Edwards expects iPad to boost semiconductor spending

CRAWLEY, England Tue Sep 28, 2010 10:21am BST

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CRAWLEY, England (Reuters) - Outlay on semiconductor plants will rise in 2011, boosted by growing use of NAND memory chips in iPads and other "tablet" devices, said the chief executive of Edwards, a leading sector supplier.

Private equity-backed Edwards, whose pumps can create vacuums emptier than deep space, works with all of the world's 10 biggest chipmakers. It recently hired a trio of banks to explore a sale or flotation.

Chief Executive Matthew Taylor told Reuters Edwards would benefit from more spending on new "fabs," or semiconductor factories, as well as from a shift to smaller chips requiring purer vacuums, and from China's moves to use greener energy.

"Overall we think there's going to be a little bit of growth next year (in) investment into new fabs, which then turns into sales growth for us," Taylor said in an interview at Edwards's headquarters at Crawley.

"The increased use of memory chips in things like this," Taylor said, holding up an iPad, "is driving huge demand."

Semiconductor sales and spending on fabs would both enjoy moderate growth in 2011, rising by a single-digit percentage, Taylor added in an e-mail exchange via a spokesman. Edwards expects its business to grow faster by increasing market share.

Tablets and smartphones rely on so-called NAND memory to store photos and songs. Unlike hard drives, the "flash" chips have no moving parts and do not require power to retain a file.

SMALLER CHIPS, CLEANER ENVIRONMENTS

Leading analysts disagree over the outlook for semiconductor investment next year and whether devices such as Apple Inc's (AAPL.O) iPad will be enough to offset sagging demand elsewhere.

In a September 7 note, UBS forecast capital expenditure would fall 7 percent to $44 billion (28 billion pounds), hit by weakening demand for personal computers. Last week, however, Goldman Sachs forecast a record $60 billion would be spent, aided by "robust" NAND growth and a spending burst by third-party manufacturers.

As the industry, led by no. 1 chipmaker Intel Corp (INTC.O), switches to smaller chips, reliant on designs just 22 nanometres across, "you have to have cleaner and cleaner environments," Taylor said, requiring higher-level vacuum technology.

Reuters first reported earlier this month that Edwards and its owners CCMP Capital and Unitas had hired advisers to explore a possible sale or flotation which could value the group at about 1.5 billion pounds ($2.4 billion).

A listing would return Edwards to the public markets more than 40 years after its acquisition in 1968 by industrial gases company BOC, taken over by Linde AG (LING.DE) in 2006.

Edwards made earnings before interest, tax, depreciation and amortisation (EBITDA) of $52 million in the second quarter. That equates to about 21.5 percent of revenue, which at $242 million was nearly double that of the second quarter of 2009.

"I do expect us to have a very strong performance this year ... hopefully with continued strong growth in the top-line of the business, as well as the EBITDA performance of the business," Taylor said.

China's push to cut power use is helping Edwards grow in affiliated businesses such as solar panels and light-emitting diodes (LEDs), Taylor said.

"(The Chinese) are thinking, 'What are the technologies that are going to help us stop having to build a coal-fired power station every week?' And it is solar power, it is LED, it is flat panel," he said.

Its technology is also used in industrial processes such as purifying steel, and in research: Edwards pumps are in the Large Hadron Collider, the world's biggest particle accelerator.

Edwards is moving manufacturing to South Korea and the Czech Republic. But Taylor said it could cut costs further by sourcing more from low-cost countries, improving logistics, and cutting unnecessary complexity -- tactics he learnt as managing director at auto maker Land Rover.

"I think there's still a lot of costs that can come out of this business and ... underpin a very strong margin," he said.

After studying economics, Taylor, 50, spent four years in the Navy, including a stint translating from Spanish for the captain of the HMS Invincible during the Falklands war.

The experience taught him valuable business lessons, he says: "Keeping motivation, keeping communication flows going."

(Editing by David Holmes)

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