KLAC Company Profile

We offer a broad spectrum of products and services that are used by virtually every major wafer, IC and photomask manufacturer in the world.'These customers turn to us for inline wafer defect monitoring; reticle and photomask defect inspection; critical dimension ('CD') metrology; wafer overlay; film and surface measurement; and overall yield and fab-wide data analysis.'Our advanced products, coupled with our unique yield technology services, allow us to deliver the complete yield management solutions our customers need to accelerate their yield learning rates, reduce their yield excursion risks and adopt industry-leading yield management practices.

The semiconductor fabrication process begins with a bare silicon wafer'a round disk that is six, eight or twelve inches in diameter, about as thick as a credit card and gray in color.'The process of manufacturing wafers is in itself highly sophisticated, involving the creation of large ingots of silicon by pulling them out of a vat of molten silicon.'The ingots are then sliced into wafers and polished to a mirror finish on the side where the circuits are made.

The manufacturing cycle of integrated circuits is grouped into three phases: design, fabrication and testing. IC design involves the architectural layout of the circuit, as well as design verification and photomask or reticle generation. The fabrication of an IC, or 'chip,' is accomplished by depositing a series of film layers that act as conductors, semiconductors or insulators.'The deposition of these film layers is interspersed with numerous other process steps that create circuit patterns, remove portions of the film layers, and perform other functions such as heat treatment, measurement and inspection.'Most advanced chip designs require over 300 individual steps, many of which are performed multiple times.'Most chips consist of two main structures:'the lower structure, typically consisting of transistors or capacitors, which perform the 'smart' functions of the chip; and the upper structure, typically consisting of 'interconnect' circuitry, which connects the components in the lower structure.

When all of the layers on the wafer have been completed, each die on the wafer is then tested for functionality. The wafer is placed on a prober that is used to attach the input/output pins of the device to a tester. When chips are tested on the wafer, it is called sort test. Sort test determines which chips are good. The wafer is then cut up and the good die are bonded to lead frames that contain pins used to attach the chip to the outside printed circuit board. Wires are bonded from the input/output pads of the IC to the pins of the lead-frame. Then the lead frame is encapsulated in packages typically made of plastic or ceramic materials. The packaged part are put through a final test and then shipped to customers. This entire packaging and testing process is called the 'back end.'

Engineering analysis:'This method of analysis is performed offline from the manufacturing process to identify, analyze and locate the source of defects or other manufacturing process issues.'Engineering analysis equipment operates with very high sensitivity to enable comprehensive analysis of wafers.'Because this method operates off the manufacturing line, high operational speeds are not required.

Inline monitoring:'This method of analysis is used to review the status of ICs during production.'Information generated is used to determine whether the fabrication process steps are within required tolerances.'It is also used to make any necessary real-time process adjustments before wafer lots move to subsequent process stations. Because information related to defects is needed quickly, inline monitoring requires both high throughput and high sensitivity.

Pass/fail tests:'This method of analysis may be used at several different points in the manufacturing process to evaluate whether products meet performance specifications.

The most significant opportunities for yield and device performance improvement generally occur either when production is started at new factories or technology shifts in existing factories.'Equipment that helps a manufacturer quickly increase new product yields and optimize device performance enables the manufacturer to offer these new products in high volumes early in the product lifecycle'the time when they are likely to generate the greatest profits.

Customers

Intel is'our largest customer.

Our business depends upon the capital expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for ICs and products utilizing ICs.'We do not consider our business to be seasonal in nature, but it is cyclical with respect to the capital equipment procurement practices of semiconductor manufacturers and is impacted by the investment patterns of such manufacturers in different global markets.'Downturns in the semiconductor industry or slowdowns in the worldwide economy could have a material adverse effect on our future business and financial results.

Competition

The worldwide market for process control and yield management systems is highly competitive.'In each of our product markets, we face competition from established and potential competitors, some of which may have greater financial, research, engineering, manufacturing and marketing resources than us, such as Applied Materials, Inc. and Hitachi Electronics Engineering Co., Ltd.'We may also face future competition from new market entrants from other overseas and domestic sources.'We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved price and performance characteristics.'We believe that to remain competitive, we will require significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process research and development.