If you can’t beat them, buy them! Applied Materials to acquire Varian Semiconductor

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Ion implant market leader Varian Semiconductor Equipment Associates will be acquired by Applied Materials for approximately US$4.9 billion. The deal is said to enhance Applied’s product offerings for transistor formation for front-end semiconductor processing as IC process complexity, transistor scaling and 3-D design implementation require complete and integrated product and process offerings. The deal also offers Applied new market opportunities in solar, display and light emitting diodes, where Varian has made significant investments in recent years to broaden implant technologies market opportunities. Varian reported last week second-quarter 2011 revenue of US$330 million.

Applied said it would fund the transaction with a combination of existing cash balances and debt.  This includes a US$2 billion, one-year senior bridge loan facility with plans in process to arrange for better longer-term debt financing structure.  Applied also has an undrawn revolving credit facility in place worth US$1 billion. A new four-year, US$1.5 billion revolving credit facility is also being used to finance the deal, which has been approved by the boards.

“Varian is a great fit for our strategy to profitably grow share in our core semiconductor business with best-in-class technology and talent,” noted Mike Splinter, chairman and chief executive officer of Applied.  “The pace of product innovation is accelerating, requiring devices that are more mobile, more connected and more personalized. These global trends are driving our customers to find new solutions for smaller transistors and faster and higher performance chips, while pushing the boundaries of innovation. Combined, Applied and Varian will be better positioned to help our customers solve these complex challenges and deliver long-term value to shareholders.”

“We believe the opportunity is very attractive for Varian's customers, employees and shareholders,” said Varian's chief executive officer Gary Dickerson. “In addition to our combined strengths in the semiconductor space, Applied's proven capability to extend its technology to adjacent markets like solar and display can help unlock the tremendous potential of ion implantation in these markets.” 

“Trends in chip complexity, transistor scaling and 3-D design are driving growth in the ion implantation market. Applied's broad capability in semiconductor equipment and Varian's ion implant expertise will allow us to work more closely with our customers on integrated process solutions at the transistor level,” added Randhir Thakur, executive vice president and general manager of Applied's Silicon Systems Group.  “We are excited to welcome Varian's highly talented team with a history of successful innovation, execution and customer focus.”

However, this is not Applied’s first foray into ion implant technology, having closed down its ion implant business unit in 2007. The closure meant that Applied acknowledged that its competitive position against market leader, Varian was not sustainable. Varian went on to dominate the semiconductor implanter space with approximately 80% market share. However, Varian has also made a move to bring implant technology to the PV space with the potential to boost cell efficiencies by 2%.

The deal, however, would seem to be semiconductor-based rather than the potential of solar. Rumours had surfaced about a year ago that Applied could resurrect its implant business to offer a competitive alternative to Varian in the PV manufacturing market, as the technology adoption could be a drawn-out affair due to capital equipment costs and the conservative approach of many PV manufacturers when adopting new technology.

The purchase of Varian also highlights longstanding concerns that Applied has lost the ability to innovate in-house by developing equipment from inception through to market-leading positions–not seen since the introduction of its CMP tool in the late 1990s.

According to Applied, Varian will operate as a business unit within its Silicon Systems Group and continue to be based in Gloucester, Massachusetts.   

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