Annual Report 2007 Laser Systems AB Micronic

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Annual Report 2007

Micronic Laser Systems AB

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FINANCIAL CALENDAR 2008

Year-end report, January 28

Annual General Meeting, April 3, 2008, 5:00 p.m.

at Näsby Slott in Täby, Sweden Interim report January–March, April 18 Interim report January–June, July 8

Interim report January–September, October 17

The annual report is sent to all registered shareholders. All financial reports and press releases can be viewed on Micronic’s website: www.micronic.se.

It is also possible to order or subscribe for financial information and press releases via the website or directly from Micronic.

1 Highlights of 2007 2 Comments by the CEO 4 The Micronic share 6 Micronic’s markets 10 Micronic in everyday life

12 Micronic’s long-term strategic model 14 Micronic’s operations

16 Micronic’s after market

18 Micronic’s employees, environment and society 22 Micronic’s technology

26 Micronic’s product portfolio

28 Corporate governance report 34 Board of directors and auditor 36 Executive management and subsidiary presidents

FINANCIAL REPORTS 38 Financial overview 40 Report of the directors 42 Risks and risk management 44 Consolidated profit and loss account 44 Comments on the consolidated profit and

loss account

46 Consolidated cash flow statement 46 Consolidated balance sheet

47 Comments on the consolidated balance sheet and cash flow statement

47 Consolidated statement of changes in equity 48 Parent Company profit and loss account 48 Parent Company cash flow statement 49 Parent Company balance sheet

49 Parent Company statement of changes in equity

50 Additional information and notes 72 Audit report

73 Micronic’s history Flap Glossary

Many electronic devices contain components manufactured with a technology spearheaded by Micronic. In the fast-paced evolution of communication and media technology, increasingly large HDTV sets and super compact digital cameras with ever-growing pixel counts are two examples of how Micronic’s products are contributing to the technological advances taking place around us.

MICRONIC’S OPERATIONS

Micronic is a high-tech company engaged in the development, manufacture and marketing of a series of extremely accurate laser pattern generators for the production of photomasks and metrology systems for display photomasks. Micronic’s systems

are used by the world’s leading electronics companies in the manufacture of displays, semiconductor circuits and semiconductor packaging components.

DRIVERS

Micronic is aff ected by rapid developments in the market for electronic products, where powerful consumer demand is steer- ing manufacturers towards large volumes at ever lower prices. Th is development is dependent on access to sophisticated and cost-eff ective production technologies and the producer companies behind this trend are all located in Asia. Micronic is well positioned and maintains a close dialogue with its customers in order to stay at the cutting edge of development. Parallel to this, there is an ongoing eff ort to improve the systems and processes for greater effi - ciency. A commitment to continuous improvement is one of Micronic’s foremost drivers.

TECHNOLOGY

When a display is manufactured, the pattern on the photomask gives each product its unique characteristics and at the same time functions as a template for cost-effective volume production. Th e technology used to transfer the pattern is known as microlithography.

Precision and data integrity are critical, since any pattern error on the photomask will be transferred to every device being produced. Micronic’s Sigma can print features as small as  nanometers, or about /,th the width of a human hair, and place the pattern within less than  nanometers of the specified location. For reference,  nanometers is about the width of a row of  silicon atoms. The ability to quickly transfer vast amounts of data is also critical. Every second, the Sigma system handles  giga- bytes of pattern data, a datapath capacity equal to thousands of PCs.

In many ways Micronic Laser Systems is a unique Swedish company with products that have been, and are still, of central importance to the display industry, high-tech operations and a majority of customers in Asia. The pattern generators manufactured by Micronic are used to make photomasks, a critical enabler for the mass production of displays and semiconductor components.

Laser Pattern Generator

Stepper/

Scanner Datafile

CAD-Design

End-user product, a laptop Display

Photomasks

Semiconductor

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MARKETS AND PRODUCTS

Th e primary markets for Micronic’s laser pattern generators are the display and semiconductor industries, with some  customers worldwide.

Micronic has a forefront position in the display market, where the company’s pattern generators and metrology systems are the industry standard. This position has been achieved through patented state-of- the-art technology and an effective global customer service organization. Micronic’s

competitive strengths are its strong technological lead, high writing quality and write speed.

In the semiconductor market, Micronic is an established supplier of pattern generators used in the manufacture of photomasks for both leading edge semiconductor devices and volume production of simpler IC designs. Write speed is the greatest competitive advantage for semiconductor products. At present, Micronic’s share of

the semiconductor market is small.

A niche market is that for advanced electronic packaging systems, a technology used to seal and protect semiconductor chips, where Micronic has a strong position. Write speed and high quality are the key competitive advantages in this market, where Micronic has a market share of around  percent.

MICRONIC IS CLOSE TO ITS CUSTOMERS

Th e majority,  percent, of Micronic’s customers are based in Asia. Th ese can be divided into two categories. Th e ﬁ rst consists of

commercial or “merchant” mask shops that are subcontractors to electronic manufacturers, such as Toppan, DNP and Hoya. Th e second category is made up of large elec-

tronics manufacturers with captive mask shops, like Intel, Samsung and LG.

Micronic Far East Co Taiwan Micronic K.K. Japan ATAC, Asian Technical and Applications Center Micronic’s headquarters

Sweden

Micronic Inc. USA Micronic Ltd.

Korea

Photomask manufacturers – displays Photomask manufacturers – semiconductors and advanced electronic packaging

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MICRONIC 2007 1

• Net sales reached SEK 523 million.

• The operating loss was SEK 291 million.

• The operating loss adjusted for capitalization and amortization of development costs was SEK 210 million.

• Order intake amounted to SEK 634 million.

• Gross margin was 29 percent.

• The Sigma7500-II laser pattern generator was launched, and is targeted for use on the majority of mask layers at the 65 nm technology node.

• The Prexision pattern generator series was introduced for improved image quality in next-generation display

manufacturing G10.

FINANCIAL OVERVIEW

2007 2006 2005 2004 2003 2002 2001

Net sales 523 1,204 1,276 839 428 496 699

Gross margin, % 29.3 54.3 54.4 55.8 38.4 47.8 56.2

Operating profi t/loss, SEK million – 291 123 172 126 – 194 – 90 17

Operating margin, % – 55.6 10.2 13.5 15.0 – 45.3 – 18.1 2.4

Adjusted operating margin, % – 40.2 18.2 22.3 5.2 – 86.0 – 44.2 2.4

Order intake, including service 634 604 1 306 945 1,086 459 633

Order backlog, December 31 332 200 871 794 764 231 279

Basic earnings per share, SEK – 5.30 2.37 3.00 2.77 – 5.59 – 3.3 0.37

Average number of employees 416 462 415 359 312 299 284

SEK million

97 98 99 00 01 02 03 04 05 07 0

200 400 600 800 1,000 1,200 1,400

06

Order intake

0 500 1,000 1,500

Net sales Operating margin 06 05 04 03 02 01 00 99 98 SEK million

07 –50 –40 –30 –20 –10 0 10 20 30

%

40 50 60 70 80

Net sales and operating margin

Net sales in 2007 by geographical market

Net sales in 2007 by application

Rest of Asia, 85%

Japan, 15%

Display, 46%

Semiconductor, 9%

Electronic packaging, 10%

After market, 35%

This annual report is in all respects a translation of the Swedish annual report prepared in accordance with Swedish laws and regulations. In the event of any difference between this translation and the Swedish original, the Swedish annual report shall have precedence.

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Comments by the CEO

Although 2007 was weak in terms of both sales and profit, the violent ups and downs weathered by the company over the past three-year period are fairly typical for an equipment supplier to the electronics industry. From a technological perspective, on the other hand, 2007 was a strong year and our product portfolio is now ready for the next technology level. In the display market Micronic further consolidated its leading position with the launch of tools for the next generation of display manufacturing, G10.

Micronic entered  in the knowledge that both display and chip manufacturers had radically scaled back their spending on new capacity and more advanced production processes. Th is is the harsh re- ality for an equipment supplier to the electronics industry – periods of buoyant growth followed by steep down-cycles. For an equipment supplier like Micronic, these movements in the market must be handled.

At the end of  we therefore decided to launch a cost-cutting program that was expected to generate annual sav- ings of SEK  million, a target we suc- ceeded in meeting. At the turn of the year from  to  we also introduced a functional organization that has resulted in clearer structures and greater flexibility.

2007 RESULTS

Sales declined from the prior year’s level and reached SEK  million, down by 

percent. Since the drop in sales was largely attributable to the display market, where we have our highest margins, this strongly contributed to driving down our gross margin to  percent. We were also impacted by the negative eﬀ ects of movements in the foreign exchange market. As a result, Micronic posted an operating loss of SEK

 million despite cost cuts during the year. Adjusted for net amortization of capitalized development costs of SEK  million, the operating loss was SEK  million.

Development expenditure in  fell by  percent, mainly reflecting the fact that we have already completed development of semiconductor and electronic packaging products for the next technology node. Our previously capitalized expenses for the Sigma project are now fully amortized.

MODEST RECOVERY IN THE DISPLAY MARKET

Growth in the display market slowed dramatically in the second half of  due to the excess capacity built up when many display makers set out to capture market shares by investing in new production facilities, causing a sharp drop in capacity spending during . Th anks to resumed growth in the display market there is now a better balance between production capacity and demand, although the need for photomasks has not yet revived to the same extent. Demand for pattern generators is more closely linked to the introduction of new production lines and the development of new models and technologies than to display unit volumes.

The market is moving toward even larger display panels with higher image quality. In the autumn of  Micronic received orders for two systems for next generation display manufacturing, G. In connection with this, Micronic launched its latest pattern generator, Prexision, which is available in two models. The Prexision- is optimized for production of advanced photomasks up to and including G and the Prexision- is designed for manufacturing of photomasks up to and including G. Both offer major performance enhancements and higher productivity, which is expected to stimu- late demand for new pattern generators.

Over time, we anticipate a shift in the pattern generator market towards fewer systems with higher complexity and productivity, but at a higher price per system.

FLAT SEMICONDUCTOR MARKET IN 2007

 began with ﬂ at growth in the semiconductor market. Th e expected upswing in the second half turned out to be mod-

est and several customers announced post- ponements to their investment plans. In- dications from the industry indicate a decrease in the market for pattern generators during the year, from what has been around  units down to – units, a decrease that has strongly aﬀ ected laser-based tools.

Although the top chip makers are maintaining the same rapid rate of development as earlier, the number of companies building leading-edge fabs has declined in pace with the rising cost of developing and manufacturing advanced ICs. The number of designs that can initially bear the massive investments required for the advanced technology nodes is decreasing, which means that fewer designs are being made for these nodes and new designs for these nodes are tending to be released at a slower rate.

Micronic’s business opportunities are linked to faster growth in demand for leading-edge photomasks than we have seen so far.

In  Micronic continued its collaboration with leading photomask makers to qualify the Sigma system for the  nm node. Our primary strategy is to qualify Sigma for leading-edge photomasks at 

nm and  nm, so that it will be positioned in mask shops when the ramp-up to volume production begins.

In the electronic packaging area, we have completed development of the FPS series and delivered three systems during the year.

AFTER MARKET GAINING IMPORTANCE

Th e after market, consisting of service contracts, add-on products and consulting services, is gaining importance for Micronic.

Service contracts are a stable source of rev-

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enue even in periods with weaker system sales. However, sales of add-on products and consulting services have been aﬀ ected by a weak photomask market. Th e total after market grew slightly during the year and accounted for  percent of sales.

R&D activities in  were focused on maximizing the uptime (the time during which a system can be utilized for production) of installed systems through improved performance and stability. We see increased uptime as the single most important factor for maintaining our good customer relationships.

IMPROVED OPERATIONAL MANAGEMENT AND COMMUNICATION

Th e introduction of a functional organization at the beginning of  was also aimed at tying the subsidiaries closer to the head oﬃ ce. Th ese are now even more involved in Micronic’s sales and marketing activities.

In the past year we also refined our strategic model to ensure that the company’s business is steered toward technological innovations with strong growth and profitability.

We have taken steps to improve our internal communication so that we can more effectively reach all employees and create new channels for dialogue. The revised values introduced during the year have given the company greater clarity and will be used as a tool to support decisions.

THE FUTURE

Although  was demanding from an earnings standpoint, the company’s sol- id fi nances, more fl exible structure and un- fl agging cost-awareness provide a good starting point for  – a necessity for an equipment supplier to the highly

cyclical electronics industry.

In view of our status as the sole supplier of pattern generators to a continuously growing display industry, we look forward to a pick-up in activity as the commission- ing of new production lines accelerates demand for photomasks. The launch of

y the CEO

MICRONIC 2007 3

Sven Löfquist President and CEO the Prexision series will also open up

opportunities in applications requiring larger or more advanced photomasks.

Although trends in the semiconductor market are difficult to predict, our Sigma system will become increasingly competitive as volumes at the leading-edge nodes expand and the need for cost-efficiencies becomes more acute.

In  we expect to see increased sales in our existing markets, which will be strengthened by the launch of our new systems. We will also seek inroads into new business areas in markets with growth potential where Micronic can contribute to the development of new manufacturing processes.

One key goal for  is to once again achieve a gross margin of at least 

percent. Our long-term operating margin target of  percent stands firm.

I would like to thank our customers and partners for their invaluable coopera- tion during the year. Efforts to strengthen our customer relationships will continue to be a top priority.

Thanks to the contributions of all of our employees, together we continue to develop systems that pave the way for the electronic products of the future.

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The Micronic share

SHARE PRICE TREND

Th e closing price of the Micronic share in

 was SEK ., compared to SEK 

at year-end , a decrease of  percent.

Over the same period, the SIX General In- dex fell by  percent and the Philadelphia Semiconductor Index SOX by  percent.

The year’s highest bid price was quoted at SEK . on January  and the lowest at SEK . on December . Micronic’s market capitalization at the end of 

was SEK , million, down from SEK

, million at year-end .

TRADING AND LIQUIDITY

A total of . million (.) Micronic shares were traded in . Th e traded volume corresponds to  percent () of the total number of shares in Micronic, for a combined value of SEK , million (,). Th e average daily trading volume for the Micronic share in  was ,

(,), equal to an average daily value of SEK . million (.).

DIVIDEND POLICY

Th e Board of Directors and CEO propose that no dividend be paid for , nor has the company paid dividends in earlier years. Micronic has instead reinvested the generated proﬁ ts to ﬁ nance ongoing development activities and thereby create growth for the company.

EMPLOYEE STOCK OPTION PROGRAM

Th e Annual General Meeting of Micronic on March , , resolved to approve an employee stock option program running from  to . Under the program Micronic may issue ,, warrants for subscription to shares, whereby the maxi-

mum dilutive eﬀ ect is  percent. Th e share capital may be increased by no more than SEK ,,.

The terms of the program have been drawn up in collaboration with the company’s largest shareholders and have involved allocation to the employees in Sweden on three occasions, after the publication of the interim reports for the second, third and fourth quarters of .

The strike price is equal to  percent of the average market value on the ten trading days following publication of the respective quarterly reports. The members of the executive management together hold , stock options. The terms of the program are also described in the sec- tion “Accounting policies and notes”.

OWNERSHIP STRUCTURE

Th e number of shareholders at the end of the year was , (,), a decrease of 

percent compared to December , .

Th e  largest shareholders held . percent of the total number of shares, compared to . percent in . Th e 

largest shareholders held . percent of the total number of shares, compared to

. percent in .

At year-end , foreign investors held  percent () of the share capital and votes. Private investors held . percent (), while the remainder was held by equity funds and institutions. The Board of Directors and executive management control a combined . percent (.) of the number of shares and votes.

The Annual General Meeting was held in Täby on March , . More than  percent of the shareholders were represented at the meeting.

The Micronic share has been listed on the stock exchange since 2000 and since October 2006 on the Nordic Mid Cap List, Information Technology sector, of the OMX Nordic Stock Exchange in Stockholm.

A trading block consists of 100 shares. The ticker symbol is MICR and the ISIN code is SE0000375115.

Micronic’s share capital amounts to SEK 39.2 million and is divided between 39,166,616 shares of the same class, each of which carries one vote.

Ownership structure at December 31, 2007

Private investors, 13.5%

Institutions, 86.5%

SHARE OF FOREIGN OWNERSHIP %

2007 25

2006 23

2005 28

2004 28

2003 41

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MICRONIC 2007 5

versikt

ANALYSTS THAT CONTINUOUSLY MONITOR MICRONIC Investment bank/Research company Analysts

Carnegie Mar tin Nilsson

Credit Agricole Indosuez Cheuvreux Johan Eliason

SEB Enskilda Petter Hjer tstedt

Evli Anders Berg

Handelsbanken Capital Markets Fredrik Agardh

Kaupthing Bank Mikael Laséen

Nordea Mats Bergström

Redeye Greger Johansson

Swedbank Håkan Wranne

MICRONIC’S TEN LARGEST SHAREHOLDERS AT DEC 31, 2007

Shareholder No. of shares Holding, %

AMF Pension and Fonder 3,906,100 10.0

Catella Fonder 3,591,800 9.2

Fjärde AP-fonden 3,524,400 9.0

Alecta 3,175,000 8.1

Swedbank Robur Fonder 2,839,184 7.2

Morgan Stanley Fonder 2,018,684 5.2

Hakuto 1,391,800 3.6

Skandia Fonder 1,097,436 2.8

Banco Fonder 964,900 2.5

SEB Fonder 843,000 2.2

Total, 10 largest shareholders 23,352,304 59.6

Others 15,814,312 40.4

Total number of shares outstanding 39,166,616 100.0

OWNERSHIP STRUCTURE

Holding by size

No. of

shareholders No. of shares %

1–500 3,427 679,631 1.7

501–1,000 882 773,925 2.0

1,001–10,000 970 3,149,041 8.0

10,001–50,000 106 2,442,821 6.2

50,001–100,000 24 1,636,055 4.2

100,001– 63 30,485,143 77.8

Total 5,472 39,166,616 100.0

CHANGES IN THE SHARE CAPITAL

Year Transaction Increase in no. of shares Total no. of shares Total share capital, SEK thousands

1989 Company founded 500 50

1989 New issue 9,500 10,000 1,000

1989 New issue 6,000 16,000 1,600

1990 New issue 3,300 19,300 1,930

1994 New issue 1,801 21,101 2,110

1997 100-for-1 share split 2,088,999 2,110,100 2,110

1997 5-for-1 bonus issue 8,440,400 10,550,500 10,551

1997 Exercise of warrants 1,450,000 12,000,500 12,001

1998 New issue 2,000,083 14,000,583 14,001

2000 New issue 4,500,000 18,500,583 18,501

2000 Exercise of warrants 600,000 19,100,583 19,101

2003 New issue 19,215,283 38,430,566 38,431

onic share

2,000 4,000 6,000 8,000

50 100 150 200 250

00 01 02 03 04 05 06 07

Micronic share SIX General Index

No. of shares traded, 1,000s (incl. afterhours)

20

MICRONIC

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Micronic is the market-leader in pattern generators for display photomask applications. In 2007 Micronic launched the new Prexision series of pattern generators for next-generation display manufacturing, G10.

Micronic also supplies the semiconductor industry with systems for volume production of photomasks for both leading-edge and mature technologies. In the market for electronic packaging, Micronic offers flexible and accurate systems primarily targeting the most advanced applications.

Micronic’s markets

Liquid crystal displays (LCDs) are used in ﬂ at panel TVs, desktop monitors, notebook computers and portable consumer devices such as cell phones, music players and digital cameras. Th e largest and fastest-growing segment is ﬂ at panel TVs, which have gained enormous popular- ity among consumers in recent years.

Th is market is subject to a combination of price pressure and changing consumer tastes and preferences. Furthermore, consumer markets are typically price elastic.

Th is combination of factors makes it diﬃ - cult to predict market size and growth for products containing LCD displays.

Display manufacturers are seeking to cut costs and differentiate their product lines.

In the quest for differentiation, display makers are positioning their brands by offering unique designs or panel sizes.

Growth in the display market slowed dramatically in the second half of 

due to the excess capacity built up when a number of display makers set out to capture market shares by investing in new production facilities. This led to a focus on optimizing capacity utilization and, in certain cases, to postponement of new fabs. In the second half of , the display market recovered.

Total annual sales of LCD display panels in  reached SEK  billion, an increase of  percent from , and are

expected to grow to USD  billion in

 (DisplaySearch, January ).

THE MARKET FOR DISPLAY MANUFACTURING EQUIPMENT

Display industry manufacturing equipment spending fell to USD . billion in

, down by  percent compared to

. Th e total capital equipment market is estimated to grow to USD . billion in

 (DisplaySearch, January ).

The equipment market is driven mainly by capacity expansion, i.e. the ad- dition of new production lines, which in turn is linked to the volume of LCD display panels. Capacity expansion is started when utilization of the existing production lines reaches a high level. This takes

DRIVER RESPONSE EFFECT EFFECT ON MICRONIC

Volume growth in the display market

New production lines for displays are built A need for photomasks Increased basic demand for photomasks

Cost focus Longer series and fewer models More displays per photomask, weaker link between display volumes and photomasks

Longer series lead to slower growth in Micronic’s market

Cost focus Introduce advanced photomasks to decrease the number of process steps in display fabrication

Increased demand for advanced photomasks (gray tone and half tone masks)

Prexision is best for production of gray tone masks. Half tone masks drive sales of add- on products

Cost focus Produce color fi lters with inkjet instead of traditional lithography methods

Fewer photomasks per fi nished panel Reduces the market for color fi lter photomasks

Higher production yields

More advanced photomasks Fewer repairs and rejects Demand for more complex pattern generators – Prexision and cer tain add-on products

Differentiation to com- bat price erosion

Introduce own “unique” TV size or advanced technical design

Fewer displays per photomask. A need for high-performance photomasks

General growth in demand.

Increased demand for Prexision’s high image quality

Customer preference for larger TV sets

Invest in G10 to enable industrial-scale production of larger LCD TVs

A need for larger photomasks Opens the market for Prexision

Customer preference for higher resolution

Produces and distributes material with higher resolution than “Full HD”

LCD TVs steal additional market shares from PDP TVs

Drives the market for Prexision

A summary of different drivers for display manufacturers and their effects on Micronic

Display market

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MICRONIC 2007 7

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7

production of advanced photomasks through G. The Prexision- is designed to meet market requirements for high writing accuracy and productivity for the manufacturing of photomasks through G.

Demand for photomasks is influenced by several factors. Although each photomask has a virtually unlimited life, every display design requires its own specific photomask set. Among other things, the basic volume demand for photomasks is driven by the number of new display designs. Volume demand for photomasks is better reﬂ ected by the number of new display production lines than by display volumes. When display manufacturers introduce new technology to produce more advanced displays or reduce manufacturing costs, this stimulates demand for larger and more advanced photomasks.

Demand for pattern generators is driven not only by the need for volume photomask capacity, but also by new technical requirements such as larger or more advanced photomasks.

A geographic expansion of photomask manufacturing took place in –

as Japanese and South Korean photomask makers built new fabrication plants in South Korea and Taiwan. Each photomask fab requires at least two pattern generators and one metrology system to achieve efficient industrial production.

This had a positive impact on Micronic’s sales during this period.

MARKET OUTLOOK

Display manufacturing equipment spending is set to rise by  percent in 

(DisplaySearch, January ), which is predicted to generate increased demand for photomasks. Micronic anticipates a

0 20 40 60 80 100

%

11 10 09 08 07 06

CRT TV LCD TV

Plasma TV Projection

2006–2011 Number of TV units by technology 2006–2011 FPD, revenues by application

0 30 60 90 120 150

11 10 09 08 07 06 USD billion

Desktop monitor Cell phone LCD TV

Notebook PC Plasma TV Other

place almost simultaneously throughout the industry, which means that a number of display manufacturers order equipment for new production lines at around the same time. When the new equipment is installed, global production capacity increases markedly and there is a risk that the industry will move back into period of excess capacity and very low investment.

In the display industry this is known as the “crystal cycle”. For equipment suppli- ers, like Micronic, this creates an uneven and highly cyclical market.

NE X T GENER ATION DISPL AY MANUFACTURING

In  the display industry made decisions regarding investments in next generation LCD fabs (G). By using signif- icantly larger substrates, is it possible to manufacture  inch displays on an industrial scale. Furthermore, the move to larger substrates provides the opportunity to further reduce production costs for  inch displays, one of the most popular sizes for TV sets.

MICRONIC IN THE DISPLAY MARKET

Micronic manufactures pattern generators that are used by customers to produce photomasks for delivery to display panel makers. Micronic’s superior technology has earned the LRS systems a position as the industry standard in pattern generators for display applications. Micronic systems are used by all manufacturers of LCD photomasks. At present, there are no compet- ing systems for advanced LCD photomask production.

In  Micronic launched a new platform, Prexision, which is available in two models. The Prexision- is optimized for

s markets

shift in the market for pattern generators towards systems with higher complexity and productivity. Over time, the company also expects to sell fewer pattern generators than previously, but at a higher price per system.

As a result, the lower number of system units will be compensated by higher over- all order values.

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Semiconductors are increasingly found in our everyday lives – not only in computers, but also in a wide array of consumer electronic products, cars and even in home appliances. The year began with weak development in the semiconductor market and the expected upswing in the second half turned out to be modest. To- tal semiconductor sales in 2007 reached USD 220 billion, equal to an increase of 5 percent from 2006 (VLSI Research, Jan- uary 2008).

The semiconductor industry is continuing its relentless push to increase functionality, and as a consequence the number of transistors on leading-edge

chips has doubled every two years over the past four decades. This phenomenon is commonly referred to as Moore’s Law.

Although the top chip makers are maintaining the same rapid pace of development as earlier, the number of companies building leading edge fabs has declined as a consequence of the rising costs of developing and manufacturing leading edge ICs in recent years. Instead, chip companies are increasingly outsourc- ing their production to contract chip makers, known as “wafer foundries”. The underlying reason for this is the massive investment that is required for the latest technology nodes, at 90 nm and below.

Furthermore, fewer designs are being made for the advanced nodes and new designs for these nodes are tending to be released at a slower rate.

The ramp-up to volume production of photomasks for the advanced technology nodes has started, but has not yet filled the available capacity of already installed e-beam systems, which have been needed for the previous technological development.

The phoTomask – a criTical componenT

Photomasks are a key element in the continued scaling of semiconductor devices.

However, total demand for photomasks has been nearly flat at 700,000 a year for the past 20 years, despite the growth in chip production This is due to an increase in the number of chips made on a single design, at the same time that the number of custom chip designs is decreasing. Be- cause of rising photomask complexity, sales for photomask makers have increased

Semiconductor market

Photomasks for different groundrules

A set of photomasks with varying complexity is needed to manufacture an ic chip. The example at right shows a mask set for a chip at the 65 nm technology node, requiring around 40 mask layers. of these, only 5 contain the smallest 65 nm structures, 15 contain structures at 90 nm and 20 are relatively simple photomasks with structures at 130 nm or higher. in this case, only those with the smallest structures require e-beam printing. it is the remaining masks that are targeted by micronic’s Sigma and omega systems. The graph shows volumes of photomasks with different structure sizes. While photomasks at the 90 nm node are now ramping up to higher volumes, production of photomasks with smaller structures is still very limited. Sources:

VLSi research, may 2007, and micronic.

0 50,000 100,000 150,000 200,000

2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

45 nm 250 nm

65 nm 90 nm

180 nm 130 nm Photomasks shipped

Typical 65 nm mas k s tack 20 loose masks at

~130 nm and larger GR

ega

15 subcritical masks at

~90 nm GR

5 critical masks at 65 nm GR

Sigma7500 Sigma7500 Omor

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micronic 2007 9

rnöversikt

by an average of 5 percent annually since 2000 despite market fluctuations, and are estimated at USD 3.2 billion in 2007 (VLSI Research, September 2007).

The three dominant merchant photomask manufacturers – Toppan Printing, Dai Nippon Printing and Photronics – account for nearly 60 percent of the market. Of the remaining market share, about 35 percent is distributed among captive mask shops. The market share for captive mask shops has been expanding, due to the competitive value of close integration between chip design and production.

The markeT for paTTern generaTors

Both laser and electron beam systems compete for the pattern generator market.

The main advantage of laser pattern generators is that write time is not dependent on pattern complexity, which results in higher throughput and a constant production time. E-beam systems can write the smallest structures, but are comparatively slow.

Micronic is the only company in the world actively developing laser pattern generators for advanced semiconductor photomasks. Applied Materials is continuing to sell its existing laser tools.

The market is dominated by NuFlare and JEOL, which manufacture the e-beam tools that are used for critical mask writing. Micronic had a small share of the market in 2007.

Micronic’s assessment is that the number of pattern generators shipped in 2007 has fallen from the earlier level of around 20 systems to between 10 and 15 units. Laser tools have been more strongly impacted by this than e-beam tools, where sales have targeted the most critical mask layers.

micronic in The semiconducTor markeT

The Sigma7500-II laser pattern generator, launched in April 2007, is targeted for use on the majority of the mask layers at the 65 nm technology node. In 2007 Micronic continued its collaboration with leading

photomask makers to qualify the system for the 65 nm node. Micronic’s strategy is to qualify the Sigma systems for the majority of leading-edge photomasks at 65 nm and 45 nm, so that they will be positioned in mask shops when the ramp-up to volume production begins.

Only 10 percent of all photomasks currently produced are used for technology nodes at 90 nm and beyond (SE- MATECH, September 2007). Micronic’s Omega6000 series of pattern generators is targeted at the other 90 percent of the market, consisting of mainstream ICs and image sensors for digital cameras and camera phones. Most photomasks today are produced by aging systems with rising maintenance costs, which make investments in new high productivity laser systems profitable.

markeT ouTlook

The market for semiconductor chips is expected to grow by 7 percent in 2008, while semiconductor equipment spending is fore- cast to decline by 5 percent (VLSI Re- search, January 2008). However, the advantages of the Sigma7500 will become increasingly important as production volumes for sub-100 nm mask production ac- celerate over the next few years. Micron- ic expects the market for Sigma to expand in pace with rising photomask volumes and cost-effectiveness requirements for the leading edge technology nodes.

Older pattern generators are costly to keep online and the ongoing decommis- sioning of these tools is creating a demand for new capacity. The Omega series is well positioned for the replacement market and is continuing to sell for mainstream photomask applications.

nic’s markets

market for

electronic packaging

Electronic packaging technology is used to bond an IC chip to a printed circuit board.

There is considerable variety in the range of technologies and photomasks used for the most advanced packages. These are found in portable consumer electronics such as cell phones and MP3 players, as well as gaming consoles and PCs.

Rising demand for thinner and more lightweight portable consumer products is driving the trend towards miniaturization of electronic packaging. The challenge for the industry is to meet these increased technological requirements while maintaining low costs for manufacturing and materials.

An important application is advanced IC substrates which are expected to grow from USD 5.6 billion in 2007 to USD 9.7 billion in 2011 (Japan Marketing Survey, May 2007).

Micronic’s electronic packaging products are also used in many other applications such as MEMS, SAW filters, discrete components and simpler display panels. These applications require different photomask sizes, ranging from 127 x 127 mm2 to 800 x 800 mm2. The first FPS5100 systems went into production in the Autumn of 2007.

markeT ouTlook

The number of pattern generators sold in 2007 was on par with 2006, at around 10 units. Micronic has a market share of just over 40 per cent and competes with Dai Nippon Screen and Heidelberg (Micronic, January 2008). The outlook for 2008 in- dicates a drop in system sales compared to 2006–2007, which can be attributed to weak growth in the semiconductor market during 2007. Micronic’s FPS5100 is well-positioned to meet future technology requirements and remains the most advanced system on the market.

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Micronic in everyday life

LCD-TV

LCD-TV is taking over as the dominant TV technology and accounts for the majority of new TV sales. Th e standard size for living room TVs today is around  inches. Th e largest displays currently in volume production measure around  inches, but plans are underway for production of displays up to  inches. Micronic’s Prexision-

 is designed for these larger displays.

MUSIC PLAYERS

Music players like iPod are a consumer product that is benefi ting from the rapid development of so-called fl ash memory. A music player with  GB of memory can store up to , songs, and the cost is falling steadily. Micronic’s semiconductor systems are capable of producing photomasks for fl ash memory and other IC circuits used in the players. Size is a critical parameter in portable electronic devices, which is driving the use of more advanced technologies to package the chips. Micron- ic’s FPS system can be used to make photomasks for packaging the IC chips found in these devices.

COMPUTERS

Due to the enhanced performance of laptop computers and growing availabilty of wireless Internet, laptops models are gaining ground at the expense of traditional desktop computers. Micronic’s display systems are used to make photomasks for ﬂ at panel displays within increasingly high quality and in many cases larger size.

A pervasive trend in the market is a tran- sition to wide format, i.e. with width and height proportions similar to an LCD TV.

Micronic’s Sigma systems are also used to manufacture the latest generation of pro- cessors, the component that functions as the brain of a computer.

DIGITAL CAMERAS

Digital cameras have now almost com- pletely replaced traditional ﬁ lm-based photography, largely due to the emergence of image sensors with higher pixel counts.

Micronic’s semiconductor systems are used in the manufacturing of image sensors.

MOBILE PHONES

Around  billion mobile phones are manufactured every year. Th ese devices contain both displays and IC chips, and often also a camera with an image sensor. Micronic’s systems can be used to manufacture all of these components.

All electronic devices contain semiconductor chips and the majority also contain some kind of display.

Micronic’s systems are used to manufacture semiconductor chips and all LCD displays for TVs, flat panel computer monitors and laptop computers.

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MICRONIC 2007 11

versiktveryday life

Flat panel TVs currently dominate the market and a full 86 million LCD TVs were manufactured in 2007. The majority are made in South Korea and Taiwan, each of which accounts for around 40 percent of the total.

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Th e foundational elements of Micronic’s operations are the vision, the mission and the long-term objectives. The company’s values, work principles and leadership strategy govern the actions of the employees and the way their work is led and im- plemented in order to realize the objectives and vision. The annual business planning process is shaped by these elements and is also based on the company’s long-term as- sessments and plans. See Micronic’s strategic model on the opposite page.

BUSINESS PLANNING PROCESS

To meet its business objectives, Micronic uses a planning process based on ﬁ ve per- spectives: ﬁ nances, customers, operations, products and employees. Every year, the strategic focus is reviewed and new goals are formulated for each perspective. Ex- ternal demands on the products and services from customers and the market are balanced against the internal capacity to develop, produce and deliver these.

FINANCES

To ensure attainment of the company’s long-term fi nancial targets, all commercial opportunities must be weighed against the technical, market-based and fi nancial risks. Th rough a high level of conscien- tiousness in fi nancial control, continuous improvements are pursued to achieve higher effi ciency and lower costs in products and execution.

CUSTOMERS

Micronic has an explicit customer focus and strives to meet the high expectations of its customers through disciplined execution at the highest operational speed. Fast time-to-market is essential in enabling customers to meet their own launch sched- ules.

OPER ATIONS

Continuous improvement programs are carried out in development, purchas- ing, administration, production, installa- tion and service to optimize eﬃ ciency and quality throughout the company. Th ese improvements are ultimately aimed at in- creasing customer beneﬁ t and shareholder value.

PRODUCTS

Technological innovation is not only the backbone of Micronic’s business, it is also critical in satisfying customer needs and requirements. Th is innovative climate is fostered by close partnership with customers and an integrated approach to product development that spans across all functions in the company.

EMPLOYEES

Micronic is characterized by a high level of innovation and knowledge in a wide range of areas. Continuous development of employee expertise, in both breadth and depth, is decisive for the company’s ability to meet customer requirements.

MICRONIC’S VALUES

Micronic’s values serve to strengthen the organization by providing guidelines for the conduct of all employees. Because Micronic is a global company with units in geographically widespread locations, it is vital that its work is steered by common values and that decisions are made on the basis of a common ground. Aside from creating a uniform identity, the values contribute to greater eﬃ ciency and support the decision-making process.

MICRONIC’S LEADERSHIP PROFILE

Micronic’s leadership proﬁ le is based on a consistent platform and approach to lead-

Micronic’s long-term strategic model is designed to steer the company’s business toward technological innovations with strong growth and profitability. The focus in Micronic’s offering is on meeting customer needs and market demands for precision, quality, productivity and service.

Micronic’s long-term strategic model

Micronic has defi ned four corporate values:

Micronic’s values

RESPECTFUL INTER ACTION We respect each other inde pendent of gender, cultural or ethnic background.

PUSHING THE LIMITS We are always pushing the limits of current technologies. We are exploring new ideas for the future. In daily opera tion, we challenge our limit in every aspect and outperform where we were yesterday.

CAPTURING THE HEART OF THE CUSTOMER We meet each customer’s unique needs through lasting win-win partner- ships that combine technology, team work and innovation.

TEAMWORK AND CLARITY

We build success through the contribution of each employee and collaborate with clear roles and responsibilities.

Annual Report 2007 Laser Systems AB Micronic