seems beneficial at the outset for both companies’ shareholders and Applied’s bottom line, it won’t be clear what the impacts are on the hundreds of workers in Montana for months, if not years.

Applied Materials CEO Mike Splinter touted the acquisition as one that would help his company to tap the expanding market for semiconductors that go into portable communications gadgets.

“The semiconductor industry recovery is being fueled by global demand for mobile devices such as smart phones, notebook PCs and portable media players for music, gaming and books,” Splinter said on the conference call. “With this acquisition, Applied will help the world’s leading chip makers create ever-smaller and more powerful devices.”

On the same call, Thompson said Applied’s massive presence in the market and the relationships it has built up with clients over the past 40 years would result in growth for Semitool.

“The muscle out there, I believe, will enhance our order rate considerably,” Thompson said.

The two key areas in which Semitool’s acquisition will help Applied are wafer-level packaging and the shift in the memory industry to copper interconnects. The former category, packaging, involves bonding integrated circuits to products when they are still at the silicon “wafer level,” an earlier stage of production than was possible previously, and that streamlines a fabrication process with hundreds of steps. The latter category relates to the highly competitive market for memory chips moving toward adopting copper connections, which is cheaper and often requires fewer steps than aluminum, the previous industry standard.

Both sectors are poised for massive growth in coming years, and in both areas Semitool is a leader in designing equipment that can perform these processes. Having an industry giant like Applied Materials’ name on these products is likely to bolster demand, whereas previously clients considering purchasing from Semitool might have been reticent because it is a relatively small outfit. Because of their complementary strengths, Semitool and Applied have worked together on different ventures over the last two to three years, making an eventual merger natural, executives of both companies said.

But at the Tuesday morning meeting announcing the purchase offer, questions of the merger’s broad implications for the semiconductor industry were, understandably, secondary to Semitool employees’ concerns about their job security, retirement savings and health care.

A Semitool employee present at the meeting, who asked not to be identified, described it as, “kind of a ‘rah-rah’ atmosphere.”

“Everybody clapped, but I think there’s a lot of skepticism,” the employee said. “Because there is change involved, some people won’t like the change.”

According to this employee, Applied executives said it was their intent to make job offers to every one of Semitool’s current workers in preparation for what they refer to as “Day One,” the point after the purchase is completed when the two companies merge, likely to occur by the end of this year, with the full transition expected to take around six months. And despite an October announcement by Applied that it plans to trim its workforce by more than 10 percent, eliminating 1,300-1,500 positions over the next 18 months, executives have said repeatedly that such a move is unrelated to its Semitool acquisition.

A Nov. 17 e-mail obtained by the Beacon from the Applied Materials Human Resources department to Semitool employees addresses other concerns about benefits, saying, “it is not uncommon for Applied’s benefit programs to be equal or slightly more generous than those of the companies we acquire.”

“There will be some differences, but employees should be pleased with the competitive compensation and benefits package offered by Applied,” the e-mail stated.

The Semitool employee also said Applied has a more hierarchical employee structure than Semitool, with clear career paths laid out, as well as incentives for advancement. As Semitool workers are hired into Applied, the employee said, they may find more options open to them in a larger company, along with more training opportunities. One of the areas in which overlap appears to exist initially, the employee added, is in customer service, where some Flathead workers may be asked to relocate.

As for whether larger job reductions could take place for Semitool’s current workforce – which has certainly not been immune to job cuts in the boom and bust industry in which it operates and under its current management – the employee interviewed believes Semitool’s different divisions have a year or two to prove they can compete globally. Some business units could grow, and some non-performing units could be cut.

“There’s no intention to come in and shut down the operation, strip things and move on,” the employee said. “Some people will always think that.”

Local business leaders, meanwhile, remain optimistic that the takeover of one of the Flathead’s bedrock businesses could ultimately result in more jobs for local workers. Kalispell Chamber of Commerce President Joe Unterreiner said he has been contacting chambers in the other communities where Applied is located and, so far, said he has heard positive things about its support for economic development and nonprofit activities.

Kellie Danielson, president of Montana West Economic Development, said her corporation is taking a positive approach to news of the acquisition.

“Applied Materials has resources to continue investing in the technology Semitool developed and grow the local operations,” Danielson said. “We want Applied Materials to understand how important the operations are to Montanans and the advantages of doing business in the Flathead Valley.”

But one thing seems clear in the wake of the acquisition announcement: 2010 is going to be a very different year for the employees of Semitool; just how remains to be seen.

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