Silicon chip's brutal cycle turns up

You practically need a degree in physics to understand the business of Varian Semiconductor Equipment Associates Inc. But with just a pocket calculator, anybody can figure out that the Gloucester company has staged a nice comeback in the past year. Surging sales and revenues sent it to second place in the Globe 100.

It's all due to Varian's single-minded focus on the future of the silicon chip, even when times got tough.

Varian makes ion implantation machines, arcane and hugely expensive devices that blast particles of boron and arsenic into silicon wafers. The process is integral to the manufacture of computer processors, memory chips, and other semiconductor devices.

''Virtually everybody in the world who makes computer chips uses our equipment," said Varian's chief financial officer, Bob Halliday.

Varian's business is brutally cyclical. It enjoyed good times during the high-tech boom of the late 1990s.

But the post-2000 bust hit the company hard. Sales fell by nearly 50 percent in the fiscal year ended in September 2002. The company managed to stay profitable, but earnings of 26 cents a share were a long way from the $1.90 of 2001.

What to do? Hunker down and wait for an upturn. But the company's employees didn't just twiddle thumbs. Varian engineers realized that their line of implanters, which treated a dozen silicon slabs at a time, weren't precise enough for the latest chips. So the company invested millions of dollars in a new line of ''single-wafer" implanters. The silicon semiconductor wafers produced by these machines yield a higher percentage of usable chips, so customers can wring maximum value from every wafer processed. Axcelis Technologies Inc., of Beverly, is the top maker of ion implanters overall, but Varian has taken the single-wafer lead.

Combined with a general surge in the market for chip-making gear as the tech sector rebounded, the single-wafer success helped the company boost earnings for fiscal 2004 to $1.65 a share, up from 31 cents the previous year.

''I think the key to their story was the investments they made in research and development," said Stephen Chin, an analyst with investment bank UBS who follows Varian.

Chin and Halliday agree that 2005 won't be quite as rosy. They figure chip industry capital spending will decrease 5 to 10 percent. But Halliday said Varian will get by, in part thanks to relentless cost control. The company strives to avoid laying off its super-educated engineers.

''We use contract labor whenever we can so our full-time employees are secure with us," said Halliday. And to save on expensive construction, the company even uses temporary trailers for extra work space.

Hiawatha Bray can be reached at bray@globe.com.