Nanometrics, Inc. (NANO)

Nanometrics is a leader in the field of high performance process control metrology systems, used during the manufacture of semiconductors and Integrated Circuits (IC’s). These systems measure and inspect different characteristics of semiconductors and IC’s during various stages of manufacturing thus helping them to improve efficiency and yield. The company derives its revenue from product sales and customer service, with the former accounting for nearly 85% of revenue for the last two fiscals. The company caters mostly to clients in the US and Asia.

Net revenue for the nine-month period ended September 2006 up 27% as a result of higher service revenue and increased demand for products as more and more semiconductor manufacturers are moving towards 300mm wafer technology. The growth in service revenue can be attributed to the acquisition of Accent optical solutions and increased demand for post-warranty service contracts.

The metrology systems market is highly fragmented with KLA-Tencor enjoying the dominant share. The industry is expected to grow at a rate of 12% in 2007 from its current revenue of $4.5 billion. This growth can be attributed to reasons like ongoing shift to 300mm wafer technology continuing in 2007 and wider acceptance of 65nm chip technology. These changes lead to better performance and memory chips, which require advanced monitoring products. Demand for integrated metrology systems are increasing as it helps to reduce cost and improve yields better than tradition metrology systems.

The company has reacted positively to these changes by coming out with advanced systems like its 9010 line which caters to integrated metrology systems. With its well-positioned product line it can continue to address the 300mm wafer and 65nm chip market. The company improved its market share to 15%, behind KLA-Tencor; after its acquisition of Accent and Solaris. These acquisitions also strengthened its presence in other areas like optical CD and overlay systems. The company is also planning to increase its outsourcing component in manufacturing to more than 70% from its current 40% and thus reign in on the cost factor.Thus the fundamentals of company stock looks sound in the near future.