Since this was the second year we conducted our survey of the Top 50 Employers, we based a lot of our data on changes between 2006 and 2007. Who showed the most growth? Who turned red ink into black? Who charged ahead of their competitors? While many companies showed relative stability, three supercharged companies surged ahead in the ranks: KLA-Tencor, Intel, and Juniper. What do these companies have in common, propelling their ascension? Simple. Strong technology and shrewd asset management.
KLA-Tencor
KLA-Tencor, a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries, including wafer manufacturing and data storage, was number 87 on our 2006 list. But in 2007, it ranked tenth, vaulting 77 places in a single year. Improvements in sales growth, operating profit growth, and operating margin drove the company, while its stock price and design influence spending played key roles as well.
Almost every major wafer and semiconductor manufacturer uses KLA’s products, giving the company more than 50% market share in process diagnostic and control (PDC) equipment. Its quality-assurance tools include process control testing equipment and software used in the semiconductor manufacturing process. The software helps increase yield, while the testing equipment helps minimize defects. KLA engineers provide in-house service and expertise at most fabs. And, the company has the largest PDC R&D budget and one of the highest R&D to sales ratios in the industry.
Semiconductor fabs are very expensive to build, and chip design is becoming smaller and more complex. The shift to design at 65 nm and below, the fact that devices keep getting smaller, and the ever increasing demand for consumer electronics are all industry drivers. China’s economic and manufacturing growth has created huge demand as well and can serve as a huge driver for the industry in the future. Alternative power sources such as solar may also provide future growth opportunities, as wafering systems are used in producing silicon photovoltaic cells for solar panels.
KLA’s major competition includes Applied Materials, the largest overall semiconductor equipment company, and Hitachi Electronics Engineering. While Applied has about 3.5 times KLA’s overall revenues and around three times the overall total market share in semiconductor equipment, KLA has about five times Applied’s market share, specifically in PDC.
As chips become smaller and more complex, inspection will continue to become more critical. By minimizing defects, companies save both time and money, so they will continue to invest in PDC. In fact, PDC equipment spending keeps going up as a percentage of total semiconductor equipment spending, and KLA devotes all or most of its efforts to PDC.
Revenue increase was very healthy for KLA in 2007 after a basically flat year in 2006. As you might expect, 66% of those revenues come from Asia, with 42% coming from Japan and Taiwan. KLA’s backlog was up 6.2%, which bodes well for continued success in 2008. Most of the operating profit growth flowed down from the sales growth, though its gross margin was up just a bit. Sales, general and administration (SGA) expenses were down two points as a percentage of sales, so cost control did help operating margin growth a bit. KLA’s profit margins are on the higher end of its competition.
Semiconductor spending, though, is very cyclical. It relies heavily on the demand for products like iPods, cell phones, computer systems, videogame consoles, and other electronics and their life cycles. The health of the overall economy also has an impact. Still, KLA was profitable during the major semiconductor downturn of 2001-2003. Even though profit levels went down each year, its profitability is a good sign, and profit levels again increased in 2004 when the industry cycle started turning positive.
Intel
Sometimes, the big keep getting bigger. Intel, the world’s largest semiconductor manufacturer, is no exception. With product lines in microprocessors, chip sets, flash memory, and connectivity, this company left its place at 89th on our 2006 and rose to 21st in 2007, jumping 68 slots. Like KLA-Tencor, improvements in sales growth, operating profit growth, and operating margin drove this leap. Furthermore, increases in the stock price helped offset declines in R&D spending growth. Design influence spending was a positive contributor as well.
While Advanced Micro Devices has been making some inroads over the last decade, Intel still holds the majority market share. It re-established its technological lead over AMD and over VIA, a competitor in the mobile processor segment, in late 2006 and early 2007 as it advanced from 65-nm process technology to 45 nm.
With this thinner insulation, designers can increase the density of the circuits on processors, which can be made smaller and more powerful. Intel’s quad-core processors also have raised the bar for its rivals. Meanwhile, AMD had to cut prices and lose market share in 2007, but it hopes to catch up in 2008.
After a revenue decline in 2006, Intel rebounded with an increase in 2007. About 50% of its revenues come from the Asia-Pacific region, and overall seasonality leans toward the second half of the year. Its backlog isn’t meaningful, as most orders are made via typical purchase order and are cancelable.
Dell makes up about 18% of Intel’s net revenues, while Hewlett-Packard accounts for about 17%. Intel’s customers mainly are either original equipment manufacturers (OEMs) or original design manufacturers (ODMs). It sells to individual customers as well.
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