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Pivotal Systems (ASX:PVS): Interview with incoming CEO Kevin Hill
May 20, 2022
chips, Pivotal Systems, PVS, semiconductors
Pivotal Systems (ASX:PVS)
We spoke with Pivotal Systems‘ (ASX:PVS) incoming CEO, Kevin Hill, about the unique properties of the company’s Gas Flow Controllers (GFC) and how these GFC’s enable the world’s largest chip makers to build ever-smaller computer chips.
Our parent company, Pitt Street Research, has written an in-depth research report on Pivotal Systems.
See full transcription below.
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Marc: Hello, and welcome to “Pitt Street Research.” Today, we’re joined by Kevin Hill from Pivotal Systems in the U.S. Welcome, Kevin.
Kevin: Nice to be here, Marc. Thank you.
Marc: You’re taking over shortly, the helmet at Pivotal. We’ll talk about that a little bit later. But maybe let’s kick off with talking about what you guys do. Who is Pivotal, and what do you do?
Kevin: Sure. Pivotal Systems is the leader in advanced technology for gas flow control. And what we’re doing is we’re providing the technical gas flow control inside the wafer fabrication equipment. These are the machines that make the chips, that go in all the semiconductor devices that we’re using. And what’s really interesting is that Pivotal uses a type of technology that’s unique. So, the market consists of many mass flow controllers. There’s a slight subtlety, we’re talking about gas flow controllers. And the difference is the technology and the software that’s used to make all this happen. So, Pivotal’s been growing this business for quite a few years with global penetration. We’re just looking forward to the next generation.
Marc: Right. So, very specifically, when you say gas flow controller, where does that sit in a machine? And which type of machines, by the way? And so why is your gas flow controller better than, you know, sort of, you know, your competitors’ type product?
Kevin: So, the traditional mass flow controller sits in a gas panel. And this gas panel is part of a system called a tool in wafer fab equipment industry. And each one of these tools has several different processing chambers that do some step in the wafer creation process. And what the gas flow controllers do is they regulate the flow of gas going into each one of the chambers. For decades, mass flow control has been the terminology to describe this process. And in the past couple of decades, it’s basically been a thermal process, Marc. The difference that Pivotal brings is an advancement in the technology that used to be thermal-based. In other words, there’s a temperature sensor that governs the gas flow. To what Pivotal offers is a gas flow controller that provides positive position control of the valve. That’s a very fancy way of saying that we have a specific software algorithm, which can regulate the position mechanically of the valve to ensure that there is a consistent, constant, reliable, and accurate gas flow throughout the lifetime of the device.
Marc: And why is that so important when it comes to putting on those layers on wafers?
Kevin: Accuracy and reliability is essential to the yield and the output of a tool and of a factory. And so when we talk about what makes a difference, the ability to quickly come to the desired flow rate of a gas and maintain it at that consistent rate is what differentiates a real value-added contributor to the semiconductor process versus a detractor in yield.
Marc: Right. And so the more precise you can open and close those valves, the more uniform that layer will be, the better yield you get on a way for some good chips on a way basically?
Kevin: Yeah. And that’s for putting a layer down. There’s also processes where we’re very active in taking away or etching the layers. So, whether it’s deposition, or etch, or even a clean, each one of those requires a very, very precise control. The devices themselves have such small dimensions. They could be definitely sub-micron, but we’re talking the latest processes down to just a few nanometers in a critical dimension. So, to perform at that level of precision, the accuracy required to do that is something far greater than what we saw decades ago. That’s why I was talking about the thermal technology, that’s from decades ago. It hasn’t advanced to that level of precision, and accuracy, and repeatability that we need in order to do what we’re doing today.
Marc: Right. And just for people out there watching this, you’re talking about milliseconds, right? Opening and closing valves of these [inaudible 00:04:24].
Kevin: Absolutely. In fact, we’re talking, not only milliseconds, we’re talking speeds that are in the nanosecond range. So, oh gosh. If we could change anything about our ability to process, it would be speed, it would be reliability, and therefore, the quality of the output. And one of the things to even make that more differentiated is the ability to perform in multiple temperatures. So, what we’re seeing, generally, in the industry requirements right now is speed matters. And when I’m talking about speed, I’m talking about the on and off, opening and closing a valve, if you will, in order to start the gas flow or to stop the gas flow. And there’s a couple of aspects. One, when the gas flow is turned on, we want it to stabilize very quickly. So, oscillating above and below a set point is something that has frustrated process engineers for decades. The Pivotal GFC comes on, and very quickly stabilizes. In fact, it can be turned on and off in less than 50 milliseconds. So, when we’re operating at that speed, and we can even go faster than that, we’ve got the ability to start and stop and allow for changes of set point in the gas flow.
Marc: As you open and close them?
Kevin: As we open and close and make those adjustments. This is what’s fascinating for the process engineers to take their steps and develop it, not with the limitation of an MFC, but the opportunity of a GFC.
Marc: Right. So, looking then at who buys your parts, because it’s a part of a bigger machine, right? Who are your customers? And where do you guys sit in sort of in the food chain, in the semiconductor industry?
Kevin: Yeah. So, customers fall into two broad categories. And let’s take anything electronic that’s made and these chips are packaged, and they’re ultimately assembled at what I’ll call an IDM, an integrated device manufacturer. And they’re some names like Samsung, and Intel, and TSMC, and many others that go about the abilities to make the chips. Well, in order to make the chips, the equipment is specialized and falls into a whole bunch of different categories, but that’s the second type of customer that we’re talking about. The original equipment manufacturers of the equipment itself, the wafer fab equipment. And that would be companies like Applied Materials, or Lam, or, Itel or ASMLs, or AMEC. Those families of customers make these advanced machines where Pivotal is actually a component of that machine in the gas panel.
Marc: Right. So, you sell directly to the end-user, which is the chip manufacturer, in this case, or to their suppliers, into the tools that they provide to these chip manufacturers?
Kevin: And we also, once the systems are on board, as times change and the systems last to 10-plus years, the GFCs can be retrofitted, upgraded. We can add new software, we can change the capabilities of those GFCs as the customer moves forward. So, at this point, we’ve got 65,000 of these out in the field and about 5% of them come back for retrofits and upgrades, to enhance the capabilities that the process engineer is looking for.
Marc: Right. So, you could consider that sort of recurring business coming back?
Kevin: Yeah, absolutely.
Marc: Right. Okay. And just out of curiosity, how many GFCs go into a typical etch tool, for instance?
Kevin: Yeah. And so that’s gonna vary with the OEMs and their configuration. But oftentimes, there’s several chambers on a tool. Some may have up to six in various configurations. And then for each one of those, there may be a handful of gases. So, we may see some chambers with five gases, other with 15 or more. So, it varies. But all in, in a factory, if you look at a factory with 500 systems and each one of those with six chambers and each one of those chambers utilizing 15 gases…
Marc: You can do the math basically.
Kevin: Each one of those, with a GFC, that’s a huge opportunity, just for a single fab. So, GFCs are very important.
Marc: All right. And so everyone, when I say everyone, most people that are interested in this space or investing, in general, will have heard about sort of the shortages in semiconductors globally, triggered by a bunch of things, including COVID and the subsequent sort of, you know, issues with supply chains. That in itself is driving demand for more equipment. But if you were to sort of look through that and sort of more look through the regular semiconductor cycle, what’s driving demand for your product, what is the end trigger on the production side to get your GSCs installed in these tools?
Kevin: Yeah. I think to answer that question, we have to start with, what’s fundamental to semiconductors? And this whole supply-demand imbalance is simply because of the demand for semiconductors is ever increasing, but has accelerated recently, due to whole bunch of factors. When you look at it at the core, though, what’s driving is the digitization of our life. And whether that’s in the handheld devices that we have, smartphones, through the way that we use computers, through the internet of things that we interact with at our work and home, to the automobiles, which are becoming increasingly digital consumers. All across our lifetime, the demand for chip is increasing. We’ve never seen this. It continues to grow. So, the past few years, we’ve seen in the semiconductor industry, just a record-setting pace. The last three years, in particular, maintaining a good solid, you know, 20% growth rate. The outlook for the future is to continue with an 8.5% CAGR, compound annual growth rate. These are really exciting numbers, and it shows how much, as a secular nature, this trend will continue for us.
Now, when you back that up and you look at this year 2022 and all the complexities that we have. On one side, we’ve got a component shortage, which is ironic, right? Because it’s the components that are necessary to go into the machines that make the chips. So, we’ve gotta sort through that. And once we do, new factories are being built. There are more new factories going up now than there ever have been in the past. And it takes about two years for a factory to actually come up to full speed to produce wafers. So, the factories that we start in 2022, aren’t going to be online until 2024. During all that time, there’s more demand. And so this cycle continues on, and it’s expected for the foreseeable future that we’ll have that continuous supply-demand imbalance for chips, presenting more opportunities for the IDMs to stand up new factories, back that up to the equipment manufacturers, more equipment going into those factories, which include the Pivotal GFCs.
Marc: Right. So, let’s pretend you’ve got a crystal ball right here right now. Looking at this cycle, which is very unusual, I mean, I’ve seen cycles for the last 20 years, they always come down at some point. But this one is a bit different, quite different actually. Looking from where you’re sitting, sort of right up in the hard sort of Silicon Valley, seeing all that stuff around you, where do you see this cycle finally turning? When do you think supply-demand will be in balance, not just for chips themselves, but for the equipment as well? The demand manufacturing…
Kevin: Yeah. That’s very hard for me to call. I mean, that’s a challenge for anyone to see when that supply-demand intersection happens. But I look at it from a different viewpoint. You see, as an equipment provider, there’s capacity that ties to that supply and demand, right? So, we know that the capacity has to increase. And to your point, in the semiconductor industry, we have to be careful not to provide too much capacity. But the other part that’s driving, in order to do the concentration of devices on a chip that we have today, so the number of transistors per area and the heat management that happens inside a chip. Today, there’s a whole ‘nother set of challenges that drive equipment. And that is the technology drivers. So, we look at the progress over the decades, getting smaller and smaller, critical dimensions, the space between the transistors, as an example. And that’s a challenge for photolithography, it’s a challenge for deposition, it’s a challenge for etch, the major processes that come together in order to make that chip. And so for Pivotal, what we see is as that’s changing, that provides new opportunities for advanced equipment, which will help, not only to grow the capacity but to grow that advanced capacity. And as an industry, as a whole, of course, there’s an essential focus to make sure that we don’t overbuild that capacity. Yet, that’s something that I can’t even comment on at this point.
Marc: Yeah, no. Sure. I understand. You talked about the opportunities. I wanna talk about that a little bit more, just a bit later on. Looking at the challenges first, I think was this time, last year, that Applied Materials said, “Look, we can’t get the computer chips, to actually go into our own systems.” I think that’s the first time I heard that, which is sort of the whole process would be, or the whole cycle would be pushed out just because the machines that are used to build semiconductors couldn’t get tools or couldn’t get the parts to be built properly, right? So that was an interesting one in itself that might have prolonged the whole cycle, I guess. But looking at supply chain challenges right now, for instance, in Asia, how does that impact you guys and what have you done to sort of mitigate those effects?
Kevin: Yeah. So, previously, we just talked about the downstream effect, right? So, Applied Materials and it needs to make its machines, it’s depending on upstream suppliers like Pivotal. So, I’m looking upstream at Pivotal, and three levels deep into my supply chain, I need components. Just like everybody else, everything that’s a electronic system depends on these components. So, it was about April of last year where we first started to see the issues popping up. We go to a standard build and then something that was normally a few weeks lead time, all of a sudden became months, which today is actually years for some components. But what we did at Pivotal is we took a look at that as a…it’s called a warning sign, an early indicator was April. And we said, “We need to change the way we’re doing our business.” So, effectively, we looked at it and said, “This requires an enhanced communication with our upstream supply chain.” It went into a very, very clear communication with them that said, “Here’s our demand, give it out as long as we can, let’s say a year, and then let’s work with you in order to find the supply to bring it in so that we can hold plan.” The result for Pivotal is yeah, every night we have a challenge of a new component that’s short or something else that we need to conquer. But at this moment in time, we have held the lead times to the pre-pandemic level. So, if you go pre-pandemic and you wanted a Pivotal GFC four to six weeks later, you had one. It’s still true today.
Marc: That’s impressive.
Kevin: And that’s all about the supply chain and working together three levels upstream in order to get that done.
Marc: Right. In a couple of weeks time in June, you’ll be taking over the CEO role at Pivotal Systems. What do you think your main challenges and opportunities will be, say, in the next three to five years?
Kevin: Well, I think the biggest challenge that we have in front of us is there’s a lot of unknowns in the industry. So, when we look at the demand, we know that the demand is there and then the supply is getting in place. We remember that Pivotal is very upstream of that supply. So, as we looked at last year was a continuous growth. As we look at this year, it’s a growth that has somewhat flattened in Q1, or at least the first half. But the projections show that it spikes up to double and triple the levels that we’ve seen in the early parts of the year. That’s a challenge right there.
Marc: By the way, that’s based on what you’re seeing downstream, right, from your…
Kevin: It’s all from the demand statement. And that challenge is, how do I make sure that Pivotal is prepared? So looking at capacity, looking at supply, and making sure that operationally we’re ready to handle that, from taking orders to providing the customer service and in all the pieces in between. So, this is something that is top priority as we go through this stage of the supply chain and balances. We have to be ready for what’s coming six months from now. And so immediately coming on board, that’s been my focus to make sure that we’re ready. I wanna ensure that our customers have that level of service that they expect, which is lead times, which is the field, support, and installation, which is the software support, and all the other pieces that go in there.
Marc: Right. And opportunity-wise, because I would consider this sort of, you know, challenging or challenges. But there must be, specifically for your segment in the market, there must be opportunities. Well, you must be seeing certain developments, for instance, at the very leading edge, where your GFCs come in quite nicely, actually. And that’s would be a main driver for demand for your type of product.
Kevin: The opportunities are not only now, but they’re gonna be for years to come. Essentially, as we look at this change in technology, it’s amplifying the need for a pivotal GFC.
Marc: Can you explain that, in layman’s terms?
Kevin: So, when we look at the traditional thermal-based MFCs, there’s limitation to the reliability, then the accuracy at low flow rates. The Pivotal GFCs with its NIST calibrated, or everything is basically an instrument level of precision inside the GFC. That allows us to go to lower flow rates with accuracy that hasn’t been seen before. And that presents opportunities for our customers to go ahead and apply these GFCs to the leading-edge technologies. And let me give you a specific example. So, we’re at a stage now where forming a gate requires such a precision conformal coding that ALD or atomic level deposition is the essential part in order to make that deposition. And it’s a Pivotal GFC that is demonstrating what can be done. There are other solutions out there that have been used, because ALD is not new to the industry. But to take it into a manufacturable and scalable process, this is where the GFC comes in. And our abilities in ALD to, one, make sure that we’ve got the temperature, the on, off and temperature parameters dialed in. Let me get more specific. When we talk about speed of the GFC, we’re talking about that valve going on and off in order to change the flow rate. Well, while doing atomic level depositions, it’s actually a pulse. So, having a device like a GFC that can accomplish an on, off in 50 milliseconds, or something even less than that, it has a great advantage to the process engineer who’s trying to establish a process using ALD. And so the deposition or the etch, at atomic level is something that the pivotal GFC is in prime position in order to help.
Marc: All right. Kevin, we’re getting to the end of the interview. We’re running out of time. But what I really wanted to know is what the specifics for the temperature and for speed, what does that enable your customers to do in terms of processes?
Kevin: Yeah. So, our customers are always asking for faster and higher temperature. And the products that we have out on the market today can easily do a 100-millisecond on-off time, can easily go up to 50C. But the most recent products that we’ve been asked to do and have released recently, show temperatures up at 70C. That’s just the start though. So, we’re gonna continue to develop products that can operate in higher and higher temperatures. Why? Because the customers need to move forward into some of these atomic layer processes. The ALD for deposition and ALE for etch, requires some precursors and some advanced materials and gases that require heat in order to maintain the film properties that they’re trying to achieve. So, when we go about developing our new products, we’re always looking at how can we get to a higher temperature. ALD may have a 100C, 150C, 200C degree requirements. We’re gonna move in order to make that happen. Speeds, easily achieve a 100 milliseconds, and we want to go down to 50 milliseconds. In fact, we demonstrated at SEMICON Korea. This is really exciting. The 10-millisecond operation of our GFCs, 10 milliseconds is very comfortably in that range of pulsing for atomic-level deposition. So, we look forward to working with our customers to refine those products and bring that next generation out there to meet their next generations.
Marc: All right. Excellent. Kevin, thank you very much. Exciting times. Good luck in your new role in June, starting in June.
Kevin: Thank you, Marc. My pleasure.