Veeco Instruments Inc.
Veeco Instruments Inc.
Sales: $206.8 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: YECO
NAIC: 334413 Semiconductor and Related Device
Manufacturing; 334515 Instrument Manufacturing for Measuring and Testing Electricity and Electrical Signals; 333295 Semiconductor Machinery Manufacturing
Veeco Instruments Inc. manufactures precision equipment for the data storage and semiconductor industries, dividing its business into two segments: metrology and process equipment. Veeco Instruments’ high-technology tools and systems are used to manufacture, test, and measure thin-film magnetic heads for computer disk drives and are also used as integral components of silicon wafer fabrication. The company operates manufacturing and engineering facilities in New York, California, and Arizona, which are supported by a worldwide sales and service network comprising offices in the United States, Europe, Japan, and the Pacific Rim. Metrology instruments account for 61 percent of the company’s total sales.
Veeco Instruments’ founding in 1945 places the company as one of the earliest competitors in the semiconductor equipment business. Although the name and the business of the company endured without interruption throughout the remainder of the century, there was a distinct difference between the Veeco Instruments of the 1940s and the company that bore the same name a half century later. The post-World War II Veeco Instruments developed into a multifaceted company that by the 1980s comprised three divisions: Lambda Group, Veeco Automation Group, and Veeco Instrument Group. Of the three divisions, Lambda Group ranked as the largest, representing the kernel of the company’s operations. Lambda Group operated as a supplier of switching and linear power supplies to the commercial, industrial, and military markets, generating nearly $160 million of Veeco Instruments’ $200 million in annual sales during the late 1980s. Rounding out the company’s operations were the much smaller divisions: Veeco Automation Group, a manufacturer of flexible automated semiconductor automation systems; and Veeco Instrument Group, which produced test instrumentation, including leak detection systems and surface measurement equipment, primarily for microprocessor applications. The company was structured as such until events triggered by Veeco Instruments’ acquisition by another company led to profound changes.
In 1988 Unitech pic, a U.K.-based company, acquired Veeco Instruments. The acquisition ended Veeco Instruments’ existence as a publicly held concern and marked the beginning of what would be a short-term marriage between the two entities. Unitech, whose primary business was in connectors and power supplies, was chiefly, and perhaps solely, interested in the power supplies business operated by Veeco Instruments, represented by the company’s Lambda Group. Veeco Automation Group and Veeco Instrument Group were deemed incidental businesses, consumed by Unitech merely as a means to gain control over the more pertinent Lambda Group. Any questions about the longevity of the relationship between the peripheral Veeco Instruments divisions and their new parent company were answered a year after the Unitech acquisition, when a longtime Veeco Instruments executive proposed a resolution that would calve Veeco Instrument Group from Veeco Instruments Inc. and free Unitech from its involvement in the test instrumentation business.
1990 Management-Led Buyout
Edward H. Braun offered to buy Veeco Instrument Group from Unitech, announcing his intentions in late 1989. Braun had joined Veeco Instruments 23 years earlier, starting as a regional/sales engineer in 1966. In the years to follow, Braun occupied a number of positions, including director of marketing, director of operations, and general manager, gradually working his way up Veeco Instruments’ managerial ladder. By the time of his proposed, management-led buyout of the Veeco Instrument division, Braun had culminated his climb by earning promotion to the joint titles of executive vice-president and chief operating officer of Veeco Instruments. Behind him, Braun had a group of fellow managers supporting the buyout and the financial resources of Hambro International, a venture capital firm that agreed to invest in the buyout. At the time of the proposal, the Veeco Instrument division, in the fiscal year ending September 1989, had generated $42 million in sales, averaging 14 percent growth during the preceding five years. Roughly half of the division’s sales was derived from domestic business. The other 50 percent of sales was generated by overseas business, primarily from Europe, where the division had maintained a presence for the previous 20 years through sales and service offices in England, France, and West Germany. A smaller proportion of overseas revenues were obtained from the Far East through a sales and service subsidiary in Japan named Veeco KK, established only after years of efforts by Veeco Instruments executives.
Unitech and the Braun-led management group agreed on the purchase price of $29.2 million, clearing the path for the consummation of the transaction in early 1990. Included within the deal were two New York-based manufacturing operations, Vacuum Products in Plainview and UPA Technology in Syosset, as well as Sloan Technology, located in Santa Barbara, California. These facilities and Veeco Instrument’s worldwide workforce of 400 employees constituted the division’s new, independent corporate existence. Concurrent with the finalización of the deal, the Veeco Instrument division adopted the corporate title of Veeco Instruments Inc., while the Unitech-controlled operations that had previously existed as the identically named Veeco Instruments Inc. were renamed Lambda Electronics, Inc.
Independence from Unitech came at a price that quickly engulfed the Braun-led company in debt. Although Veeco Instruments was profitable after its first year of business, interest expense negated the $2 million the company posted in operating income, leading to a $1.2 million net loss for the year. From its inaugural year as an independent, privately held concern, the annual net losses continued, setting an alarming trend. Despite registering a profit in two of the next three years, the company racked up successive net losses of $3.8 million, $1.6 million, and $410,000 between 1991 and 1993. The dismal financial figures stemmed from the $29.2 million buyout in early 1990, which left Veeco Instruments saddled with $23.7 million of debt as it attempted to stanch the mounting losses in 1994. During the first nine months of 1994, the company turned a financial corner by generating income in excess of its interest expense for the period, but Braun and his management team were not satisfied. For the promising results to continue, the company needed to reduce its debt, so Braun decided to take Veeco Instruments public and filed for an initial public offering (IPO) of stock in late 1994. The IPO netted the company $27.5 million, enabling it to reduce its debt and to greatly increase its chances of achieving consistent, long-term profitability.
During Veeco Instruments’ troubled start, cost-cutting measures and consolidation significantly reduced the size of the company. Manufacturing operations in New York were consolidated into one facility, while the company’s workforce was trimmed nearly in half. The four-year downsizing period stood in sharp contrast to the ambition and confidence the company exuded following its IPO, a corporate event that touched off an era of expansion that greatly increased Veeco Instruments’ stature during the latter half of the 1990s. Concurrent with Veeco Instruments’ public debut, there were two notable aspects of the company’s business that pointed to a promising future in the data storage and semiconductor markets. Veeco Instruments’ largest customer, disk-drive manufacturer Seagate Technology, was driving the company’s growth in the data storage market, increasing its orders at an encouraging rate. Seagate, which primarily purchased ion beam etching equipment from Veeco Instruments, accounted for nearly a third of Veeco Instruments’ total sales in 1994, a dramatic increase from the less than nine percent the disk-drive maker contributed in 1992. Also buoying hopes for the future was an agreement with IBM naming Veeco Instruments as the exclusive worldwide sales and marketing representative for the SXM Workstation, an atomic force microscope used in surface measurement by semiconductor and data storage manufacturers.
Veeco will continue to pursue our corporate strategy, which is focused on expanding our product lines to be the leading full service metrology and process equipment “one-stop” supplier to data storage manufacturers, and developing emerging applications for our metrology equipment in the semiconductor industry. Key elements of this strategy include: Providing our data storage and semiconductor customers with technical expertise and equipment to improve the quality of their products and reduce the time it takes to bring their new products to market; Capitalizing on our technology expertise and working closely with our customers to develop next generation products; Pursuing strategic mergers and acquisitions to provide our customers with a broad range of complementary products and technologies; Identifying important trends in technology in order to capitalize on areas of high growth; Utilizing our global sales and service network to provide world class support to our customers for existing and future products.
Veeco Instruments’ prospects for the 1990s were also boosted by the rapid pace of technological advancement in its market segments, which called for a greater need for the type of high-precision instruments manufactured by the company. The fabrication of semiconductor devices involved a complex series of process steps that were categorized into three procedures—deposition, photolithography, and etching—which were repeated several times during the fabrication process. As technology advanced, spurred by the increasing miniaturization of microelectronic components, the number of manufacturing steps that required greater use of precise etching and deposition equipment also increased, translating into a greater dependence on companies such as Veeco Instruments. The animated pace of technological advancement also factored in Veeco Instruments’ data storage business, measured by the increasing capacity of disk drives. Disk drive capacity was largely determined by the capability of magnetic recording heads, which read and write signals onto hard disks. During Veeco Instruments’ post-IPO years, most magnetic heads being produced were inductive, but during the late 1990s new designs utilizing magneto resistive (MR) and giant magneto resistive (GMR) heads emerged, allowing for greater areal densities capable of storing exponentially more data. The transition in technology eventually forced Braun to alter the composition of Veeco Instruments, but before that moment arrived, he set about doing what he previously had lacked the resources to accomplish: expanding Veeco Instruments through acquisitions.
Vibrant Growth During the Late 1990s
The company’s first financial report as a publicly held concern demonstrated encouraging progress. Veeco Instruments recorded its first full year of profitability since the 1990 buyout, posting $1.5 million in net income. Annual sales, subsequently, began to rise resolutely, swelling from roughly $40 million to $90 million by 1996. After 1996, Braun and his colleagues directed their efforts toward identifying suitable acquisition targets, intent on fleshing out Veeco Instruments’ product lines to create a “one-stop-shopping” company for semiconductor and data storage manufacturers. In March 1997, the company announced two pending acquisitions that were expected to increase annual sales to $200 million by 1998. Braun signed an agreement to acquire Media & Magnetics Applications, which had developed a state-of-the-art MR/GMR deposition technology coveted by Veeco. Media & Magnetics Applications was a division of Materials Research Corp., a U.S. equipment subsidiary of Sony Corporation. Braun also signed an agreement to acquire Tucson, Arizona-based Wyko Corp., the addition of which extended Veeco Instruments’ existing surface metrology product line to include automated, non-contact optical testing systems. Completed later in 1997, the acquisition of Wyko lent Veeco Instruments’ strength in optical interferometric measurement systems for its semiconductor and data storage customers.
The addition of both the Media & Magnetics Applications division and Wyko Corp. in the same year proved to be a burdensome task for Braun and his senior executives, pushing the company past “the critical mass point for size and financial stability,” according to the February 16, 1998 issue of Electronic News. Compounding the strain suffered by the company were technology-related problems arising in each of Veeco Instruments’ market segments. Both the data storage and semiconductor markets were caught in a technology transition at the end of 1997, which contributed to a precipitous drop in the company’s stock price. From a high of $73.62 in September 1997, Veeco Instruments’ stock price plunged to $18.12 in December 1997, prompting Braun to take action. His response was another acquisition, the purchase of Digital Instruments, Inc. in 1998.
Santa Barbara, California-based Digital Instruments operated as a manufacturer of high-precision measurement products. Braun agreed to acquire the company in February 1998, attracted by the complementary relationship between its expertise and the atomic force microscope products represented by Veeco Instruments’ agreement with IBM. Further, the $150 million acquisition of Digital Instruments helped Veeco Instruments maneuver out of its downturn by stepping up its involvement in metrology. Braun noted as much in his February 16, 1998 interview with Electronic News, candidly remarking, “Suddenly, we are more a metrology company.” Following the completion of the transaction, metrology revenue accounted for $150 million of Veeco Instruments’ $240 million in overall revenues.
Veeco Instruments announced two more acquisitions before the end of the 1990s, endeavoring to broaden its product line as the company neared its tenth anniversary as an independent concern. In October, Braun further strengthened the company’s metrology business by signing a definitive merger agreement with OptiMag, Inc., a supplier of automated optical defect inspection and process control equipment for the data storage thin film magnetic head industry. On the same day the OptiMag agreement was signed, Braun signed a definitive merger agreement with Ion Tech, Inc., a $20-million-in sales supplier of ion beam deposition systems used to manufacture filters critical to extending “bandwidth” of fiber optic telecommunication networks. Aside from bolstering Veeco Instruments’ process equipment business segment, the addition of Ion Tech ushered Veeco Instruments into a new market, optical telecommunications, which was expected to be a high-growth market. Roughly two weeks after the merger agreements were signed, the company announced its financial results for the first nine months of 1999. The figures were encouraging, perhaps signaling that the difficulties of 1998 had been put to rest. Sales for the period reached a record high of $170 million, but more impressive was the 109 percent increase recorded in the company’s net income, which soared to $17.1 million. With these financial results fueling optimism at the company’s Plainview, New York headquarters, Veeco Instruments prepared for the 21st century and its second decade of independence.
- Braun leads buyout of Veeco Instrument Group from British parent, Unitech.
- Initial public offering is completed, greatly reducing debt.
- Wyko Corp. and Media & Magnetics Applications are acquired.
- The purchase of Digital Instruments, Inc. increases presence in metrology market.
- Definitive merger agreements are signed with OptiMag Inc. and Ion Tech, Inc.
Sloan Technology Corporation; Veeco Instruments S.A. (France); Elvion S.A. (France); Veeco Instruments GmbH (Germany); Veeco Instruments Limited (U.K.); Nihon Veeco K.K. (Japan); Wyko Corporation; Veeco Real Estate, Inc.; Robin Hill Properties, Inc. Digital Instruments (UK) Limited.
ADE Corporation; Zygo Corporation; Commonwealth Scientific Corporation; CMI International; KLA Tencor; Applied Materials, Inc.; Hitachi, Ltd.; Varían Associates, Inc.
Bradley, Gale, “Veeco Acquiring Wyko, MRC Unit,” Electronic News, March 24, 1997, p. 10.
“Debt Drags Down Veeco Net; IPO Proceeds Will Help,” Electronic News, November 21, 1994, p. 48.
Fasca, Chad, “Metrology Ups Veeco Book-Bill,” Electronic News, June 8, 1998, p. 42.
——, “Veeco Deals for Digital Instruments,” Electronic News, February 16, 1998, p. 1.
Haber, Carol, “Gear Makers Post Gains,” Electronic News, August 9, 1999, p. 28.
Kontzamanys, Gregory, “Management to Purchase Veeco Group,” LI Business News, November 27, 1989, p. 1.
McClenahen, John S., “Global Averaging: Protection Against Business Downturns,” Industry Week, February 15, 1988, p. 30.
“Pricing Veeco,” Electronic News, February 8, 1999, p. 12.
“Veeco Acquires Elamex’ Share of Optimag,” PRNewswire, October 18, 1999, p. 1905.
“Veeco Instruments, Inc.,” Electronic News, December 14, 1998, p. 26.
“Veeco Net Down in 4Q,” Electronic News, February 15, 1999, p. 6.
“Veeco Shows 1st Results; 4Q, 1994 Net, Sales Rise,” Electronic News, February 20, 1995, p. 8.
“Wheeling and Dealing,” Electronic News, August 2, 1999, p. 4.
Wyatt, John, “She Knows How to Pick IPOs,” Fortune, November 27, 1995, p. 211.
—Jeffrey L. Covell