Credence Systems Corporation

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Credence Systems Corporation

1421 California Circle
Milpitas, California 95035-3099
U.S.A.
Telephone: (408) 635-4300
Fax: (408) 635-4985
Web site: http://www.credence.com

Public Company
Incorporated: 1978
Employees: 1,513
Sales: $474.4 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CMOS
NAIC: 333295 Semiconductor Machinery Manufacturing

Headquartered in Milpitas, California, Credence Systems Corporation is a leading manufacturer of automatic test equipment (ATE) and software for the semiconductor manufacturing industry. The company's customers, which include foundries, fabless chip companies, integrated device manufacturers (IDMs), and various suppliers, use its products in all stages of semiconductor production, from design and testing to manufacture. In turn, these semiconductors are used in a wide range of everyday products and devices, from televisions and cars to phones and computers. Heading into the last half of the first decade of the 2000s, nearly 40 percent of Credence's sales were generated by Intel and Advanced Micro Devices. At that time, the company's products were grouped into several major categories, including the ASL Series, Diamond Series, Sapphire Platform, and Diagnostics Group.

NICHE PLAYER: 1978–89

Credence got its start in 1978, as a consulting firm established by David J. Mees. In 1982 Mees incorporated his new enterprise, which became Semiconductor Test Solutions Inc. (STS). The company established its headquarters in the town of Santa Clara, California.

During the mid-1980s STS evolved into an automated test equipment firm serving the semiconductor industry, and began making development workstations under the Remote Management Series name. Instead of attempting to compete for the business of semiconductor industry heavyweights like National Semiconductor Corp. and Intel Corp., in 1984 STS saw a golden opportunity to serve smaller companies that were producing application-specific integrated circuits (ASICs), which were produced to a customer's unique specifications for a specific purpose or device.

In 1985 STS introduced its Series 6000 testing system, which was based on very large scale integration (VLSI)/large scale integration (LSI) chip architectures, which essentially allowed thousands of small electronic components to be placed on one chip. STS identified an underserved segment of the market by selling testing systems that cost $200,000 to $700,000, placing it below firms selling systems that cost $1 million to $3 million, but above the low-end market for so-called bench-top testing systems that cost less than $100,000.

In the September 14, 1987, issue of the Business Journal-San Jose, writer Cordell Koland explained: "The strategy developed by Mees and his team was similar to the birth of the computer clone based on International Business Machine's personal computer: build a lower-cost, software-compatible product from available components to cover all but the highest end of the market. In this case, the IBM of the automated semiconductor test industry was the Sentry Division of Fairchild Camera and Instrument Co., which was later sold to Schlumberger Ltd."

In the same article, Mees explained: "We entered the market under the protective umbrella of price and technology of the dominant competitor—specifically Fairchild with its 70 percent market share." Other early competitors included the likes of Tektronix and Advantest.

STS kept its overhead low by avoiding proprietary components. For example, the company opted for microprocessors from Motorola, and used the UNIX operating system. STS's first system consisted of a programming workstation with design verification hardware.

By 1987 Series 6000 testers were being utilized by a number of companies, including Sierra Semiconductor, Cypress Semiconductor, VLSI Technology Inc., LSI Logic, and United Microelectronics Corp. STS ended the 1987 fiscal year with sales of $10 million and a 13 percent profit margin. It also was in 1987 that STS unveiled its STS 8000 Series test systems and received permission from the U.S. Department of Defense and the U.S. Commerce Department to ship its systems to China.

The following year, STS made its first acquisition, purchasing Newton, Massachusetts-based test system company Axiom Technology Inc. in a stock swap. Axiom, which became an STS subsidiary, was a good fit in that it also was a testing firm serving a niche market. However, while STS offered digital testing systems, Axiom concentrated on mixed-signal and linear (analog) systems.

Growth continued in October 1989 when Freemont, California-based ASIX Systems Corp., which manufactured verification testers for complex ASICs, was acquired in an all-stock deal. Following the deal, discussions for which had started in January, Mees became chairman and CEO, while ASIX president and CEO Wayne Pittenger became president and chief operating officer.

Initially known as ASIX/STS, the combined companies, along with the Axiom subsidiary, adopted the name Credence Systems Corp. in 1990. The company's headquarters were relocated to Freemont, California. At this time, sales were estimated at approximately $40 million.

EXPANDING SCOPE: 1990–99

In October 1990, Beaverton, Oregon-based Tektronix Inc. agreed to pull out of the testing industry and sell its $30 million Semiconductor Test Systems division to Credence. Completed in 1991, the deal expanded Credence's workforce by approximately 200 people and allowed the company to enter the upper-end testing systems market.

A tragedy occurred in July 1991 when David Mees was killed while flying his Beechcraft Bonanza airplane in the San Juan Islands of Washington state, while on a trip to Alaska with two other people, including former Credence vice-president La Cretia James. While a formal succession plan was not in place, the company's board relied on a reorganization plan that had been draw up after the Tektronix deal. Following Mees' death, senior vice-president of sales Elwood H. "Woody" Spedden was named CEO, and senior vice-president of corporate marketing James T. Healy was named president.

In the July 22, 1991, issue of Chilton's Electronic News, Hambrecht & Quist senior technical analyst Carolyn Rogers remembered Mees, commenting: "Dave Mees was a real consensus personality. He instilled a lot of power in the people who worked for him. At the funeral, someone told a story relating his style of management. He would always just say 'You'll figure it out, just think it through.' And then he would laugh and say 'But it would help if you do it right.'"

COMPANY PERSPECTIVES

Since 1978, Credence has led the industry in redefining value in test. The company's commitment to long-term relationships, innovativeness and support help integrated device manufacturers (IDMs), foundries, OSAT suppliers and fabless chip companies meet their customers' needs by reducing cost-of-test while speeding product introductions with as-needed investment and seamless evolution to next-generation solutions. Our customers equate Credence with value, performance and partnership.

In 1992 Credence unveiled its Vista and SC 212 test systems. Sales for the fiscal year totaled $53.4 million, and the company suffered a net loss of $9.3 million. It also was in 1992 that Dr. Wilmer "Bill" Bottoms, a venture capitalist and Credence board member, was appointed chairman.

A major development occurred at Credence in 1993 when the company made its initial public offering in October. The company issued 2.5 million shares, generating $30 million. At this time Elwood Spedden was named president and CEO, and James Healy became executive vice-president and chief operating officer. After the company was reincorporated in Delaware, its stock began trading under the CMOS symbol on the NASDAQ.

In 1994 Credence made a second public offering of 2.5 million shares. This was followed by a three-for-two stock split and a third public stock offering of approximately 2 million shares in 1995. That year, the company acquired Santa Clara, California-based memory test equipment supplier EPRO in a stock deal valued at $34 million.

Progress continued in 1997. There were new product introductions, including a system for testing flash memory, and Fremont, California-based Zycad Corporation sold its TDX line of fault and test products to Credence. Also in 1997 Credence acquired Test Systems Strategies Inc. (TSSI) from Summit Design for $5 million. Following the deal, which involved a commitment from Credence to buy some $20 million worth of maintenance service and software from Summit, TSSI remained a separate enterprise.

A significant leadership change occurred in December 1998 when Credence chairman Bill Bottoms, who had assumed the additional role of CEO in July 1996, tendered his resignation. The announcement came only a day before the company posted a significant loss for the fourth quarter, with net sales plummeting 68 percent from the previous year, from $69.4 million to $22.4 million. William Howard was named chairman following Bottom's departure, and executive vice-president and chief financial officer Dennis Wolf was temporarily appointed president until Dr. Graham Siddall, an executive from KLA-Tencor Corporation, was named president and CEO in August.

Despite Credence's poor quarterly performance, the company's fiscal 1998 sales increased 6 percent from 1997, reaching $216.8 million. The company ended the decade by establishing a new campus in Hillsboro, Oregon, devoted to manufacturing and engineering, in the buildings that were formerly occupied by Tektronix.

EXPLOSIVE GROWTH: 2000–07

The new millennium ushered in a period of rapid growth and development for Credence, which kicked off the 21st century with a two-for-one stock split. Revenues soared to $680 million in fiscal year 2000, up from $197 million in 1999, and profits reached $140 million, compared to a $2.4 million net loss the previous year.

Following these positive developments, the company announced that it was forming a joint venture project with San Jose, California-based Logic Vision Inc., focused on improving built-in self-test technologies that are embedded directly within chips. In March the company announced plans to acquire Sunnyvale, California-based TMT Inc., a 100-employee manufacturer of low-cost testing equipment for cell phone chips, in an $80 million cash deal. This was followed by the acquisition of a 19.8 percent stake in Irvine, California-based intellectual property firm NewMillennia Solutions Inc. for $11.3 million.

Credence began 2001 by acquiring Santa Clara, California-based Dimensions Consulting Inc., a firm that specialized in interface solutions for the ATE market. The cash-and-stock deal helped to round out Credence's capabilities in the market for nonvolatile memory, such as flash memory, which retains information in the absence of electrical power.

Next, Credence invested $31 million to buy the facilities it had been leasing on its Hillsboro, Oregon, campus. Nearly 18 acres of adjacent land were acquired for $4.5 million, and initial plans were made to expand existing operations. Another major development took place in Beaverton, Oregon, where plans were formed to acquire Integrated Measurement Systems Inc. (IMS) for $170 million.

KEY DATES

1978:: David J. Mees establishes a consulting business.
1982:: Mees incorporates his new enterprise, which becomes Semiconductor Test Solutions Inc.
1980s:: STS evolves into an automated test equipment firm serving the semiconductor industry and begins making development workstations.
1991:: David Mees is killed in an airplane accident.
1993:: Credence generates $30 mil from its initial public offering, issuing 2.5 million shares.
2004:: Headquarters move to Milpitas, California.

Completed in August, the all-stock IMS acquisition gave Credence more comprehensive capabilities, from the early stage of silicon validation to high-volume testing in manufacturing settings. IMS was combined with Credence's Fluence Technology subsidiary and continued to operate under the IMS name. Other developments in 2001 included a 7,500-square-foot expansion of Credence's Memory Products division in Fremont, as well as the establishment of the Credence Technology Center—a training facility located at the International Semiconductor Engineering Laboratories.

In 2002 Credence teamed with Nation IC Design Industrial Base, a design center located in Beijing that was sponsored by the Chinese government, and agreed to lend its testing expertise to ten universities and 65 design houses in that country. This was followed by a domestic technology alliance with San Jose, California-based Cadence Design Systems, in which the two companies agreed to collaborate on open-architecture-based industry standards for design-to-production testing, with a goal of reducing the increasingly high cost of testing "system-on-a-chip" technology.

More progress unfolded in 2003. Early in the year, Credence agreed to acquire Mountain View, California-based Optonics Inc. This was followed by the establishment of a direct sales and marketing office in downtown Shanghai, China, which the company considered a key strategy for entering the market in that country. Finally, a partnership with the Hong Kong Science and Technology Park Corp. resulted in the development of a new center dedicated to probe and test development.

Credence kicked off 2004 by announcing plans to acquire NPTest Holding Corporation. The $660 million cash and stock deal, completed in May, bolstered the company's offerings in the high-end testing market. Other major developments that year included the establishment of a new headquarters facility in Milpitas, California.

In 2005 Credence's growing involvement in Asia resulted in the formation of an engineering training center in partnership with North China University of Technology. In addition, the company merged its operations with those of Spirox, creating a new jointly owned business named Spirox Integration Corp.

Major leadership changes occurred at Credence during the middle of the first decade of the 2000s. As part of the company's succession plan, Dr. Graham Siddall relinquished his president and CEO titles to Dave Ranhoff in early 2005, and served briefly as executive chairman until retiring in October. In an October 31, 2005, PR Newswire release, Ranhoff paid tribute to Siddall, remarking: "Graham was instrumental in leading Credence during a period of rapid technological change and economic uncertainty in the semiconductor industry. He strategically built the company into an industry leader."

Ranhoff's tenure as CEO was short-lived. After tendering his resignation in late 2006, he was succeeded by industry veteran Lavi Lev. In the December 9, 2006, issue of Wireless News, Credence executive chairman Dave House looked back on Ranhoff's contributions and to the future as Credence moved forward into the second half of the first decade of the 2000s saying, "Lavi Lev is the right person to lead Credence at this time as it begins its next phase of development." He continued, "While Dave Ranhoff successfully completed the integration of recent acquisitions and aligned the company on a profitable business model, it is now time to focus on the next phase, that of building the products that will expand our businesses. Lavi's background in both the design tool and semiconductor businesses and his experience in product development, management and business development will serve Credence's customers, employees and investors well as we address the design-to-production test challenges faced by our customers today."

Paul R. Greenland