From one of many to market leader
Most start-ups get acquired because they have something the new parent company wants: a product or intellectual property, for example. But it can also be the other way around. In some deals, it is the parent company that provides something to the startup, which later turns out to be a crucial missing ingredient for success, allowing the start-up to break free from a crowded marketplace and find a niche where it can distinguish itself from the competition.
The best M&A deals offer a two-way exchange, with mutually beneficial outcomes.
They all require talented people at the heart of the deal to recognize those new opportunities.
The semiconductor industry has seen plenty of M&A activity recently. ASML hasn’t stayed on the sidelines and in November 2016 closed the acquisition of Hermes Microvision Inc. (HMI), a Taiwanese chip equipment maker with a large presence in Silicon Valley. For ASML, the drivers behind such deals are products and technology: the company is looking for ways to create better, more valuable products and services for its customers.
“ASML typically has several big ideas on how to create new markets after a merger is completed and encourages an open exchange of product concepts, designs and value propositions,” said Yu Cao, general manager at ASML in Silicon Valley.
A deal that shifted the focus
The HMI acquisition wasn’t ASML’s first deal in Silicon Valley. In 2007, it acquired Brion, a leader in lithography simulation software, to expand ASML’s Holistic Lithography offering — one of the company’s growth drivers.
The Brion team gained a fresh perspective on its own business through the acquisition. While its competitors in the EDA (electronic design automation) space looked upstream to chip design, ASML’s new Silicon Valley office looked downstream to manufacturing, influenced by ASML’s strength in chip-making equipment.
“Before joining ASML, we were simulating the behavior of scanners and thought we knew quite a lot about how they worked,” said Cao, who co-founded Brion. “We quickly learned that in reality, the machines were much more complicated, which helped us enhance our understanding of the system and subsequent product development.
“Our competitors were mostly focused on building software tools for the IC design phase. The combination of ASML’s strong hardware focus and our expertise in physical modeling and numerical algorithms gave us space where we could set ourselves apart and grow new product opportunities,” Cao said.
This allowed the ASML Silicon Valley team to further increase traction and recognition from key customers, culminating most recently in its single largest customer order in the history of its software development operations, and to become a leader in OPC, or optical proximity correction, software.
Hardware and software development run on different rhythms
The developments of hardware and software products face different constraints. Hardware typically involves managing a complex supply chain and requires a complete design before anything can be manufactured. Those constraints are multiplied when you develop a 50-ton, $50 million machine such as a semiconductor lithography system, which has to meet specifications measured in units that begin with “pico” or “nano.”
Combined with the roadmap of the semiconductor industry, prescribed by Moore’s Law, this means that hardware development at ASML is very goal-driven and is mapped out years in advance.
By contrast, many companies practice software development on much shorter cycles, often just weeks.
ASML’s Silicon Valley operation sits in the middle: because it develops software, it can be as agile as any other software company, but because that software supports a multi-year development roadmap, it is also very goal-driven.
“We have a long-term roadmap that we update regularly and we take a very systematic approach to map out the requirements and future challenges of chip production. We ask ourselves: What will our customers need, and when will they need it?” said Chris Spence, vice president of advanced technology development at ASML in Silicon Valley.
Historically, the Silicon Valley team limited the sharing of those roadmaps and early research with its customers, because success was too uncertain.
However, as chip makers struggle to control the manufacturing process to ever tighter specifications, it became apparent that a deeper understanding of the customers’ challenges was needed to provide meaningful solutions.
So the team started to quiz customers on their needs further into the future — and began sharing their experimental work.
By engaging while code was being written, the product development team had to address deeper, more challenging questions, but in return gained access to more data to better inform the development of its sophisticated computational models.
“It is through these roadmap meetings that we demonstrate our in-depth, forward-thinking approach and our customers have confirmed we were working on the right things,” said Keith Gronlund, director of product marketing, Process Window Enhancement solutions.
Agile and forward-thinking
The approach paid off, both in the performance of the products and in business success.
ASML now has achieved a strong market position in OPC software, and the latest customer win demonstrates growing adoption of its modeling solutions (part of ASML’s Holistic Lithography portfolio) by leading customers to address challenges associated with shrinking chip designs.
“For the last 10 years, we’ve been striving from an application standpoint to gain market acceptance. We’ve had to be responsive to any little angle to differentiate ourselves and get our foot in the door. We stayed very hungry,” Spence said.
“It was only the balance of these two elements — agility and forward-thinking — that increased our customer’s confidence to select us as their preferred supplier for today and into the extended future.”
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