KLA Tencor: Learning faster, yielding higher

Indispensable manufacturing expertise drives growth for KLA Tencor—and the industry.

By Terrence Lynch -- Movers and Shakers, 6/15/2001

	AT A GLANCE
	KLA-Tencor San Jose, CA www.kla-tencor.com 2000 FY revenue: $1.5 billion 2000 FY net income: $251 million Nasdaq symbol: KLAC Share price: $51.33 (4/24/01) 2:17 pm 52-week high: $77.25 52-week low: $25.5

It’s tempting to call KLA Tencor the hired guns of the silicon manufacturing wars. But the comparison is inapt. Every manufacturer in every industry hires outside experts to boost productivity and help develop new processes and technology. What KLA Tencor has done is institutionalize microelectronics manufacturing ex-

pertise. Stockpiled it, if you will. In the process, it’s created a cadre of consultants as well as hardware and software products that have become indispensable to the industry. It’s not a band of hired guns. It’s an engine for progress.

The company’s products include a range of high-precision inspection and measurement devices for lithography reticles and wafers—key tools in improving yield in a microelectronics fab. Although this high-tech hardware is the face of the company that most people see, according to CEO Ken Schroeder, “Over 60 percent of our engineers are software engineers, which people always find quite amazing. If you were to buy one of each of our products and put it in a fab, you’d have about 16 million lines of code that KLA Tencor had written.”

The company’s 6,500 employees are divided into 15 operating divisions, each one specializing in a different aspect of manufacturing technology. These include optical technology in its various forms from standard white light to UV, deep UV, and confocal techniques, e-beam technology, backscatter, and secondary-emission techniques. In short, the company covers all the different pathways to making silicon into money. Unsurprisingly, says Schroeder, “We sell to every semiconductor company in the world.”

Asked how the company keeps pace with the ever-more complex needs of its customers, Schroeder laughs, replying, “With great difficulty; it’s a real challenge.” But, he adds, it’s a challenge that some of the brightest minds in academia and manufacturing find stimulating.

	“Over 60 percent of our engineers are software engineers, which people always find quite amazing.” —Ken Schroeder, CEO, KLA-Tencor

“We have people who really understand our customers’ businesses, but the people who really design our products, hardware and software, are people who don’t come from the semiconductor industry,” Schroeder says. “These are physicists, computer scientists, optical PhDs. If you were to ask people in our company why [they] work here, they’d tell you the standard stuff—it’s a good company and they enjoy working here—but the number one reason, they’d say, is that they get to do really cutting-edge work in their technical field. That’s why we have the best e-beam scientists...the great optical people, and so on, because the work is really challenging.”

And rewarding. Since its founding from the merger of KLA In-

struments and Tencor Instruments in 1997, the company has been consistently profitable. It boasts a commanding 80 percent share of the market for wafer- and reticle-inspection equipment and in process-control application software. It has a dominating 45 percent share of the metrology-equipment market. It maintains its high regard and market profile by issuing regular white papers and holding yield-management seminars to keep customers abreast of developments in the field.

The company also involves itself in mutually beneficial joint-development programs with customers to create new technologies and production techniques. A recent example was the company’s work with manufacturers in copper-interconnect technology. Pioneers in the field had chosen to keep all development work in house, but companies playing catch-up, working together with KLA Tencor, soon boasted higher yields than the early adopters.

“We use the standard techniques such as papers, yield-management seminars, and one-on-one consulting with the customer to create the new application,” Schroeder explains. That benefits the customer. “Then that new application typically becomes pretty standard, and when the next factory is built, it’s business as usual, [and the customer will] need our equipment to control [its] litho cell, copper room, and so on.” That benefits KLA Tencor, and provides more fuel for the engine of progress.