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Patents, by definition, are novel, non-obvious ideas or creations that produce tangible business results, and are thus part of the toolset for business strategy. From a business point of view patents are assets; the value on such assets are not easy to determine. If one subscribes to the Pareto rule, then 20% of patents bring more value to the business than the remaining 80%. These numbers are justified by a study in Michael Porter's "Competitive Advantage" where about 70% of innovative ideas are driven by customer inquiries and complaints. Patents, given their offensive rights, are employed to gain competitive advances and to effect development strategies. A nice book I read on the business side of patents is "Rembrandts in the Attic: Unlocking the Hidden Value of Patents".
If you want to understand the mechanics of filing patents, what constitutes a valid patent application, and the meaning of the uncommon words typically found in patents and those used by the patent office (USPTO), then David Pressman's "Patent It Yourself" is one of the books you want to read; another is "Patents and How to Get One: A Practical Handbook" published by the U.S. Department of Commerce. Patent attorney Ken Allen wrote a 10-point advisory on handling the patenting process and securing your rights to the patent: "How (Not) to Disclose an Invention". And, patent attorney Katherine White has a video on "How to Review Patent Application" on YouTube; and the Q&A section of her presentation answers many common questions.
The OEMs I am interested in are: Applied Materials (AMAT), KLA-Tencor (KLAC), Lam Research (LARX), Mattson Technology (MTSN), Novellus (NVLS), and Tokyo Electron (TOELY).
Financing R&D is essential for these companies to keep up with ITRS' technology road-maps. A point of comparison would be the per centage of R&D expenses to revenues.
| Selected Financials |
AMAT | KLAC | LARX | MTSN | NVLS | TOELY |
|---|---|---|---|---|---|---|
| Revenue in 2009 |
$5,013,607 | $1,520,216 | $1,115,946 | $133,551 | $1,011,004 | $5,172,371 |
| Altman's Z-Score* |
5.64 | 3.01 | 6.82 | 1.69 | 4.42 | NA |
| LT Debt- to- Capital Invested |
7.4 | 29.4 | 10.6 | 11.9 | 6.7 | NA |
| LT Debt- to- Total Liabilities |
8.1 | 52.3 | 8.2 | 0 | 7.6 | NA |
| R&D % of Revenue |
18.6% | 24.4% | 25.8% | 27.6% | 21.7% | 12.0% |
‡ Data from www.advfn.com. The full data for Tokyo Electron (TOELY) is not available. I extracted the Net Sales and R&D Expenses from their Annual Report at http://www.tel.com/eng/ir/ar2009/ar2009e.pdf. Tokyo Electron is listed on the Tokyo Stock Exchange 1st Section, code number 8035. Thanks to Peter Cirigliano for providing that information. I did not calculate other ratios for TOELY as it would have been better to have all data from the same source.
*About Z-score (Ref.: Wikipedia):
Z > 2.99 -“Safe” Zone;
1.8 < Z < 2.99 -“Grey” Zone;
Z < 1.80 -“Distress” Zone.
I would be worried about KLA-Tencor and Mattson Technology because their weak z-score in 2009. In addition, KLA-Tencor carries too much debt compared to other OEMs in the group. Lam Research and Mattson have the highest R&D per cent expenditures which makes me think that there are new activities in their R&D. AMAT and TOELY have the lowest R&D per cent expenditure perhaps for their diverse product mix - products with low technology do not require heavy R&D expenses. It would be an interesting project for someone in finance to run a model to optimize R&D expenses for every dollar of sale, and for different product mix and under different market conditions (such model may exist but, of course, not available). This is an example where: (1) Finance and the R&D leaderships work together planning budgets, and (2) the certitude of the viability and chances of success of projects chosen.
I found that reading publications and patents are taxing on my time. Notwithstanding, the benefit is that a few names will keep popping up - people with sound technology reasoning, i.e. good fundamentals, and creative approaches. These are the individuals you want to spend time reading their patents to guess the direction of future developments, and give a business weight to their patents.
The first step is a broad overview of the classes each of these OEMs are likely to choose for their patents.
I compared the number of patents issued to AMAT, Lam Research, and KLA-Tencor for the different subclasses under Class 716, "Data Processing: Design and Analysis of Circuit or Semiconductor Mask". I came up with the following radar-plot (not excluding redundant patents). Neither Novellus nor Mattson had patents in this class.
In a different approach I compared patent classifications from the major OEMs: Applied Materials, Lam Research, Mattson Technology, Novellus Systems, and Tokyo Electron based on the following and typically used classes:
- Class 156 Adhesive bonding and miscellaneous chemical manufacture
- Class 204 Chemistry: electrical and wave energy
- Class 205 Electrolysis: processes, compositions used therein, and methods of preparing the compositions
- Class 216 Etching a substrate: processes
- Class 257 Active solid-state devices (e.g., transistors, solid-state diodes)
- Class 427 Coating processes
- Class 428 Stock material or miscellaneous articles
- Class 438 Semiconductor device manufacturing: process
There is some work to be done here to compare development directions of these OEMs. I would have liked to have an automated system to develop a relational database from the USPTO data to better explain the IP landscape and citation trees.
As the financial markets evaluate a company's productivity by the revenue per employee, it follows that development productivity may be measured by the number of patents per employee.
This site was last updated 02/01/10
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