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To: SemiBull who wrote (1753)	10/23/2003 7:17:20 PM
From: SemiBull	of 1778

KLA-Tencor's Guidance Sinking Shares By K.C. Swanson Staff Reporter 10/23/2003 10:25 AM EDT URL: thestreet.com Updated from Oct. 22 Shares of KLA-Tencor (KLAC:Nasdaq) fell sharply a day after the company said orders in its fiscal first quarter came up short and guidance fell short of analyst projections on both the top and bottom line. In midmorning trading the stock shed $4.72 or 8.1% to $53.33. The company reported sales and earnings slightly above Wall Street expectations, though both remain well below last year's levels. "It wasn't that great of a quarter," summed up Timothy Arcuri of Deutsche Bank Wednesday. "They had guided orders of 5% and they ended up flat. That's not the end of the world, but people have been hoping for some type of improvement before the end of the year that would get their orders and revenues up more in line with the industry." He has a hold on the stock; his firm hasn't done banking for KLA. On the call, analysts peppered management with questions about why its outlook and results have been relatively less sunny than some of its peers. But Arcuri said such negative comparisons aren't necessarily on target, given that KLA did better than many others in its industry in 2002. KLA's products tend to remain in demand even in down times since its equipment helps semiconductor makers maintain high yields, effectively increasing their manufacturing efficiency and thus lowering costs. "We've always felt this is a very good company but this is one you'd probably want to own in a downturn," said Arcuri. "They tend to do relatively better in downturns and at times lag in upturns." After the close KLA reported revenue of $318 million, down 15% from last year's levels. Net income was down 28% to $36.8 million, or 18 cents a share. Wall Street was looking for sales of $316.6 million and EPS of 17 cents. On the conference call, KLA management forecast December quarter orders to rise 5%, with revenues in the range of $320 million to $325 million, well below analyst forecasts for $350 million. Earnings are projected to be 18 cents to 19 cents, below Wall Street expectations for 23 cents. In the company's earnings statement, CEO Ken Schroeder said that "cautious sentiment still predominates among several of our customers" though he also noted, "some chipmakers [are taking] the first step to expanding their capacity." "The general economy is certainly looking much more positive than in previous calls," he explained on the call, noting that U.S. GDP is expected to increase from an estimated 2.5% this year to 3.8% next year, with the global economy showing similar growth. "That translates into demand for semis, which are forecast to grow roughly 10% in 2003 and 19% in 2004. That's improving our customers' profitability, cash flow and view of the future." But on a related note, he acknowledged on the conference call that net bookings fell slightly short of KLA's hopes because two big orders couldn't be closed in time for the September quarter. When one analyst expressed surprise that December guidance wasn't higher, since those orders would presumably fall within that quarter, Schroeder said KLA wants to be careful given that semiconductor customers are still somewhat leery of investing in pricey equipment. "I think probably some [customers] will wait until after Christmas to make sure business continues in this positive fashion," he said. "Though there's a swell of optimism, it's really going to be the first quarter before we see that swell of optimism turning into the growth the analysts are talking about, which is 20% growth in cap-ex for 2004." In response to another question, Schroeder added that he thinks the 20% growth estimate for 2004 sounds reasonable. "I think 20% feels good based on qualitative input from customers talking about their cap- ex and what they're doing. I think people are feeling pretty good about the economy and making plans to take advantage of this upturn in the economy," he said.

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To: SemiBull who wrote (1754)	10/26/2003 4:33:44 PM
From: SemiBull	of 1778

KLA-Tencor Corporation and Accretech Reach Settlement Friday October 24, 8:31 am ET SAN JOSE, Calif., Oct. 24 /PRNewswire-FirstCall/ -- KLA-Tencor Corporation (Nasdaq: KLAC - News) and Accretech USA, Inc., a subsidiary of Tokyo Seimitsu Company Ltd. of Japan, announce that they have settled the litigation that has been pending between them since June 2001. Pursuant to the settlement, both KLA-Tencor and Tokyo Seimitsu/Accretech dismissed their claims and terminated their litigation against each other. The terms of the settlement are confidential. About KLA-Tencor: KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., with operations around the world, KLA-Tencor ranked #6 on S&P's 2002 index of the top 500 companies in the U.S. KLA-Tencor is traded on the Nasdaq National Market under the symbol KLAC. Additional information about the company is available on the Internet at kla-tencor.com . Source: KLA-Tencor Corporation

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To: SemiBull who wrote (1755)	11/24/2003 11:56:57 PM
From: SemiBull	of 1778

KLA-Tencor to devise inspection tool for SOI By Silicon Strategies 11/24/2003 5:35 PM EST URL: siliconstrategies.com SAN JOSE--KLA-Tencor Inc. and Soitec SA today (November 24, 2004) announced a joint program to improve the quality, yield, and cost of production of silicon-on-insulator (SOI) wafers in IC applications. The joint development partnership is expected to result in the world's first wafer inspection system for SOI wafers at the 90- and 65-nm nodes. The first of these new inspection systems--to be based on KLA-Tencor's Surfscan SP1--is expected to ship to Soitec in early 2004. In addition to SOI, the new inspection system will be compatible with advanced substrates such as strained silicon-on-insulator (sSOI) and silicon germanium-on-insulator (SGOI). "Advanced materials, like SOI and sSOI, are drawing increasing attention and recognition in the industry as critical enablers to achieving better device performance," said Andre Auberton-Herve, president of SOI wafer maker Soitec, in a statement. "As part of our strategy to usher these new materials into production, Soitec is working closely with chipmakers and equipment suppliers to make sure the infrastructure is in place for producing advanced substrate solutions optimized for our customers' specific applications." Michael Kirk, vice president and general manager of the Surfscan Division at KLA-Tencor, agreed. "Due to their expertise in SOI technology, Soitec was a natural choice to partner with in developing an advanced SOI inspection solution that will help enable our customers to continue to meet their future technology roadmaps," he said in a statement.

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To: SemiBull who wrote (1756)	1/23/2004 9:27:39 AM
From: Proud_Infidel	of 1778

KLAC upped to Sector Perform at CIBC; tgt $85 (60.81 ) CIBC upgrades KLA-Tencor to Sector Perform from Sector Underperform based upon strong leverage in 2Q/Dec results and 3Q/March guidance. Firm raising CY04 est to $1.70 from $1.30, and initiating CY05 with $2.56 est. While long-term competitive pressures remain, near-term urgency to add high-end capacity with high yields increases the appeal of co's proven offerings, and firm believes is providing with robust pricing power into a bookings ramp-up 50% Q/Q to 1.50 Btb. With visibility now extended into 3Q:C04, firm expects multiple expansion as investors gain confidence to the magnitude and potential duration of this cycle. Price tgt goes to $85 from $54.

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To: SemiBull who wrote (1759)	1/25/2004 6:41:51 PM
From: SemiBull	of 1778

KLA-Tencor Posts Earnings of $45 Million on Revenues of $339 Million for Second Quarter of Fiscal 2004 Thursday January 22, 4:15 pm ET SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 22, 2004--KLA-Tencor Corporation (Nasdaq:KLAC - News) today announced operating results for its second quarter of fiscal 2004, ended December 31, 2003. The company reported net income of $45 million and diluted earnings per share of $0.22 on revenues of $339 million -- an increase on both a year-over-year and sequential basis. In comparison, the second quarter of fiscal 2003 resulted in net income of $29 million and diluted earnings per share of $0.15 on revenues of $335 million, while in its first fiscal quarter of fiscal 2004 KLA-Tencor realized net income of $37 million and diluted earnings per share of $0.18 on revenues of $318 million. ADVERTISEMENT According to Chief Executive Officer Ken Schroeder, "Rising chip demand fueled by an improving global economy, coupled with high capacity-utilization rates due to years of industry under-investment, is driving a strong upswing in capacity-related tool orders. Ramping yields of leading-edge processes remains a challenging task and our process control systems are playing a pivotal role in the industry's accelerating capacity expansion efforts. At the same time, we continue to benefit from new technology orders for process control equipment as chipmakers also work to develop even more challenging next-generation processes." Geographically, Korea, China, Singapore and Japan exhibited the strongest order growth compared to historical averages. The U.S. was 24 percent of orders, below its historical average of 25-30 percent; Taiwan was 18 percent, below its historical average of 20 percent; Korea, China and Singapore combined was 18 percent, higher than their historical average of 15 percent; Japan was 26 percent, higher than its historical average of 20 percent, and Europe was 14 percent, at its historical average of 15 percent. Gross margins improved three percent sequentially to 54 percent, which helped drive net income higher by 21 percent over the previous quarter. Improvements in capacity absorption and manufacturing efficiencies contributed to the gain in gross margins. KLA-Tencor increased cash, cash equivalents and marketable securities by $63 million to $1.63 billion, while the balance sheet remained free of long-term debt. Higher product shipments led to an increase in accounts receivables of $37 million to $246 million. However, strong collections resulted in shipments based Days Sales Outstanding of 59 days. Inventory increased by $14 million to $288 million, as the Company expanded production to meet rising customer demand. The company has scheduled a live webcast of its second quarter fiscal 2004 earnings conference call for Thursday, January 22, 2004, at 2:00 p.m. (PT). Forward Looking Statements: Statements in this press release regarding the causes of an upswing in capacity-related tool orders, the industry's accelerating capacity expansion efforts, chipmakers developing more challenging next-generation processes, current order backlog, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations, and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: delays or cancellations of orders by customers; shipments or acceptances; inability by the company to meet its production and/or product development schedules; the demand for semiconductors; and new and enhanced product offerings by competitors. For other factors that may cause actual results to differ from those projected, please refer to the company's Form 10-K, Forms 10-Q and other filings with the Securities and Exchange Commission. Actual results could differ materially from those anticipated in forward-looking statements in this release as a result of certain factors, including those set forth in the risk factors described in the company's SEC filings. The company assumes no obligation to update the information in this press release. About KLA-Tencor: KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., with operations around the world, KLA-Tencor ranked #6 on S&P's 2002 index of the top 500 companies in the U.S. KLA-Tencor is traded on the Nasdaq National Market under the symbol KLAC. Additional information about the company is available on the Internet at kla-tencor.com. KLA-Tencor Corporation CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS Dec. 31, June 30, 2003 2003 (In thousands) -------- -------- ASSETS Cash, short-term investments and marketable securities $1,629,030 $1,487,883 Accounts receivable, net 245,841 223,535 Inventories 288,355 258,799 Land, property and equipment, net 374,692 382,729 Other assets 534,515 513,651 ---------- ---------- Total assets $3,072,433 $2,866,597 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 51,722 $ 33,893 Deferred system profit 155,973 177,486 Unearned revenue 44,572 48,203 Other current liabilities 421,359 391,474 ---------- ---------- Total current liabilities 673,626 651,056 ---------- ---------- Stockholders' equity: Common stock and capital in excess of par value 917,951 814,968 Retained earnings 1,478,238 1,396,886 Accumulated other comprehensive income 2,618 3,687 ---------- ---------- Total stockholders' equity 2,398,807 2,215,541 ---------- ---------- Total liabilities and stockholders' equity $3,072,433 $2,866,597 ========== ========== KLA-Tencor Corporation CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS Three months ended Six months ended December 31, December 31, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands, except per share data) Revenues: Product $264,824 $268,075 $514,969 $580,583 Service 73,714 66,843 141,539 129,855 -------- -------- -------- -------- Total revenues 338,538 334,918 656,508 710,438 Costs and operating expenses: Costs of goods sold 156,369 171,138 311,910 357,482 Research and development 68,930 71,935 134,382 142,788 Selling, general and administrative 62,177 65,089 122,186 135,530 Non-recurring acquisition, restructuring and other, net -- -- -- (9,402) -------- -------- -------- -------- Total costs and operating expenses 287,476 308,162 568,478 626,398 -------- -------- -------- -------- Income from operations 51,062 26,756 88,030 84,040 Interest income and other, net 7,332 11,702 15,733 21,872 -------- -------- -------- -------- Income before income taxes 58,394 38,458 103,763 105,912 Provision for income taxes 13,879 9,230 22,411 25,419 -------- -------- -------- -------- Net income $ 44,515 $ 29,228 $ 81,352 $ 80,493 ======== ======== ======== ======== Basic earning per share: Net income $ 0.23 $ 0.15 $ 0.42 $ 0.43 ======== ======== ======== ======== Diluted earnings per share: Net income $ 0.22 $ 0.15 $ 0.40 $ 0.42 ======== ======== ======== ======== Weighted average number of shares: Basic 194,872 189,018 193,751 189,229 ======== ======== ======== ======== Diluted 202,450 193,519 201,323 193,904 ======== ======== ======== ======== Contact: KLA-Tencor Corporation John Kispert, 408-875-6224 (Chief Financial Officer) john.kispert@kla-tencor.com or Cary Halsted, 408-875-4094 (Investment Community) Vice President, Investor Relations cary.halsted@kla-tencor.com or Kern Beare, 408-875-7039 (Media) Vice President, Corporate Communications kern.beare@kla-tencor.com Source: KLA-Tencor Corporation

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To: SemiBull who wrote (1760)	2/17/2004 8:53:28 PM
From: SemiBull	of 1778

Process control to take capex share, says KLA Tencor CEO Peter Clarke 02/16/2004 1:50 PM EST URL: siliconstrategies.com PARIS -- Integrated metrology, where measuring systems are used in-line on production wafers, have not been a great commercial success so far, Ken Schroeder, chief executive of KLA Tencor Corp. told the attendees at the Industry Strategy Symposium in Europe. But the growing significance of on-chip variation and the complexity of thin film composition means that this form of feedback must pick up in significance. It is also one of the reasons why process control is set to take a bigger proportion of the industry's capital expenditure. Schroeder said that in the mid-1990s it was down at 5 percent, but jumped to 10 percent of a $22 billion wafer fab equipment market. In the boom year of 2000 process control represented 11 percent of the $33 billion wafer fab equipment market. And in 2005 it would be 15 percent of a $38 billion market, Schroeder said. When asked where the process control would take market share form Schroeder said: "It has to be the process tools themselves. Manufacturers need to concentrate on more good die of a wafer rather just making more wafers." However Schroeder acknowledged that integrated metrology, rather than stand-alone metrology had been hyped as the next big thing back at the turn of the decade and it hadn't happened. Schroeder said that when used in-the-line, there was an inevitable trade off between sensitivity, throughout and cost and, with the exception of CMP, managers had not been prepared to sacrifice sensitivity. Schroeder added that with the move down to 130-nanometer and 90-nm processes in-line metrology was essential. He pointed out that at 130-micron barrier seed films for copper interconnect were simple and thick, whereas at 90-nm the proportion of nitrogen in the tantalum barrier seed layer becomes important. At 65-nm it becomes ultra-thin as well, compounding problems. "Today's films -- CMP and CVD -- require integrated metrology. Etch measurement is an emerging application and in future lithography critical dimension will require it," said Schroeder.

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To: SemiBull who wrote (1761)	10/26/2004 8:55:40 PM
From: Proud_Infidel	of 1778

KLA-Tencor Acquires Inspex's Wafer Inspection Business Tuesday October 26, 5:00 pm ET Commits to supporting customers with installed base of Inspex wafer inspection systems SAN JOSE, Calif., Oct. 26 /PRNewswire-FirstCall/ -- KLA-Tencor (Nasdaq: KLAC - News), the leading supplier of yield management and process control systems for the worldwide semiconductor industry, today announced that it has acquired the Wafer Inspection Systems business of Inspex, Inc., a U.S. company owned by Photonics Management Corporation, which is a subsidiary of Hamamatsu Photonics KK of Japan. Under terms of the agreement, the specific assets acquired by KLA-Tencor include all patents, technology, software, spare parts and inventory related to Inspex's wafer inspection business, which halted production when the company filed for bankruptcy in November 2003. The acquisition does not include other Inspex assets, such as the Data Management Software business, which was acquired by a separate party earlier this year. The terms of the agreement provide that KLA-Tencor assures Inspex's existing customers have access to uninterrupted support for their installed base of tools. The agreement also provides that KLA-Tencor maintains support for a minimum of four years and offers a comprehensive scope of global services -- including 24x7 Customer Response Centers, flexible support programs, and time and materials services. Customers that own Inspex tools can contact the appropriate KLA-Tencor 24x7 regional Customer Response Center. Contact information, as well as a detailed description of services, can be found in the support section of the KLA-Tencor website at kla-tencor.com About KLA-Tencor: KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., the company has sales and service offices around the world. An S&P 500 company, KLA-Tencor is traded on the Nasdaq National Market under the symbol KLAC. Additional information about the company is available on the Internet at kla-tencor.com -------------------------------------------------------------------------------- Source: KLA-Tencor

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From: no name chump	1/20/2005 11:29:07 AM
	of 1778

How KLA-Tencor yields innovation reed-electronics.com Like any other good CEO, Ken Schroeder of KLA-Tencor spends a lot of time thinking about his employees. But unlike most other CEOs, he spends a lot of time thinking about what they know and what they still need to learn. "We've been recognized as No. 1 in Silicon Valley for all kinds of training. We put a lot of time and attention into it. We emphasize unique training that makes us different," says Schroeder, 59, who has led the semiconductor process control and yield management company since 1999. The emphasis on learning apparently works. For one thing, it contributes to employee turnover of less than 5 percent on a global basis. And the learned staff's outpouring of innovative products has kept KLA-Tencor on the leading edge for more than two decades. The 28-year-old company has more than a 50 percent share of the process control market, with 70 percent in some segments. Its closest rival, Applied Materials, has about 10 percent. KLA-Tencor sells more than two dozen products for wafer inspection, mask inspection and metrology. It is No. 1 in most segments and No. 2 in the others. More important, analysts say, it is the only vendor that offers a portfolio of integrated tools that analyze defects data and helps users make corrective decisions. The arcane technology improves fab yields and allows chip makers to ramp up quickly in each new process as they follow Moore's Law. KLA-Tencor, which had net income of $244 million on revenue of $1.5 billion in fiscal 2004, routinely has the highest margins among semiconductor equipment companies (see "KLA-Tencor At-a-Glance," below). Since 1992 it had just one losing quarter—when it took a restructuring charge in 1998. Except for an occasional complaint about its ultraconservative guidance regarding quarterly orders, stock analysts are enthusiastic. They say that, compared to rivals, it gets more bang for its R&D buck (15 to 20 percent of revenue), has sounder fiscal management and is better at anticipating downturns. "KLA-Tencor is one of the best-runsemiconductor equipment companies in the world," says Jay Deahna, an equity analyst at JPMorgan. "Its top-line growth story and competitive positioning are better than most." What's behind the success? Central to its strategy is a collaborative, creative environment that fosters innovation and emphasizes learning. KLA-Tencor ranked fifth overall and first in Silicon Valley on Training magazine's 2004 Top 100 list. (Intel was second in Silicon Valley, at No. 17.) Schroeder and his executives expend large amounts of personal energy and corporate resources on teaching and mentoring employees in management, technology and innovation practices. "Training is one way to get consistent methodology throughout our 17 divisions," Schroeder explains. Whether the training is in technology, innovation or management, traits that set KLA-Tencor apart are extensive advance preparation, context-specific learning and rigorous follow-up, says Dev Ogle, senior consulting partner at Ken Blanchard Co., who has worked with the company for years. "At every level in the organization, you can see people applying what they learn in the classroom back in the work environment with the help of coaching, mentoring and feedback," he observes. "As a result, the company gets consistent models for leadership at the supervisory, midmanagement and senior levels." There's a message for others, Ogle argues. "You often hear the right words about training from CEOs but no passion for it. These guys at KLA-Tencor have the passion for it." Schroeder agrees: "There's a lot of lip service about training in Silicon Valley. But I don't think most CEOs understand the power of training and the impact it can have on their companies." From eyeballs to expert systems In the 1970s, when integrated circuits were still measured in microns and wafer defects were eyeballed through a microscope, Ken Levy had a passion for improving manufacturing yields. Levy, now 61 and chairman, founded KLA Instruments in 1976, and in 1978 the company offered the first automated inspection system, which reduced the time required to inspect photomasks from eight hours to 15 minutes. A rival, Tencor Instruments, was also founded in 1976. The two became the leaders in process control and merged in 1997, in what analysts still call one of the electronics industry's most successful mergers. Rick Wallace, executive vice president at KLA-Tencor, was working at Cypress Semiconductor in the early 1980s when it bought one of the first KLA inspection tools. Wallace, who began his career in paper products at Procter & Gamble, recalls, "Compared to what the paper industry was doing, there was no sense of process control automation in semiconductor manufacturing. Every other industry had demonstrated that process control was necessary for that industry to mature." Cypress was an early adopter, but not every chip maker could fathom why it would want an inspection machine itself or what to do with it, Wallace recalls. But before long, chips were measured in submicrons and eyeball and microscope could no longer do the job. As geometries shrank, automated process control grew in importance and inspection equipment became a bigger portion of a chip maker's total equipment expenditure. "KLA-Tencor is one of the best-run semiconductor equipment companies in the world." —Jay Deahna, JPMorgan The market didn't spring up overnight, says Risto Puhakka, vice president of VLSI Research, a market research firm. "It took years for the industry to understand the importance of yield. Process diagnostics was a very small market all through the 1980s, just an afterthought to lithography." As geometries grew smaller in the 1990s and KLA-Tencor stepped up efforts to educate the industry (its trade show seminars are well known), the market began to grow. Once it had a family of inspection machines, KLA-Tencor began to develop software to help users analyze yields and take corrective action to improve them, says Bob Johnson, a market analyst at Gartner Dataquest. "Once they had the inspection capabilities, they figured out what to do with them. That's how yield management evolved." Puhakka believes that software is the key to KLA-Tencor's dominance. "There have been many efforts to take on KLA-Tencor in certain areas. Companies can offer equally capable inspection systems, but the differentiation for KLA-Tencor is the software. That's where you turn data into action," he says. "Software has never been a classic strength of any other company in the equipment business." About 60 percent of KLA-Tencor engineers work in software, and a large amount of its IP is software, according to Wallace. Brett Hoddess, an equity analyst at Merrill Lynch, attributes KLA-Tencor's success to two factors: the chip industry's need for more, not less, yield management as geometries get smaller and the fact that KLA-Tencor offers the broadest portfolio of products. "It has integrated the data from products into expert systems. Its software ties all the data together from various steps and makes sense of it for the user. No one else comes even close to having a complete product set like this." A culture of innovation The products, including a services unit and the expert systems, and the need to stay two steps ahead of the chip industry's march toward smaller geometries (KLA-Tencor currently is developing products for 65 nanometers, generating ideas for 45 nm and researching 32 nm) are the innovative hallmarks of the company. But the culture that produces this innovation is where the management lessons are found. What the company manages better than most is innovation. It starts with hiring—especially from the half dozen universities it targets—but doesn't end there. "You can't make a noninnovative person innovative," Schroeder asserts. "But you can take an innovative person and make that person more so." Not innovative for innovation's sake but for the sake of better products. Ben Tsai, the chief technology officer, says a big part of his job is to teach, manage and nurture innovation. But it starts at the top, he says, where Schroeder, Levy and other executives "define what innovation means for our company." He says most articles and books on innovation are too ambiguous or general. "We define what innovation means for us. We want to solve problems for our customers in a better way." Then with the help of the corporate learning center, the top executives spread this understanding of KLA-specific innovation throughout the organization. With a staff of 17—and also tapping experts across the company—the learning center has been an integral part of the innovation effort since it launched, in 1996. "A culture of learning leads to a culture of innovation," says Brent Bloom, senior director of corporate learning. "Ken Schroeder drills that idea home over and over again." KLA-Tencor views the learning center as being so strategic that executives are reluctant to divulge many details about it. They speak in general terms and give only a high-level, broad sketch of its mission. "We consider a lot of the details proprietary," admits Tsai. Even so, they offer some insight into how it works. The learning center, located at the San Jose headquarters, focuses on product innovation, teamwork and management. A separate facility in nearby Livermore, Calif., has a staff of about 50 that teaches pure technical skills to employees and customers. The company finds that even nontechnical learning is best accomplished in the context in which learners must apply the lessons, so innovation and management are often team-taught by one person skilled in the management process and one skilled in the technical area in which the process is to be applied. Even process experts come from the rank and file. Bloom started as a manufacturing engineer and worked in field service and technical support before spending the last three years in corporate learning. Revolution and evolution According to Tsai, KLA-Tencor promotes innovation on two levels: organizationally, through systems and procedures, and individually, through tools and learning episodes for product teams. Over the years, it has established a consistent yet flexible approach to improving old products and generating new ones. All this innovation is rooted in a rigorous understanding of customer needs and problems—especially problems customers may not even know they have (see the sidebar, "Innovation Is Where You Find It," below). Tsai recalls Levy telling him years ago, "Marketing is too important to be left to marketing people," by which he meant that product development engineers must be involved in defining new markets. Yet as the company grew, it became less feasible for each engineer to meet customers. Now twice a year for each product line—quarterly in some cases—teams of key engineers and marketing staff members visit customers, collect information and bring it back to share and interpret with the entire product team. KLA-Tencor also has procedures, which it doesn't divulge, for monitoring competitors. "Organizationally, we have created special processes to capture key learning from major customers and competitors and make them available for each product line," says Tsai. The learning center administers a database and disseminates information. "In partnership with corporate learning, we want to drive this sense of addressing customers' needs down to the rank-and-file engineers," says Tsai. "You can't make a noninnovative person innovative. But you can take an innovative person and make that person more so." —Ken Schroeder, CEO, KLA-Tencor "We're leaders because we create markets," says Wallace, "and we create markets because we recognize customer needs." When it comes to market strategy, KLA-Tencor is too far out on the leading edge to be able to ask customers what products they need. "You can't survey for innovation," Wallace argues. "You can't ask customers what they need. You can ask what their problems are." And then you can spend time with customers at their fabs to better understand their problems. To help individual engineers, learning center staff members track commercial software and methodologies that can assist innovation. "We select a small set of them we believe is most pertinent to our needs," says Tsai. The engineers incorporate the ones they select into their own methodologies. "Depending on your situation, your innovative approach has to be tailored," says Bloom. "We don't want to lock engineers into one specific method." He says some tools support evolutionary innovation from existing products and others foment revolutionary innovation—products that are entirely new and different. Control through training For revolutionary innovation, KLA-Tencor has adapted creative problem-solving techniques developed by Ideo, a design firm. Ideo is widely known for customer-centered problem solving, human-friendly design, rapid prototyping and brainstorming (see "Innovation Quotient," December 2000). KLA-Tencor does its own variation of Ideo brainstorming, Bloom says. Engineers ask the learning center for help at the beginning of a product development project or when creativity stalls and they can't find a way forward. Executives—especially Tsai and Schroeder—keep close tabs on product development and often urge a team to seek the learning center's help, Bloom says. Once a team describes its needs, the learning center designs an appropriate course. "We try as much as possible to train team members together," says Bloom, "and to train them on the team's specific problem." By doing so, the team often generates ideas during training, he adds. "We always try to tie our training to a real situation." A training session can last anywhere from a couple of hours to a couple of days, with regular feedback and follow-up afterward, says Bloom. "An average company spends about five days per person per year on training," he says. "We did that much just in the first few months of our mini-MBA program." He's referring to KLA-Tencor's internal executive development program. It used to send managers to summer school at MBA programs run by various Silicon Valley universities, says Tsai. "We found they were not as effective as they could be, because they didn't teach about our unique culture and the way we do things." So, a few years ago—using its own innovation techniques—a group led by Tsai developed an executive training course that uses case studies from the company's own history and builds much of the learning around current strategic planning issues. Is there any downside to all the learning activities? Analyst Hoddess says he sometimes senses a "not invented here" mentality and points out that the company tends to grow organically rather than through acquisition, even when appropriate acquisitions have been available. Countering that assertion is KLA-Tencor's recent acquisition of the wafer inspection systems business of Inspex, a U.S. subsidiary of the Japanese firm Hamamatsu. And Schroeder points out that KLA-Tencor has a $50 million VC fund that invests in startups of strategic interest, including some in life sciences, which he believes is a potential growth area. "Within a year, you'll see us getting into some new market outside our current semiconductor space," he predicts. Without the emphasis on learning, which is shared by Chairman Levy, Schroeder can't imagine how he would do his job. He views education efforts as the way to extend his influence. "As CEO, I want to control how decisions are made throughout the company," he says. "The only way I know how to do that is to take control of training. There is no way to manage a company of this size without common processes and methodologies. And the best way of spreading those throughout the company is through training."

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