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Companies born in the recession
A year ago Entegris Inc. was struggling with painful losses — along with nearly every semiconductor equipment manufacturer. But the Billerica company’s focus on an obscure yet important part of the chip-making process may help it rebound faster than its peers.
Entegris (Nasdaq: ENTG) makes filters and membranes used to clean the air and fluid around silicon wafers as they become chips for various electronic devices. Selling consumable products for chip manufacturing ties sales closely to sales of devices themselves rather than capital equipment spending — which means sharing in the pain, as when device sales fell in the depths of the recession, as well as the promise of an accelerated rebound.
“Last year takes the prize for the most bizarre year ever,” said Entegris CEO Gideon Argov, referring to the unprecedented sharp decline in chipset production worldwide. “The good news is that the leading edge (electronics) is growing nicely, and when the industry moves toward more advanced nodes, that’s a real tailwind for us.”
The company experienced painful revenue declines as chip makers throttled back production, and therefore purchases of equipment. Global semiconductor sales fell 9 percent in 2009 to $248.6 billion, according to the Semiconductor Industry Association. Some 70 percent of Entegris’ business is linked to the semiconductor market.
It went from revenue of about $130 million in the third quarter of 2008 to $59 million in the first quarter of 2009. Net losses accrued during that period exacerbated a weak cash flow and heavy debt load, which topped $164 million at the end of 2008.
That prompted the company to slash its operating budget by $110 million in 2009, closing manufacturing facilities in North America — including its former headquarters in Chaska, Minn. — for more robust facilities across Asia, where many of its customers are located. The closure of the plant in Chaska resulted in Entegris moving its corporate headquarters to Billerica, the former home of Mykrolis, a Millipore Corp. spinout acquired by Entegris in 2005.
While the company as a whole shed hundreds of jobs in both temporary and permanent restructuring, the Massachusetts workforce remained relatively stable thanks to its work on key products like filters used in the chip-making process and a small brush that removes particles from silicon wafers.
“The products that we make here are some of the biggest sellers in the company,” Argov said.
Entegris employed about 3,000 before the cuts and now employs about 2,200. The Billerica facility, along with a smaller operation in Franklin, employs between 200 and 250 people. The same elements that caused Entegris’ sales to fall fast a year ago are today fueling its rebound.
The company generated $146 million in revenue in the fourth quarter compared with $111 million in the third quarter and $113 million a year ago, and $10 million in net income, its first quarter in the black since the second quarter of 2008. It cut its debt load by $20 million in the fourth quarter.
And not everyone is quite so bullish.
“We believe the semiconductor capital equipment industry hitting a midcycle correction is creating risk to Entegris’ capital spending sales and unit driven sales,” wrote Citigroup analyst Timothy Arcuri in a note to investors. “So while Entegris has gotten back to the top of the profit hill, it now faces the next set of choppy cyclical waters.”
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