2006 Analyst Day. November 2 Aurora, Illinois

Transcription

1 2006 Analyst Day November 2 Aurora, Illinois

2 Safe Harbor Statement The information contained in and discussed during this presentation may include forward-looking statements within the meaning of federal securities regulations. These forward-looking statements involve a number of risks, uncertainties, and other factors, including those described in Cabot Microelectronics filings with the Securities and Exchange Commission (SEC), that could cause the actual results to differ materially from those described by these forward-looking statements. Cabot Microelectronics Corporation assumes no obligation to update this forwardlooking information. 1

3 Agenda Welcome Introduction Financial Review A View of Our Core Business Lunch Operations Excellence at CMC Technology Trends in CMP Engineered Surface Finishes Questions and Answers Barbara Ven Horst - Director, Investor Relations Bill Noglows - Chairman, President and CEO Bill Johnson - VP and CFO Steve Smith - VP, Marketing CMC Management Adam Weisman - VP, Business Operations Cliff Spiro - VP, Research and Development Dan Pike - VP, Corporate Development All 2

4 Introduction Bill Noglows Chairman, President and CEO

5 Long Range Goals Grow revenue by 15% per year $500 million in revenue in 3 years Meaningful contribution from outside the core CMP business Grow net income to 12% of revenue Continue to increase speed and efficiency within the organization 4

6 Financial Review Bill Johnson VP and CFO

7 Financial Highlights Fiscal Year 2006 Record revenue of $321 million 18.6% year-on-year growth EPS of $1.36 Exceeds FY05 EPS of $1.32, even with 12 cents of accounting effects in Q4 (asset write-off and purchase accounting) and 28 cents of stock option expense for year Two acquisitions in pursuit of Engineered Surface Finishes (ESF) growth initiative Surface Finishes and QED Technologies Purchased $16 million of stock 6

8 CMC Financial Review Item FY2006 % Change vs Prior Year Comment Revenue, $M In line with industry growth Gross margin, % 46.5 (1.3) Funding Pad initiative ahead of sales; move of Data Storage to Singapore; Q4 accounting effects Operating expense, $M Including $10 of stock option expense; support for Asia Pacific growth initiatives Net income, $M % excluding stock options and Q4 accounting effects EPS, $ % excluding stock options and Q4 accounting effects 7

9 CMC vs. Peers: Growth and Margins 12 month period ending June 30, 2006 Revenue Growth Gross Profit Margin 15.0% 10.0% 5.0% 0.0% 12-Month Median: 8.1% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 12-Month Median: 45.1% ATMI AMAT PX CCMP APD LRCX ROH PLAB NVLS DD KLAC ENTG KLAC LRCX ATMI CCMP AMAT NVLS ENTG PX PLAB ROH APD DD Source: Third party analysis Semi-Consumables Semi-Equipment Chemicals 8

10 CMC vs. Peers: Growth and Margins 12 month period ending June 30, 2006 Operating Profit Margin Net Income Margin 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 10.0% 12-Month Median: 13.6% 15.0% 10.0% 12-Month Median: 10.1% 5.0% 5.0% 0.0% 0.0% LRCX AMAT KLAC PX CCMP ATMI ROH NVLS PLAB APD DD ENTG KLAC LRCX AMAT ATMI CCMP NVLS PX PLAB APD ROH DD ENTG Source: Third party analysis Semi-Consumables Semi-Equipment Chemicals 9

11 CMC vs. Peers: ROIC 12 month period ending June 30, 2006 Return On Invested Capital 35.0% 30.0% 30.8% 25.0% 20.0% 19.6% 15.5% 15.0% 12.8% 12.5% 11.8% 12-Month Median: 11.8% 10.0% 9.5% 8.9% 5.0% 6.0% 5.2% 3.7% 0.0% KLAC AMAT CCMP ROH PX ATMI NVLS APD DD PLAB ENTG LRCX NM Source: Third party analysis Semi-Consumables Semi-Equipment Chemicals 10

12 Cash Operating Expense Profile, $M Quarterly Revenue (1) Cash Operating Expenses FY03 FY04 FY05 FY06 (1) Reflects impact of direct sales transition in Taiwan 11

13 CMC Strong Cash Generator, $M Cash Inflows Net Income Non Cash Items Working Capital Change Capital Expenditures Operating Cash Flow Cash Outflows

14 CMC s P & L Model Q4 FY06 Comment Revenue, $M $87.0 Based on wafer starts at sub 250nm technology nodes Gross margin, % 44.4% Quarterly fluctuations with product mix; expect 46% to 48% for full fiscal year 07 Operating expense, $M $28.2 $27 to 30 million per quarter Other, $M $1.5 Mainly interest on cash balance Tax rate, % 31.8% 32% to 33% Shares outstanding, M 24.1 $24 million remaining of $40 million share repurchase program EPS $

15 Fiscal Year 2007 Outlook Long-term growth goal of 15 percent per year Subject to industry cycles, timing of acquisitions, etc. Expect gross profit of 46 to 48 percent for the full year Tighter range for annual guidance versus prior quarterly guidance Estimated operating expenses between $27 and $30 million per quarter, trending up through the year Planned capital additions on par with fiscal 2006 ($17 million); evaluating slurry manufacturing in Taiwan (would be additional) 14

16 A View Of Our Core Business Steve Smith VP, Marketing

17 Discussion Outline Overview of Chemical Mechanical Planarization (CMP) End demand drivers A look at the slurry business How we are positioned 16

18 Overview of CMP What is CMP? A polishing process that combines continuous chemical and mechanical action to make a surface smooth, flat and planar. Why is CMP used in the semiconductor industry? Allows for further wafer processing next layers Simplifies key process steps (photolithography) Enables new materials copper Contributes to device shrink Moore s Law 17

19 Overview of CMP Rotating platen Wafer carrier Wafer Downforce Polishing pad Slurry dispenser Polishing slurry Key Elements Slurry Pad Polishing Tool Process Recipe Process Targets 18

20 Where CMP is Used Aluminum Interconnect Memory & Legacy Logic Copper Interconnect Advanced Logic Tungsten + Oxide Copper + Barrier Pre-Metal Dielectric Tungsten Oxide Shallow Trench Isolation 19

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22 CMP Suppliers Area Slurry Tools Pads Conditioners Cleaners Key Players CMC, DA Nano, Fujimi, Hitachi Chemical, JSR, Rohm & Haas Applied Materials, Ebara, Novellus CMC, JSR, Praxair, Rohm & Haas, Thomas West 3M, Asahi, Kinik, Saesol Air Products, ATMI, Wako 21

23 Wafer Start Growth and CMP Consumables Demand Wafer demand, Millions 8" Equivalent % 59% 58% 54% 57% 49% 50% 37% 41% 45% um (CMP Required) >0.25 um (Limited CMP) Source: Semico 22

24 IC Devices Driving CMP Consumption Logic Mature Advanced Analog Microprocessors Microcontrollers DSP (cell phones) Microperipherals Graphics/Video processors ASICs Special purpose logic Programmable Logic CMOS Image Sensors Memory DRAM SRAM NAND Flash NOR Flash MRAM PRAM 23

25 Consumer Electronics is a Key Growth Driver Digital Cellular, 3G Digital Audio Players TV, Rear Projection RS3 - USB Flash Drives DSP, NOR Flash MCU, ASSP, ASIC NAND Flash TV, Digital CRT TV, Plasma Display Drivers, MCU, ASSP TV, LCD 0% 20% 40% 60% CAGR 24

26 Logic vs. Memory Differences in CMP Logic Memory 45nm 65nm 90nm 45nm 130nm 65nm 250nm 180nm 130nm 90nm Stable base of less advanced nodes High CMP intensity (up to 25 steps) Copper wiring used <180nm New barrier materials expected Rapid node adoption/cannibalization Lower CMP intensity (up to 10 steps) Aluminum wiring still dominates Numerous new applications 25

27 CMP for IC s Current Addressable Market Slurries Pads IC Customers Market growth depends on Wafer starts Mix of logic vs. memory Growth of advanced nodes CMP steps/wafer Pricing Customer process efficiencies Estimated $870M in 2005 Pads 40% Slurry 60% 26

28 Market Drivers CMP Slurry Market Expected Growth CAGR (CY06-09) Long-term wafer start growth 8-10% Higher growth for advanced technology (250 nm nodes and smaller) Customer process efficiency offsets 300mm conversion Dilution Reduced flow rates Shorter polish times 14-16% 27

29 CMP Slurry for IC s Competitive Landscape Revenue Split Our Assessment CMC is the clear global leader Hitachi, Fujimi and Rohm & Haas round out top four CMC The rest low single-digit participation few customers one or two applications 28

30 CMP IC Slurry Business Landscape (CMC Assessment) Application Size CMC Position Trends Dielectrics Large 1st Tungsten Medium 1st Copper Med-Large 1st Barrier Med-Low Entry Growth in advanced front end of line (FEOL) applications Growth in NAND Flash mitigates copper cannibalization Increasing fragmentation of needs, efficiencies in use Increasing complexity, fragmentation of needs CMC strengths Breadth - all applications, customers and nodes Well positioned to serve emerging applications, new materials Global reach, financial strength and singular focus 29

31 CMC Position - Tungsten Strong intellectual property position W2000 offering universally adopted at 65nm and larger Robust pipeline of new products Superior planarity and 75% fewer defects for < 65nm Tunability for rate selectivity, different integration schemes Continued growth as customers shift from homebrews and NAND Flash expands W6300 W7000 W

32 CMC Position - Dielectrics Interlayer dielectric (ILD) remains largest area Advanced FEOL applications smaller, but strong growth Examples: Direct Shallow Trench Isolation (DSTI), Poly Our next generation solutions new particle technology and novel chemistries to: Deliver better scratch, planarity performance Provide tunability for rate selectivity and planarization Active customer joint development for new applications Poly Gate, Silicon Nitride, GST, etc. D6000 D8100 P

33 CMC Position - Copper/Barrier Leading position in copper with no clear #2 Recently launched next generation copper solution Incorporates new particle technology Delivers compelling cost of ownership/performance attributes Growing pipeline of new solutions for barrier Tunability to address different film stacks, selectivity Early position for ruthenium, a new barrier material Qualified positions at 65nm and 45nm C7092 B6600 B

34 CMC Position - Pads Introducing our pad technology to market Continuous process offers superior quality Compelling cost of ownership Two customers in production; multiple in qualification Leveraging CMC global infrastructure, technical support and CMP experience D100 33

35 Summary Continued strong growth for CMP Advanced nodes, memory key drivers Customers will drive efficiencies Well-positioned for the long term Breadth of position Financial strength to invest in future Rich pipeline of new products Pads represents significant upside potential 34

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37 Operations Excellence at CMC Adam Weisman VP, Business Operations

38 Discussion Outline Operations Excellence Importance to customers and shareholders Focus to improve excellence Six Sigma Impact of initiatives why we re excited 37

39 Robust, High Quality Supply Chain is Critical... to Customers A fab can be a $3 billion investment and generate over $30 million per week in revenue Quality = Cost + Capacity Utilization Supply interruptions are extremely expensive Recent history has highlighted significant supply risks (hurricanes, fires, Avian flu, tsunami, etc.) 38

40 Robust, High Quality Supply Chain is Critical... and to Shareholders Quality Critical to Quality Factors Delivery Cost Variation increases costs and decreases revenue Stable, consistent supply can differentiate us from competitors Cost of of failure estimated to to be be 20-30% of of revenues for for most companies 39

41 Why Six Sigma? Warranty Traditional quality costs Rejects Scrap (Easily Identified) Inspection Rework (tangible) 40

42 Why Six Sigma? Warranty Traditional quality costs Rejects Scrap (Easily Identified) Inspection Rework (Tangible) Lost sales Long cycle times More setups Expediting costs (Intangible) Lost opportunity Additional costs of poor quality (Difficult or impossible to measure) Late delivery Lost customer loyalty Excess inventory 41

43 Why Operations Excellence? Quality will differentiate CMC source of competitive advantage Complex needs make supply chain excellence critical to success our strength Excellent platform for close customer collaboration globally 42

44 CMC s Strategic Initiatives CMC Global Team Technology Technology Leadership Leadership Customer Value - Fundamental Research - New Product Intro s -Six Sigma CMC Global Team Connected Connected with with Customers Customers - Outside-In View - Customized Solutions - Asia Pacific Infrastructure CMC Global Team Operations Operations Excellence Excellence - Supply Assurance - Lower Variation with Six Sigma 43

45 Global Manufacturing Operations Geino, Japan Barry, Wales Aurora, IL Singapore 44

46 Business Continuity to Assure Supply Micrograph of Nano Particles Supply Make Deliver Redundant supply plants Robust inventory positions Multiple storage locations Multiple plants ship millions of gallons annually 3 rd party hosting IT services Disaster recovery plans Inventory management services Joint supply assurance testing Clear leader in in high volume manufacturing 45

47 Achieving a Six Sigma Culture Eliminate Variation Everywhere Baseline Reduce Variation Customer Performance Defectivity Removal rate Yield Product Parameters Large particles ph, % solids Process Parameters Temperature Chemical addition rate New Product/Process Sales/Customer Service Measures Selling price On time shipments Product complaints Sales cycle time Focus where it it matters most 46

48 An Example: Dielectrics Variation Reduction Define Opportunity: Measure Baseline: Decrease amount of large particles Reduce variation in particle size Improve microscratching at customers Particle Size Analyze Through Control: Quantify variable relationships Improve controls Large particles reduced by 21% variation down 17% $0.7M cost reduction Optimized Slurry Filter VERY positive customer feedback Translated to tungsten for a win at a major memory player 47

49 Quality and Productivity Initiatives Data Storage Manufacturing In Singapore Quality System Improvement SSQA Taiwan Direct Sales Manufacturing Yield Improvement 14 Product Parameter Variation Projects Global Sourcing New Product Introductions Supplier Variation Reduction Advanced Manufacturing Processes Cycle Time Reduction 48

50 New Products Designed For Six Sigma 2006 was CMC s strongest year ever for new product introductions Tungsten (2) Copper (2) Dielectrics (2) Pads (1) Data Storage (3) Design for manufacturability excellence 49

51 Measuring Progress 90 Customer Scorecards % 12 Productivity % 9% US Ind y Avg % 3% (2%) Customers telling us we re improving Measures quality, service, technology, responsiveness, supply assurance $20M of cost reduction partially offsetting pricing pressure Aggressive productivity goal in 2007 Significant momentum building 50

52 Summary Differentiate CMC through leadership in quality Reducing variation improves quality AND cost Six Sigma culture accelerating results Strong, global team industry leadership 51

53 Technology Trends in CMP Cliff Spiro VP, Research and Development

54 Discussion Outline Overview of R&D Review of CMP basic principles Our products Changes in industry/technology CMC s approach 53

55 Research and Development Overview $45 million annual R&D spend 150 people Including 55 PhD s State-of-the-art facilities Technical centers in Japan, Singapore, Taiwan, US 54

56 Why so much investment in R&D? CMP is extremely difficult Highest cost consumable set in the fab Greatest yield risk at stake Chips are getting smaller Several new materials and designs Highly dependent on customer process Meeting customer requirements gets harder and harder 55

57 Precision Wiring is the Key Part of Chip Design The smallest wires are centimeters across times thinner than a human hair! 56

58 Why CMP is an Enabling Technology Non-planarized IC product Planarized IC product Each layer needs polishing to keep the wiring flat 57

59 Our Products: Slurry Slurry Composition: Pure Water Nanoparticles Specialty Chemistry 58

60 Our Products: Pads 59

61 Rich New Product Pipeline New Offering Copper 5000 Series Copper and Barrier 6000 Series Copper 7000 Series Tantalum Barrier Ruthenium Barrier Tungsten 6000 Series Tungsten 7000/7300 Series 0.18 µ 130 nm 90 nm 65 nm 45 nm Tungsten Plug and Local Interconnect W2000 Interlayer Dielectric SS-25/25E SiLECT 6000 Direct STI idiel 6600/8100 (DSTI, PMD, ILD, Oxide/Nitride) P9300 Advanced Polysilicon Special Memory Materials D100 Pad 60

62 Why do we need so many new products? Chip designs are increasingly complex Several new materials in transistors and interconnects 90 nm: 3 or 4 new materials 65 nm: up to 12 new materials 45 nm: up to 30 new materials under consideration New materials and designs are needed for chip performance Increasingly dependent on customer, design and process 61

63 Chip Structures, Past and Future 250 nm chip 32 nm chip 62

64 45nm/32nm Logic Chip Cross Section CMP Steps Oxide SiON Poly Nitride Copper + Barrier Tungsten/Ti Ox/Nit STI Prime Single transistor Doped Ox Doped Si Tungsten Ti+Al(Cu) Copper Low K High K Ni Silicide Ru +Ta ULK 63

65 Why is CMP so tough? (and getting tougher) Need to polish several different materials simultaneously Perfect planarity No scratches, pits, ripples, debris No corrosion Cheap, fast Clean Corrosion 64

66 As a Result Customers are making critical joint-development And If That Wasn t Challenging Enough partnering choices EARLY. 65

67 CMC: Company of Choice For Early Joint Development Partnering We believe CMC invests more in R&D than the competition Core Enabling team for emerging applications Core Engineering Team for quality and cost New particle and chemical sciences Platforms with designed-in tunability Rapid local product customization Combined pad/slurry total system solution Strong patent/ip protection US / 266 foreign Global development and supply assurance Six Sigma for designed-in quality and manufacturability 66

68 Example: Tungsten Tunability Win 7300 Tungsten Oxide Titanium/TiN Selective Non-Selective i.e. W2000 i.e. Competitor 67

69 Leapfrog Solution - Tunable Selectivity with Win Removal Rate (A/min) Insulator Polish Rate Tungsten Polish Rate Relative Additive (%) 68

70 Examples of Successful Joint Developments Ruthenium barrier 45nm for logic Polysilicon gate 45nm, 65nm for memory GST exclusive supplier, PRAM next-gen memory Silicon nitride: flash inverse Silicon nitride: logic gate Tungsten / Ti barrier buff logic and memory Copper barrier: logic Copper soft landing: post-ecmp logic Ceria dielectric: memory and logic ILD/STI 69

71 Summary CMP is an enabling technology Customer expectations have become increasingly complex and challenging Cabot Microelectronics is uniquely positioned to deliver the solutions of tomorrow 70

72 Engineered Surface Finishes Dan Pike VP, Corporate Development

73 Engineered Surface Finishes Strategy Leverage CMC s core technology into adjacent markets Employ multiple business models Use partnering and acquisitions to expand and grow Pursue a portfolio of opportunities and applications Build a new business that can provide meaningful contribution to corporate revenue 72

74 Engineered Surface Finishes The Basic Idea Most finishing today is mechanical. We can add chemistry to mechanical finishing to: Enable the manufacture of a product Significantly improve product quality and /or functionality Enhance customer productivity New Solutions For Prime silicon wafer Flat panel displays High precision optics Compound semiconductor Healthcare Defense/Aerospace Solar energy Data storage / Hard disk drive 73

75 Accelerating Growth Through Partnering and Acquisitions Surface Finishes Acquired October 2005 State-of-the-art polishing, grinding, lapping and honing Provides a window on new opportunities and access to new customers that have demanding finishing needs Provides new capabilities and a highly experienced team QED Technologies Acquired July 2006 Unique, proprietary technology for finishing and measuring high precision optics Provides entry into high precision optics market and access to top tier customers around the globe Well-known and highly respected team 74

76 High Precision Optics Large and growing markets Defense / aerospace Semiconductor manufacturing Consumer products Telecommunications Scientific equipment Opportunity Unmet needs in achieving form accuracy, finish, and production efficiency Industry trends toward greater automation in polishing Less reliance on artisan craftsmanship and master opticians Enabling cost efficient production of high precision aspheric shapes Aligns with CMC s expertise, vision and mission Leverages knowledge of surface science, formulation chemistry 75

77 Optics Industry Value Chain Estimated $2 - $3 billion market worldwide Raw Material Optic Component Sub-System System e.g. BK7 Glass e.g. Mounted Lens e.g. Optical Sight e.g. Reconnaissance Aircraft QED Position Sizing Shaping Finishing Figure Correction Super Polishing Coating Metrology ESF Internal Development Focus 76

78 Magnetorheological Finishing - MRF The MRF polishing tool: does not dull or change Lens is deterministic is easily adjusted Nozzle Suction is ideal for complex shapes - aspheres Wheel has high removal rates drives the highest level of precision and accuracy improves surface integrity Pump Electromagnet Pump Resulting in a production-oriented, predictable, computer-controlled polishing and figuring technique MR fluid conditioner Over 100 Machines Sold Worldwide 77

79 Innovative Metrology: SSI Subaperture Stitching Interferometer Full aperture measurement of large parts Improved resolution and accuracy Completely automatic Intuitive and easy to operate If you can t measure it, you can t make it. 78

80 MRF and SSI Growth Opportunities Expand materials breadth beyond current MRF capabilities Expand applications beyond optics (Silicon wafers and other substrates, Silicon On Insulator, Flat Panel Display, etc) Expand product and service offerings for finishing and metrology (MRF platforms, asphere metrology, jet finishing) 79

81 ESF Summary Extend core technology competencies into new markets Multiple new markets/applications actively being developed Data storage/hdd demonstrated success of new product and market development Optics platform moving forward Significant opportunities in additional markets with demanding surface requirements Partnering and acquisitions will be key enablers for accelerating entry and growth in new markets 80

82 Summary Bill Noglows Chairman, President and CEO

83 Summary CMP is a difficult process that is becoming even more challenging. We believe we have the people, technology, scale, facilities and financial resources that uniquely position us to help our customers meet these challenges. CMC has a strong and experienced leadership team. We have strong relationships with our customers, built on trust. We are implementing our long range plan and realizing associated benefits. 82

84 2006 Analyst Day November 2 Aurora, Illinois