The SEZ Group

The SEZ Group develops, manufactures and markets process systems needed for the manufacture of microchips. More than 90 of the leading microchip and wafer manufacturers belong to SEZ's regular client list. With its Spin-Process technology, a worldwide patented method for wet surface preparation of silicon wafers, SEZ was able to firmly establish itself as a global technology leader. In February 2001, SEZ enlarged its product portfolio to include a wet bench technology, a step closer towards attaining its goal of becoming an overall supplier in the sector of silicon wafer surface preparation.

Since 1996, SEZ Holding Ltd. has been listed on the main segment of the SWX Swiss Exchange (SWX:SEZN). The group's largest facility is Villach, Austria. With further subsidiaries in North America, Japan, Taiwan, Singapore, South Korea, Great Britain, France and Germany, and a representation in China, the SEZ Group is provided with a global service and distribution network.
 

Consolidated Key Figures

Corporate Bodies

Board of Directors
Egon Putzi, Chairman, Austrian, Villach
Franz Sumnitsch, Vice Chairman, Austrian, Klagenfurt
Dr. Thomas Egolf, Swiss, Oberrohrdorf
Dr. Thomas Lustenberger, Swiss, Ebikon
Jack Schmuckli, Swiss, Stäfa

Corporate Executive Board (Corporate Officers)
Egon Putzi, Chief Executive Officer
Franz Sumnitsch, Chief Executive Officer
Ernst Gaulhofer, Executive VP & Chief Process Officer
Sabine Kampitsch, Executive VP & Chief Financial Officer
Kurt Lackenbucher, Executive VP & Chief Marketing Officer
Wilhelm Ladenhauf, Executive VP & Chief Technology Officer
Herwig Petschnig, Executive VP & Chief Operating Officer

Enlarged Corporate Management
Peter Grünwald, Human Resources
Hans Jürgen Kruwinus, Research Center
Tom Togasaki, Strategic Business Development, Japan
Michael West, Strategic Business Development, USA

Auditors
KPMG Fides Peat, Zurich
 

Growth through Innovation™

SEZ Vision
To attain global leadership in surface preparation by providing a full range product portfolio, which meets or exceeds our customers' and shareholders' expectations.

SEZ Mission
Product
To provide a full range of products for surface preparation we will continue to strengthen existing and develop new technologies. Additionally, we will deepen relationship with customers and industry partners. 
Growth
Continuously maximize economic value of the company through focused cost control management, continuous efforts to increase market share, maintaining a strong cash position and strong global and strategic positioning.
People
Increase overall corporate effectiveness by capitalizing on our corporate culture and employee excellence. We empower our people with career planning, continuing education and training programs.
Environment
To attain a high degree of environmental protection by enabling programs that increase environmental awareness, safety and emission control. We aim to maximize efficiency of resources.

SEZ - Wet Solutions
Since its founding in 1986, the SEZ Group's success has come from its unique Spin-Process technology, its global market capabilities and focus on customer satisfaction. New technological and economic challenges continuously create additional factors to be competitive in today's cyclical, higher cost-to-risk semiconductor market environment. Technology, productivity, flexibility, and cost are deciding factors on which tools are best for each manufacturing step and each customer. With the trend towards 300 mm and sub 100 nm manufacturing technologies, single wafer technology is gaining momentum because of its superior process performance and flexibility in terms of chemicals, sequences and timing. This is due to the increased sensitivity of processes to waiting times, especially within the advanced logic and foundry markets. Conventional batch processing is expected to remain effective for most high-volume products, especially in the memory market.
 

Organization

SEZ Holding Ltd.
Founded: 1996
Employees: 1 (end of 2001)
Activity: financial holding company

Business Unit Europe
SEZ AG, Villach
Founded: 1986
Employees: 424 (end of 2001)
Activity: research and development; production spin processors; sales and service organization for Europe; customer training and demonstration
SEZ Germany GmbH, Donaueschingen (HMReinraumtechnik GmbH)
Founded: 1995
Employees: 108 (end of 2001)
Activity: research and development; production wet benches; sales and service
SEZ UK, Greenock
Founded: 1995
Employees: 4 (end of 2001)
Activity: sales and service
Branch Office
Dresden
Activity: service

Business Unit Japan
SEZ Japan Inc., Tokyo
Activity: 1994
Employees: 44 (end of 2001)
Activity: sales and service; research and development; Production

Business Unit USA
SEZ America Inc., Phoenix
Founded: 1990
Employees: 78 (end of 2001)
Activity: research and development; sales and service organization for USA; customer training and demonstration
Branch Offices
USA/Northwest Region
USA/Central Region
USA/Eastern Region
Activity: sales and service

Business Unit Asia-Pacific
SEZ Singapore Pte. Ltd., Singapore
Founded: 2000
Employees: 23 (end of 2001)
Activity: sales and service
SEZ Taiwan Ltd., Hsin-Chu
Founded: 2001
Employees: 41 (end of 2001)
Activity: sales and service; research and development; 
SEZ Korea Ltd., Seoul
Founded: 2000
Employees: 7 (end of 2001)
Activity: sales and service

In March 2002 SEZ France S.A.R.L.U. (sales and service) has been founded.
 

To our Shareholders

Due to overcapacities and general weakening conditions in the global economy, the semiconductor industry showed the strongest drop in demand in its entire history during financial year 2001. The market for semiconductor equipment did not remain unaffected by this economic downturn. Following the record 133 percent rise in sales for the year 2000, the SEZ Group was still able to achieve an increase in sales and positive business results under the difficult circumstances of the financial year 2001. 

Overall, SEZ increased consolidated net sales in the financial year 2001 by 28.5 percent to CHF 250.8 million (2000: CHF 195.2 million), succeeding once again to achieve growth above industry average. This development is partially because of the high order backlog at the beginning of the year totaling CHF 121.4 million. By the end of 2001 there was an order backlog of CHF 47.1 million. Over the financial year 2001, the SEZ Group's operating income (EBIT) dropped by 13 percent to CHF 43.0 million (CHF 49.4 million). Net income amounted to CHF 29.2 million, 8.3 percent below the previous year (CHF 31.8 million). 

SEZ continued to pursue its long-term product strategy throughout the financial year 2001. It consolidated its leading position as a provider of complete process solutions for wafer surface treatment and managed to raise market penetration even further. SEZ and its scope of products today enjoys a high acceptance in the global semiconductor market and is the fastest growing company in the wet chemical wafer preparation segment. 

Semiconductor manufacturers' requirements with regard to wafer surface processing depends mostly on the complexity of the employed manufacturing stages. Production processes for sub 0.13-micron process technologies require different technological standards than 0.18-micron technologies and above. With these changing customer requirements in mind, SEZ made some well-targeted additions to its product portfolio – not only including solutions for processing individual wafers (single wafer technology/spin-processors) but also tools capable of processing several wafers at the same time (batch technology/wet benches). 

High strategic priority is attributed to the future generation of systems for wafers with a 300 mm diameter. The success of our new 300 mm spin-processor systems has strengthened SEZ's reputation as technology leader in the wet chemical segment. In February 2001, SEZ took over German HMReinraumtechnik GmbH, a supplier of wet benches, expanding its product range for wet cleaning tools. SEZ has now started to market the wet bench technology worldwide. The new 300 mm wet bench system will be ready for the market by mid-2002. Beside the 300 mm product line, SEZ is also expecting a high demand for its multi-chamber systems for frontside and backside applications. For large production volume cleaning applications, SEZ offers the Spin-Processor Series 8000 (double-sided cleaner) in addition to the traditional product line of wet benches. This has gotten SEZ a considerable step closer to its goal of becoming an overall provider in the sector of silicon wafer surface preparation.

Despite the decrease in demand in the year 2001, SEZ maintained its high level of investment in research and development. In the semiconductor industry, new technologies tend to be developed during an economic downturn, so at SEZ major innovation projects were persistently continued. SEZ also engaged in further collaborations and intensified existing alliances. Additionally, during the financial year 2001, new tools for demonstration purposes were established in promising project environments. Further development of its product portfolio and focus on its customers' present and future requirements form the foundation for SEZ to maintain and improve its leading market position in the future.

2001 was once more a successful year for the SEZ Group. What we have achieved would never have been possible without our staff around the globe. Because of them, SEZ once again achieved a top ranking in the annual customer satisfaction and support survey conducted by VLSI Research, the renowned industry-specific market research firm. Our achievements would also have been impossible without the confidence and support of our customers, business partners and shareholders. You all have contributed to the success of SEZ. On behalf of the Board of Directors and the Corporate Executive Board we would like to thank you for your support.

Egon Putzi | Chairman of the Board of Directors
Franz Sumnitsch | Vice Chairman of the Board of Directors
 

Report on the Financial Year 2002

In the financial year 2001, the SEZ Group increased consolidated net sales by 28.5 percent from CHF 195.2 million in 2001 to CHF 250.8 million in the 
previous year. The SEZ Group's operating income (EBIT) amounted to CHF 43.0 million compared to CHF 49.4 million in the previous year. Net income, totaling CHF 29.2 million was 8.3 percent below the previous year's CHF 31.8 million. The SEZ Group achieved an EBIT margin of 17.1 percent (25.3 percent) and a net income margin of 11.6 percent (16.3 percent). The average number of employees was 701 (452). 
By taking over the majority of HMReinraumtechnik GmbH, SEZ complemented its product portfolio by adding wet bench technology. As a result, SEZ is now capable of offering its customers a wide scope of wet chemical processes for wafer surface treatment. 
In the financial year 2001, the SEZ Group gained six new customers, four of which came from the USA, one from Taiwan and one from China. SEZ's 
customer portfolio now covers all the semiconductor industry's major companies. SEZ's spin-processors for 300 mm wafers accounted for almost 
25 percent of its sales (around 10 percent in 2000). Wet benches contributed to 12.4 percent of sales. 
In the financial year 2001, the major share of sales, 32.1 percent, came from the Asia-Pacific region (44.2 percent). Altogether sales in this region dropped by 6.7 percent to CHF 80.5 million (CHF 86.3 million). SEZ strengthened its presence in Taiwan by establishing subsidiary SEZ Taiwan Inc. to address the high strategic importance of this region. Several of the most important independent silicon foundries (contract manufacturers) are headquartered in Taiwan. SEZ Japan Inc., which has been fully consolidated since July 1, 2000, was entirely taken over by the SEZ Group on June 1, 2001 and achieved an increase in sales in 2001 of 40.8 percent to CHF 46.1 million (CHF 32.8 million), representing an 18.4 percent (16.8 %) share of turnover. Despite the weak economic conditions, the North American region also showed significant growth, increasing sales by 32.2 percent to CHF 48.6 million (CHF 36.8 million), representing a 19.4 percent (18.8 percent) share of total sales. The U.S. customer base was increased by another four customers. SEZ America set up a research and development department in Phoenix (Arizona) to promote innovation projects in collaboration with American customers. Sales in Europe during the financial year 2001 increased significantly by 91 percent to CHF 75.6 million (CHF 39.4 million) – chiefly due to the acquisition of wet bench manufacturer HMReinraumtechnik. Accordingly, 30.1 percent of SEZ sales were achieved from the European market (20.2 percent). In order to provide optimal support on site in the key high-tech region "Silicon Saxony", SEZ additionally founded a location of its own in Dresden in September 2001. The expansion of capacities at the location Donaueschingen was put aside on account of the uncertain prospects in the industry. 

Course of business 2001
The SEZ Group entered the financial year 2001 with a record backlog of orders totaling CHF 121.4 million. Added to this was HMReinraumtechnik fully consolidated with retroactive effect from January 1, 2001 showing an order backlog of CHF 17.6 million. Sales in the first half of 2001 were at CHF 149.8 million. In comparison with the same period of the previous year this equals an increase of 94.0 percent (first half of 2000: CHF 77.1 million). Against the backdrop of the semiconductor industry downturn, which at this point had already led to a clear fall in demand for semiconductor manufacturing tools, the results of the SEZ Group in the first half of 2001 are remarkable. SEZ's exceptional position was not only due to the high order backlog at the beginning of the year, but in particular, to the unique significance of SEZ technology. While semiconductor manufacturers did cancel heavy volume purchases, or respectively failed to make them at all, customers still invested in equipment in aid of lowering production costs, and in evaluation tools for 300 mm technology. 

In the third quarter of 2001, incoming orders diminished, also partially due to order cancellations and delays in delivery. Consequently, the SEZ Group reduced its sales expectations for the entire financial year 2001 to CHF 275 million. In October 2001, the sales target had to be lowered once more to CHF 250 to 260 million in consideration of the continued weakness in the semiconductor industry.

By the end of 2001 the SEZ Group had an order backlog of CHF 47.1 million (end of 2000: CHF 121.4 million) at its disposal. Received orders during the entire financial year 2001 amounted to CHF 176.5 million (2000: CHF 263.1 million). These not only included all incoming orders of the SEZ Group but also an order backlog of CHF 17.6 million stemming from HMReinraumtechnik GmbH, fully consolidated with retroactive effect from January 1, 2001. The book-to-bill ratio measuring the ratio of orders received and shipments stood at 0.70 (1.35). 

Market and market position
While having achieved a growth of about 80 percent in the year 2000, the market for semiconductor manufacturing equipment experienced a noticeable decline of almost 35 percent in 2001 (source: VLSI Research, February 2002). With a sales increase of 28.5 percent, the SEZ Group could evade from the trend within the industrial sector. Accordingly, SEZ could raise the market share in the wet chemical surface treatment segment from 5 to 9.5 percent. The longest and most severe downturn in the market for semiconductor manufacturing equipment triggered a consolidation wave within the industry. The SEZ Group will benefit from this since the most important growth trends in the market promote the employment of SEZ technology – the semiconductor manufacturer's drive to lower manufacturing costs, continual miniaturization of microchips, increasing number of chips per wafer and employment of new materials and technologies. 
At the same time, SEZ is provided with an extensive product and application portfolio featuring not only single-chamber systems, multi-chamber systems and double-sided equipment for single-wafer technology, but also a line of wet benches. This enables SEZ to supply the market for wet chemical cleaning processes with a multitude of systems – a market that is globally estimated to have a volume of near USD 1.6 billion (source: VLSI Research). A powerful market position and technological leadership form the basis for the SEZ Group to take a leading position in the market for wet chemical wafer surface preparation in the semiconductor industry. 

Cooperation ventures and alliances
In June 2001, SEZ entered a partnership with the American equipment manufacturer Axcelis to jointly investigate the possibilities of combining wet and dry process technologies (photoresist removal) for new materials such as copper and low-k dielectrics. In collaboration with the Scottish wafer manufacturer Pure Wafer researchers are examining what possibilities and benefits SEZ's double-sided cleaning system can open up in the field of wafer recycling. With Sematech, the international consortium of leading semiconductor manufacturers in the U.S., benefits of the SEZ technology are jointly developed on the double-sided cleaner for 300 mm wafers.
Additionally, collaborations and alliances with customers, material manufacturers, universities and universities of applied science were either intensified or newly established. Main focus of collaborations is the further development of progressive technologies (structure width below 0.13µm, 300 mm wafers, progressive cleaning technologies and new materials such as e.g. copper or low-k). 

Research and development
Despite the downturn in the semiconductor industry, SEZ continued to invest in new products. In total, investments in research and development amounted to CHF 37.0 million (CHF 25.9 million), which equals nearly a 15 percent share of consolidated net sales (2000: 13 percent). Investments, for example, involved the development of a 300 mm wet bench that will be completed by mid-2002. This means that even in the area of wet benches SEZ will be in possession of a complete product portfolio tailored to all wafer sizes. Since the financial year 2001, all spin-processor platforms have also become available for 300 mm technology. The development of Spin-Processors 323 (double-chamber system for 300 mm manufacture) and 4300 (system for front side cleaning of 300 mm wafers) were completed in 2001. And so was the development of the Spin-Processor 8300, the first non-contact single-wafer cleaner that conditions wafer front sides and backsides simultaneously. With a throughput of up to 200 wafers an hour and the proven process capabilities of the Spin-Process technology, this system provides an attractive alternative to conventional cleaning applications. Another focus of attention was the optimization of SEZ systems by minimizing footprint, thus enabling a reduction in cost of ownership. 
Other development activities concentrated on enlarging the application portfolio for process cleaning steps. The goal of the "Continuous Improvement Program" is to optimize existing systems in view of process results, higher wafer throughputs, improved process uniformity, repeatability and tool reliability. To strengthen its technological leadership, SEZ installed 12 new tools in promising new projects for demonstration and laboratory 
purposes at its own expense. By this SEZ has created the basis for consolidating further its market position as soon as demand recovers.

Investments
In the financial year 2001, the SEZ Group effected investments (excluding leasing) totaling CHF 38.4 million (2000: CHF 20.2 million). The investments mainly concerned spin-processor systems and wet benches that were installed at customers and partners for demonstration purposes. The investments were financed by cash flow achieved.

Financial situation
The SEZ Group has a high liquidity and a solid financial basis at its disposal. As of December 31, 2001 corporate liabilities amounted to CHF 57.8 million (2000: CHF 36.9 million), that is around 35.5 percent above the cash flow of CHF 42.7 million (CHF 42.3 million). Equity capital stood at CHF 187.1 million (CHF 141.0 million) corresponding with an equity ratio of 60.5 percent (57.8 percent) of the balance sheet total. Existing liquid funds and securities amounted to CHF 79.5 million (CHF 67.6 million). 

Personnel and organization
In the financial year 2001, the average number of staff at the SEZ Group rose by 55 percent to 701 (452). This significant increase is due to the acquisition of HMReinraumtechnik and the founding of SEZ Taiwan, where SEZ took over the former representative's staff. However, increase in personnel costs was limited to around 28 percent. 
In view of future requirements, the SEZ Group set up new management structures in July 2001. The Corporate Executive Board was streamlined. It now concentrates on general functions and the management of regional business units, which at the same time have received a wider scope of autonomy. In the new structure, business units report their results to the group management itself. The clear separation of general tasks and group company core activities supports efficiency and will create a solid basis for future growth.
SEZ maintains a company culture that supports team spirit, entrepreneurial ways of thinking and personal development for each individual to support our corporate vision. To further strengthen the team spirit on all company levels, SEZ held specific executive training courses in the year 2001. Diagnosis and management tools such as structured employee interviews or employee surveys are applied regularly and serve permanent promotion of customer orientation. As a technology leader SEZ attaches great importance to ongoing training to promote the staff's professional growth. At the same time educational collaboration with research institutes, universities, universities of applied science or higher technical colleges is continually intensified.

Business excellence, quality and environment
The SEZ Group is committed to create sustainable added value for all groups involved. This principle is based on understanding sustainability in its entirety, focusing equally on economical, social and ecological factors. At the same time SEZ attaches great importance to quality awareness on all company levels. Certification according to ISO 14001, ISO 9000 and validation according to the EMAS directive confirming eco-friendliness form the basis for the SEZ Group's quality and ecology standard. At the production facility in Villach, SEZ regularly publishes Environmental Reports. It is open to the public and available upon request. In the financial year 2001, the SEZ Group had its second production facility in Donaueschingen ISO-certified. 
The forward-looking 'Business Excellence' program that was launched internationally in 1999 was also continued throughout the year 2001. The program's goals are to optimize the employment of resources and to increase added value, as well as strengthen the market position and ensure long-term success. An interdisciplinary project group consisting of experts from the fields of marketing, controlling, human resources, quality and IT helps define the desired benchmarks and monitors goal achievement. Following the Excellence Model of the EFQM (European Foundation for Quality Management) a group-wide management self assessment was conducted for the second time in the financial year 2001. 
Further important activities in the financial year 2001 concerned the employment of a worldwide 'reliability management' to half the response times in fieldwork and strengthen customer confidence. The product development and innovation process was restructured as a business process with clear criteria of decision. And finally, the dynamic management information system based on balanced scorecards continued. 

Outlook
Currently, the market volume forecast for semiconductor manufacturing equipment is USD 32 billion for the year 2002, which is a decline of about 20 percent compared to the year 2001 (source: Morgan Stanley, March 2002). However, for the year 2003 a marked upswing is expected with growth rates of over 30 percent. Driving forces for the impending upswing in the equipment area are the miniaturization of structure widths (sub-0.13µm technology), the transition to 300 mm technology, which is expected to reach a market share of around 30 percent in 2002 and consequently the employment of new materials (copper, low-k dielectrics). In the course of these developments, wafer surface treatment is gaining huge significance. 
In 2002 the SEZ Group will consolidate its market position and continue its efforts towards becoming the leading overall supplier of wet cleaning and wet etching processes. Its already excellent position in the 300 mm market and wide scope of products with solutions in single wafer and batch technology form the basis for this. In the future, SEZ will intensify cooperation with both its customers and with equipment and materials manufacturers to ensure customer-optimized processes and complete solutions.