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The SEZ Group
Consolidated Key Figures
Corporate Bodies
Growth through Innovation
To our shareholders
Report on the Financial Year 2002
The SEZ Group develops, manufactures and markets unique process systems and applications needed for microchip manufacturing. More than 90 of the leading microchip and wafer manufacturers are among SEZ 's clientele. With its Spin-Processor technology, a worldwide patented method for wet surface preparation of silicon wafers, SEZ has been able to firmly establish itself as a global technology leader in the area of single-wafer manufacturing.
Since 1996, SEZ Holding Ltd. has been listed on the main segment of the SWX Swiss Exchange (SWX: SEZN).The group 's largest location is Villach, Austria. Additional subsidiaries in North America, Japan, Taiwan, Singapore, South Korea and a representation in China provide a global service and distribution network.
| in CHF 1000 | 2002 | 2001 | 2000 | 1999 | 1998 | Net sales
Change in % | 198 903
(21) | 250 785
29 | 195 203
133 | 83 691
35 | 62 106
(13) | Operating income (EBIT)
Change in % | (13 017)
(130) | 42 975
(13) | 49 396
311 | 12 007
164 | 4 544
(56) | Cash flow
Change in % | 17 667
(60) | 44 187
4 | 42 330
165 | 15 993
137 | 6 746
(46) | Net profit (loss)
Change in % | (13 518)
(146) | 29 165
(8) | 31 803
206 | 10 387
314 | 2 509
(69) | Depreciation and amortization of property, plant, equipment and intangible assets
Change in % | 14 671
24 | 11 859
47 | 8 094
44 | 5 603
23 | 4 551
40 | Investments in fixed assets and intangibles
Change in % | 35 297
(8) | 38 420
91 | 20 152
316 | 4 839
(17) | 5 825
(41) | Research and development expenses
As % of sales
Change in % | 37 582
19
2 | 37 002
15
43 | 25 880
13
114 | 12 083
14
20 | 10 030
16
(6) | Shareholders' equity
Change in % | 245 145
31 | 187 057
33 | 140 969
116 | 65 144
11 | 58 948
(3) | Liabilities
Change in % | 92 835
(22) | 119 088
16 | 102 547
72 | 59 794
36 | 44 015
(6) | Equity ratio in % | 72,53 | 60,52 | 57,82 | 52,14 | 56,00 | | Average number of employees | 732 | 701 | 452 | 306 | 310 |
Board of Directors
Egon Putzi, Chairman, Delegate of Board of Directors, Austrian, Villach
Franz Sumnitsch, Vice-Chairman, Delegate of Board of Directors, Austrian, Klagenfurt
Dr. Thomas Egolf, Risk and Audit Committee, Swiss, Oberrohrdorf
Dr. Thomas Lustenberger, Secretary, Risk and Audit Committee, Swiss, Ebikon
Jack Schmuckli, Swiss, Stäfa
Management Board (Corporate Executive Board)
Egon Putzi, Chief Executive Officer
Franz Sumnitsch, Chief Executive Officer
Sabine Kampitsch, Finance (Executive VP & Chief Financial Officer)
Kurt Lackenbucher, Corporate Operations (Executive VP & Chief Operating Officer)
Wilhelm Ladenhauf, Technology & Innovation (Executive VP & Chief Technology Officer)
Herwig Petschnig, Production & Logistics (Executive VP & Chief Operating Officer)
Ernst Gaulhofer, Process application (Senior VP)
Hans Kruwinus, Research (Senior VP)
Auditors
KPMG Fides Peat, Zurich
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.
The Wet Processing Equipment Market
The wet etch and wafer cleaning market has become one of the most critical areas of the entire semiconductor manufacturing process. As chip making moves into smaller geometries beyond the 100 nm era, the ability to effectively clean the wafer surface by removing photoresist residues or residual metals becomes more critical. However, this market is highly fragmented and most players are traditionally found in the wet bench (batch processing)segment. Therefore, additional business consolidation is expected to continue over the next few years.
Today the wet etch and clean market is segmented in to backside processes (like film removal, backside cleans and silicon etch applications),back-end-of-line (BEOL)cleans (like polymer residue removal),and Front-end-of-line (FEOL)cleans (like pre-cleans and post-ash cleans).Backside applications are dominated by single-wafer processes and up to 30 percent of all BEOL cleans are successfully done with single-wafer tools, whereas the FEOL cleaning segment is just beginning to be penetrated by single-wafer. Today, around 20 percent of all wet application steps in microchip manufacturing are performed using single-wafer processes. Based on current market indicators, there is an increased expectation that single-wafer processing will grow faster than the older wet bench approach, especially as advanced cleaning FEOL will necessitate the flexibility and advanced process controls that single-wafer provides. SEZ estimates that the ratio of single-wafer applications will increase from today's 20 percent to 32 percent at the 65 nm and/or 300 mm range by the year 2006. Under the assumption of an industry recovery by 2004, the wet etch and clean market will grow to a minimum of USD 1.8 billion in 2005, which corresponds to a market size for single-wafer equipment of more than USD 500 million.
The year 2002 was so far the most challenging financial year in the SEZ Group 's history. Due to the global economic downturn and resulting dwindling sales of electronic end products, the recovery of the microchip industry continues to be delayed. While the second quarter of 2002 did appear to stabilize, the semiconductor market resumed its downturn in mid-year. As a result, SEZ Group customers reduced or postponed originally planned investments declining sales by almost 21 percent to CHF 199 million from the previous year. However, SEZ succeeded in holding its own against the industrial average of more than 40 percent. Despite decreases in annual revenues, SEZ was able to strengthen its market position through its patented Spin-Processors for single-wafer processing. The difficult economic environment created a highly unprofitable market space for the wet bench business that was acquired for the expected upturn. The demand for batch processing using wet benches came under considerable pricing pressures and reduced margins. Upon review of the changed market situation, the SEZ Board of Directors decided in March 2003 that the SEZ Group should refocus on its core competence, the single-wafer technology and exit the low margin wet bench business. The departure from the wet bench business and linked closure of the wet bench manufacturing facility in Donaueschingen, Germany, led to impairment of assets totaling CHF 27.1 million in the financial year 2002. This resulted in a negative operating result (EBIT)in the year under review amounting to CHF 13.0 million, and a net loss of CHF 13.5 million.
In the first half of 2003, the SEZ Group globally reduces its staffing level by approximately 20 percent from 750 to 600 employees. Around 50 percent of these cuts are part of the manufacturing facility in Germany. These cost cutting steps further enable SEZ to follow through with its decision to refocus on single-wafer spin processors and find sustainable long-term profitability.
By concentrating on single-wafer technology, SEZ has created the basis for sustainable growth at high profitability. SEZ is the global technology leader for single-wafer wet processing in a market where customer requirements and the complexity of manufacturing plants are consistently on the rise. Beyond holding the top position in the area of wafer backside processing, SEZ continues seek ways to secure its dominance for all cleaning processes. This is exemplified by the fact that more than 80 percent of all single-wafer wet surface preparation tools installed in the field were made by SEZ.
SEZ systems for removing polymers on the wafer frontside are increasingly becoming the established technology method in microchip production. SEZ Spin-Processors are also enjoying preferred acceptance in the manufacture of 300 mm wafers. 40 percent of SEZ 's tools shipped in 2002 were for 300 mm wafer applications. This is why SEZ is convinced that it will benefit more than its competitors from an ensuing market upswing and the linked expansion of 300 mm manufacturing facilities.
SEZ predicts that the share of single-wafer systems within semiconductor manufacturing facilities will increase from today 's 20 percent to 32 percent by the year 2006. With an expected overall market of more than USD 2 billion in the year 2005, considerable growth opportunities will open up to SEZ.
For SEZ, the year 2002 was not only a year of market-related challenges. It was also characterized by the pleasing recognition of its products and services. Accordingly, SEZ received several awards from clients in the American, Asian and European regions. In April 2002, Franz Sumnitsch, co-founder of SEZ, received the "2002 European SEMI Award " for his remarkable contributions to the development of the semiconductor industry. Additionally, SEZ was once again ranked among the top ten suppliers for the semiconductor industry in the annual customer satisfaction survey conducted by the renowned market research firm, VLSI Research. SEZ owes these achievements primarily to its employees all over the world and their daily commitment to customer satisfaction. At the same time, SEZ would like to express thanks to its customers and business partners for the confidence placed in SEZ products, processes and employees. Finally, SEZ wishes to thank its dear shareholders, for their support. Especially in challenging times SEZ refuses to take such loyalty for granted.
Egon Putzi | Chairman of Board of Directors
Franz Sumnitsch | Vice-Chairman of Board of Directors
Kurt Lackenbucher | Member of Corporate Executive Board
In the financial year 2002 the SEZ Group registered a decrease in net sales by 20.6 percent from the previous year 's CHF 250.8 million to CHF 199.0 million. Impairment of assets amounting to CHF 27.1 million as a result of the exit from the wet bench business and the closure of SEZ Germany led to an operating loss (EBIT)of 13.0 million compared with an operating profit of CHF 43.0 million in the year 2001.Net loss totaled CHF 13.5 million (2001: net income of CHF 29.2 million).Compared with the year previous, SEZ slightly increased research and development expenditures to CHF 37.6 million (2001: CHF 37.0 million),while investments in fixed assets and intangibles were decreased to CHF 35.3 million (2001:CHF 38.4 million).The equity ratio as of 31 December 2002 increased to 72.5 percent (2001:60.5 percent).The SEZ Group maintains CHF 79.6 million in liquid assets (2001: CHF 79.5 million).The average number of employees increased by 4 percent to 732 (2001:701).
In light of the sustained semiconductor industry downturn SEZ customers chiefly invested in select new technologies and 300 mm wafer equipment. Consequentially, the SEZ Group achieved 87 percent of its sales from single-wafer processing systems. In particular, Spin-Processors for processing 300 mm wafers clearly lifted the sales share from the previous year 's 25 percent to 40 percent. Around 10 percent of sales were achieved through sales classified as miscellaneous (service, training, upgrades, chemical management systems).
In the financial year 2002, the SEZ Group gained five new customers, two came from Europe, two from China and one from Japan. 41.4 percent of sales once again came from the Asia-Pacific region (2001:32.1 percent).Sales in this region increased from CHF 80.5 million to CHF 82.2 million and most of the orders were from independent silicon foundries. However, due to the poor market climate these foundries decreased their capital investment plans in the second half of 2002. Despite the economic slowdown the SEZ Group was able to maintain sales in the United States totaling CHF 47.9 million, a similar level to the year previous (2001: CHF 48.6 million).Additionally, the U.S. region increased its share of SEZ sales to 24.1 percent compared with 19.4 percent in 2001. The Japanese region contributed 18.7 percent to group sales (2001:18.4 percent).Japanese revenues of CHF 37.3 million were primarily realized in the second half of 2002 (2001: CHF 46.1 million).SEZ Europe 's sales accounted for 15.8 percent of the company 's global sales (2001:30.1 percent).This equals CHF 31.5 million compared with CHF 75.8 million in the previous year. The sharp decline was primarily attributed to the decreased demand for wet benches and the hesitant investment behavior of European semiconductor manufacturers.
In order to finance further growth and global infrastructure, the SEZ Group increased share capital on 16 May 2002. SEZ Holding Ltd. issued 1,200,000 new registered shares with a par value of CHF 1.– for a total of 13,950,000 registered shares. The original issue price of CHF 73.50 per share resulted in issuing proceeds totaling CHF 83 million. A portion of these funds (CHF 12 million)was used in the acquisition of the US-American L-Tech Corporation that merged with SEZ America Inc. in May 2002. Through the acquisition, SEZ acquired a patented drying technology of its own for integration into wet benches. SEZ 's refocus on single-wafer technologies and subsequent exit from wet bench manufacturing provides the company with additional OEM sales opportunities.
Course of Business 2002
The SEZ Group entered the financial year 2002 with a backlog of orders totaling CHF 47.1 million (2001: CHF 121.4 million).Sales over the first six months of 2002 totaled CHF 96.6 million compared with CHF 149.8 million in 2001. The high rate of taxation for the first half of 2002 led to a loss of CHF 2.1 million (2001: CHF 23.5 million),whereas the operating results (EBIT)turned out positive with CHF 3.0 million (2001: CHF 37.7 million).Incoming orders over the first six months totaled CHF 108.8 million and were thus slightly above the previous year 's level of CHF 105 million. This was primarily due to the very strong second quarter. As of end of June 2002 the backlog of orders totaled CHF 59.0 million (30 June 2001: CHF 94.2 million).
Over the third and fourth quarter 2002 incoming orders declined compared with the second quarter. Attributed reasons for this were cuts in customer capital spending – chiefly involving foundries in the Asian-Pacific region. In total, the financial year 2002 resulted in an increase in incoming orders by 8.4 percent to CHF 191.4 million (2001: CHF 176.5 million).This equals a book-to-bill ratio of 0.96 (2001:0.70).Sales for the financial year 2002 totaled CHF 199.0 million (2001: CHF 250.8 million).As a consequence of impairment of assets following the closure of the wet bench manufacturing facility in Germany, the SEZ Group registered an operating loss of CHF 13.0 million (2001: operating income of CHF 43.0 million)and a net loss of CHF 13.5 million (2001: net income of CHF 29.2 million). In view of the weak international economic situation and down semiconductor industry, SEZ strengthened measures to increase efficiency during the second half of 2002. Reduction practices were implemented in the areas of Material Costs, Other Operating Expenses, and Personnel Expenses to coincide with market conditions. These actions resulted in a lowering of the break-even-point to CHF 45 million per quarter by the end of the financial year 2002.
Market and Market Position
In the year 2002 the market for wet chemical surface treatment of wafers encompassed a volume of over USD 900 million (source: Dataquest, January 2003).Compared with the previous year 's level of USD 1.6 billion this equates to a decrease of more than 40 percent. Despite a drop in sales of 21 percent the SEZ Group was noticeably more capable of holding its ground than the industrial average. SEZ has consolidated its position as a market leader and now has a global market share of over 12 percent. The growth trends in the semiconductor industry point to continual miniaturization of microchips, an increase in the number of chips per wafer, and the employment of new materials and technologies in order to lower chip manufacturing costs. SEZ 's product and application portfolio benefits from these trends. These trends drive a market need for single-wafer equipment and SEZ is therefore capable of offering its clients the optimal product solution. Although wet benches have been the equipment choice in the past, the increased miniaturization and reduction of structure widths to below 0.13 micrometers will drive a noticeable shift towards single-wafer processing.
Cooperation Ventures and Alliances
The significance of cooperation ventures and alliances continues to increase in the extremely cyclical and exceptionally innovation-driven semiconductor equipment industry. In the financial year 2002 the SEZ Group furthered existing partnerships and entered new cooperative ventures. The relationship with its industry partner International Sematech, an international consortium of leading semiconductor manufacturers, was intensified by advancing research activities in the development of advanced cleaning applications. Another development project focusing on advanced cleaning technologies was launched with the European research institute IMEC, headquartered in Belgium. Additional projects concentrated on the development of low-k material process applications and the area involving interconnect metalization.
Research and development
In the semiconductor industry it is of key significance to continue to engage in research and development projects, even in times of economic slowdown. Companies which continue development projects during market downturns are better able to provide and profit from competitive products during a market recovery. Furthermore, customers during a downturn adjust their capital investment plans to technology enabling purchase decisions and a company able to provide an innovative product is more likely to obtain those order opportunities in a depressed market. Yet at the same time, it is important to adjust development activities and expenditures to fit the economic environment. This is why, in the financial year 2002, the SEZ Group prioritized its projects and concentrated its efforts on short-to mid-term benefit projects. In total, the investments in research and development totaled CHF 37.6 million (2001: CHF 37.0 million)corresponding to a share of 19 percent of sales (2001: almost 15 percent).Special attention was given to the development of a next generation platform with higher flexibility, throughput and reduced cost-of-ownership. Release of this next generation platform is expected during 2003.
As in previous years, further development activities concentrated on the enlargement of the application portfolio for process cleaning steps. The goal of the "continuous improvement program " is to optimize existing systems for improved process results, higher wafer throughputs, improved process uniformity, repeatability and machine reliability.
In April 2002, SEZ opened a state-of-the-art clean room laboratory for processing 300 mm wafers in Phoenix, Arizona (USA).SEZ is now able to demonstrate to its clients the possibilities of 300 mm wafer surface processing and develop new processes with them for use around the world. Additionally, in the financial year 2002, SEZ installed five systems in promising project environments for demonstration and laboratory purposes at its own expense. These moves have created the basis for consolidating SEZ 's market position as a leader in single-wafer technology and surface preparation processes in time for the next market upturn.
Investments
In the financial year 2002 the SEZ Group decreased investments in fixed assets and intangibles totaling CHF 35.3 million (2001: CHF 38.4 million).More than 40 percent of the investments were for prototypes and construction in progress, almost 30 percent for property and buildings in Austria and the completion of the 300 mm laboratory in the U.S., addition-ally CHF 6 million was spent for software implementation including SAP. Due to the closure of SEZ 's manufacturing facility in Germany, construction in process suffered a depreciation of CHF 9.5 million.
Financial Situation
The SEZ Group has a solid financial basis and a high rate of liquidity at its disposal. As of 31 December 2002 financial liabilities decreased from CHF 57.8 million in 2001 to CHF 39.2 million. Equity capital increased from CHF 187.1 million to 245.1 million corresponding with an equity ratio of 72.5 percent (2001:60.5 percent).CHF 79.6 million in existing liquid funds and securities remained relatively constant with the year previous (2001:79.5 million)and cash flow decreased from CHF 44.2 million to CHF 17.7 million.
Personnel and Organization
In the financial year 2002 the average number of employees at the SEZ Group rose by 4 percent to 732 (2001:701).Personnel costs, however, decreased by 12.9 percent to CHF 61.6 million (CHF 70.8 million).This was due to the payment of fewer success-related bonuses, less overtime and reduction of holiday accruals.
SEZ maintains a corporate culture that supports team spirit, an entrepreneurial way of thinking, and personal development of each individual in accordance with the corporate vision. In order to promote customer focus and staff satisfaction, SEZ holds regular structured employee interviews and surveys at all of its worldwide locations. Thanks to SEZ 's corporate culture, the company 's largest location in Villach, Austria, earned third place in a European-wide Hewitt study titled the "Most Attractive Employers ".
Business Excellence, Quality and Environment
The SEZ Group seeks to create sustainable added value for all its stakeholders. This principle is based on understanding sustainability in its entirety, and focusing equally on economical, social and ecological factors. At the same time SEZ attaches great importance to quality awareness at all corporate levels. Certification according to ISO 14001, ISO 9001, which were first achieved in 1997 and 1998, and validation according to the EMAS Directive confirming eco-friendliness at the production facility in Villach form the basis of the SEZ Group 's quality and ecological standards. Both the supervisory audits for ISO 14001 and ISO 9001 and inspections according to the EMAS II Directive were conducted successfully in the year 2002. At the production facility in Villach, SEZ publishes an Environmental Report, which is open to the public and made available upon request. A Quality Inspection Management System was also implemented in order to minimize quality costs along the entire value-chain. The product development and innovation process set up in the year 2001 has been successfully applied in all new projects in 2002.
Corporate Governance
In the current financial report 2002 the SEZ Group has disclosed all relevant information concerning Corporate Governance in a chapter of its own. The details comply entirely with the recommendations of the Corporate Governance Directive of the SWX Swiss Exchange that took effect on 1 July 2002, and will form an integral part of SEZ 's communication policy hence forth.
Outlook
Against the background of the present market situation the SEZ Group is expecting sales of CHF 65 million for the first six months of the financial year 2003; the results will additionally be burdened by reorganization costs and running expenses totaling to CHF 7 million. The development projects ' focus on single--wafer technology and the initiated staff reduction of globally 750 to 600 jobs will enable a noticeable lowering of the break-even-level to around CHF 37 million per quarter from the third quarter onward. From the current perspective, in regard to the entire financial year 2003, the SEZ Group is expecting net sales in the range of CHF 130 million to CHF 165 million. As a result of the significantly reduced operating costs, the SEZ Group is able to achieve a positive cash flow with net sales of CHF 130 million onward. From net sales of CHF 161 million onward it can achieve positive results.
In view of the current market trend, SEZ expects that the share of single-wafer systems for advanced cleaning processes on the overall market for wet process systems will be rising from today 's 20 up to 32 percent in the year 2005. The expected market volume exceeding a total of USD 2 billion in the year 2005 (source: Dataquest, January 2003)will open up over-average growth opportunities for the SEZ Group.
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