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The acquisition of Novellus (NVLS) by Lam Research (LRCX) is now official. Much has been written about the merger, including two Seeking Alpha articles myself. I leave you with an analysis by The Information Network on market shares in four key sectors in which the new company will compete.

In the core business for Lam, its share of the market increased to 45.6% in 2011, according to The Information Network's report Plasma Etching: Market Analysis and Strategic Issues. Included are Tokyo Electron, Applied Materials (AMAT) and Hitachi High Technologies. Mattson Technology (MTSN) entered the market a few years back but had only a 1.2% share based on sales to a CMOS image manufacturer.

Etch

2006

2011

Lam Research

39.2%

Lam Research

45.8%

Tokyo Electron

26.5%

Tokyo Electron

26.0%

Applied Materials

24.2%

Applied Materials

12.2%

Hitachi High Tech

7.3%

Hitachi High Tech

11.7%

Others

2.8%

Others

3.2%

Mattson Technology

0.0%

Mattson Technology

1.2%

Source: The Information Network

Speaking of Mattson, in 2006 they led the plasma strip market in 2006 but dropped to fourth position in 2011. Meanwhile, Novellus moved to its position in 2011 behind South Korean-based market leader PSK. Axcelis (ACLS), Hitachi Kokusai Electric, Ulvac and Shibura Mechatronics rounded out the top suppliers.

Strip

2006

2011

Mattson

24.9%

PSK

22.5%

PSK

24.0%

Novellus

21.8%

Novellus

19.4%

Axcelis

17.7%

Axcelis

12.9%

Mattson

16.0%

Shibaura

8.9%

Hitachi Kokusai Electric

7.8%

Hitachi Kokusai Electric

5.6%

Ulvac

5.7%

Ulvac

3.0%

Shibaura

5.4%

Others

1.3%

Others

3.1%

Source: The Information Network

In the Plasma-Enhanced Chemical Vapor Deposition (PECVD) sector, Novellus maintained its second place position in 2011 behind Applied Materials and ahead of ASM International (ASMI), according to The Information Network's report Thin Film Deposition: Trends, Key Issues, Market Analysis.

PECVD

2006

2011

Applied Materials

67.7%

Applied Materials

64.1%

Novellus

25.3%

Novellus

30.3%

ASM

4.6%

ASM

3.2%

Other

2.4%

Other

2.5%

Source: The Information Network

In the Physical Vapor Deposition (PVD) sector, commonly known as sputtering, Applied Materials dominated with an 80.5% share while Novellus lost market share in 2011 compared to 2006. Ulvac and Canon Anelva (7739:JP) are the other suppliers.

PVD

2006

2011

Applied Materials

78.8%

Applied Materials

80.5%

Ulvac

7.5%

Ulvac

11.1%

Novellus

7.5%

Novellus

5.4%

Canon Anelva

4.4%

Canon Anelva

2.5%

Others

1.9%

Others

0.5%

Source: The Information Network

Some have speculated that it was Novellus' electrochemical deposition (ECD) tool, the Sabre 3D, that was a key reason for the company's acquisition by Lam. It was introduced by Novellus in mid 2010. 3D (3 dimension) is a processing geared for the rapidly-growing advanced Wafer-Level Packaging (WLP) market and upcoming Through-Silicon Via (TSV) technology.

If that was the strategy, Novellus could have bought NeXX Systems, a leader in ECD for the back end. Instead, Tokyo Electron acquired the company for $206 million in the past month. Applied Materials and NeXX Systems have a lock on the market. estimated at $125-$150 million. In 2010 and 2011, we estimate Novellus had sales of less than $10 million in each year.

For the investor:

1. I recommend investing in Lam for revenues generated as a combination of its core businesses and those of Novellus.

2. Don't consider market share gains because of, as some suggested, Lam's name is now on Novellus' equipment and that means Intel (INTC) will buy the equipment. Semiconductor manufacturers will by best-of-breed equipment and there is no reason to buy a re-badged Novellus tool unless it became best of breed by Lam's modifications.

3. Don't buy based on expectations of growth in the back-end market. Applied Materials and Nexx Systems (now a TEL company) have more than a 90% share.

Source: Competition Scene For Semiconductor Equipment In Wake Of Lam-Novellus Merger