Intel, FEI, and Leading VC's Vote for Neocera
   
 
   

                                                                                                                          

   

 
       by Michael Hardy,
Potomac Tech Journal


Neocera Inc., a Beltsville, Md., company that makes devices for testing semiconductors, is hoping a new infusion of venture capital will return it to profitability after a three-year slump.

Late last month, Neocera announced that it had raised $13.3 million in a second round of venture financing led by Digital Power Capital LLC and Tudor Investment Corp., both based in Greenwich, Conn. Fraine’s former employer FEI Co., of Hillsboro, Ore., and Intel Capital, the venture arm of chipmaker Intel Corp., of Santa Clara, Calif., also contributed.

The 13-year-old company had been profitable for most of its existence, but increased spending coincided with a crash in the semiconductor market to put the firm on the canvas, said President and Chief Executive Officer Jim Fraine.

The spending went to develop the MAGMA C-10, a magnetic microscope that allows chipmakers to examine their products for defects. Neocera began marketing the device in 1999, its first foray into semiconductors.

“In the long run it’s an excellent field, but it’s also very cyclical,” Fraine said. “It’s been down for the last 12 to 18 months. It’s now showing signs of recovery.”

In fact, worldwide semiconductor sales plummeted 31 percent in 2001, from $204 billion to $140 billion, said Molly Tuttle, spokeswoman for the Semiconductor Industry Association in San Jose, Calif.

“In 2001, we had the worst year in our history,” she said. “It was as if the water had been turned off for our industry.” The dot-com bust took away one expected market, while disappointing sales of just about all other electronic devices took bites too, she said.

The trade association is predicting 6 percent growth in 2002, the modest beginnings of a recovery.

To weather the downturn of the last 18 months, Fraine and other Neocera executives took pay cuts of 10 percent to 20 percent, and the company shelved plans to expand its physical facilities. The company avoided having to lay off anyone, he said, but it didn’t hire any new people either. Now, with the funding, the executive salaries have been restored and the company’s plans to expand are back on the table.

Neocera, founded in 1989, built its business on “thin films,” extremely thin metal alloys used in computer chips and super-conducting electric wires. The company can make the films, or sell pulse laser devices to companies that want to make the films themselves. It has sold more than 50 of the pulse devices for about $250,000 each.

Although Neocera has sold the $700,000 MAGMA device to some high-profile companies, including Intel Corp., Texas Instruments and IBM Corp., it has closed deals with only three other customers so far. And Neocera has to pay royalties on MAGMA sales to the University of Maryland, where Neocera founder T. Venkatesan, a professor of electrical engineering and physics, developed the original technology.

“To date, it has not been a big revenue generator,” Fraine said of the product.. “We deal primarily with the makers of high-end components. About 100 of them have need for this. That’s our market opportunity right now.”

Fraine predicted a return to the black next year.

“We were a little ahead of our time two to three years ago,” he said. “It’s now getting there. People are putting it in their budgets to buy [the systems].”

Electronics companies like Intel are always looking for ways to shorten the time it takes to manufacture components while keeping quality high, said Intel spokeswoman Laura Anderson. It’s a task that gets more and more difficult as the technology evolves.

“Our Pentium 4 processor is a single chip that is maybe half an inch by half an inch, but there are more than 42 million transistors on it,” she said.

“Every year the number of transistors that go on a microchip increases. That greatly increases the complexity of the ‘interconnects,’ the way the various components get connected into the package and how the signals go back and forth.”

Neocera continues to explore new markets such as mobile phones, hand-held devices and other uses for chips.

“It’s the permeation of the technology into the home“ that will drive the market, Fraine said. “Ten-year-olds playing video games can drive the technology as hard as any scientist. Anticipating that and seeing where that’s going to be needed can be a tough read.”