Systems Equipment Division at Ferrofluidics

Systems Equipment Division

At Ferrofluidics

Part A

Introduction

In 1986, the Systems Equipment Division (SED) at Ferrofluidics , was in big trouble. Sales, which had peaked in 1985 at $9 million, were less than $3 million. They did not receive a new order during the last half of the 1986. By the end of the year it was apparent that the main product, "pullers," had severe quality problems. There were no backorders, and no prospective customers. The future looked bleak.

General Corporate Background

Ferrofluidics was founded in October 1968 by Dr. Ronald Moskowitz and Dr. James Rosensweig to pioneer the technical and market development of magnetic fluid technology. These men invented and patented this specialized materials technology while working as re searchers on NASA sponsored projects in the early 1960's. NASA investigated magnetic fluid technology because of its potential as a sealed bearing which isolates hazardous environments from ambient normal conditions along a rotating shaft. These fluids, called ferrofluids, can be magnetized by suspending very fine magnetic particles in a liquid. The results are an extremely stable colloidal magnetic fluid. When a magnetic field is applied, the ferrofluid acquires a magnetic moment and can be precisely positioned and controlled.

Ferrofluids have superior properties as lubricants, sealing agents, bearings, and dampening agents. These materials have applications in many areas including the manufacture of contact lenses, hard disks, stereo speakers and semiconductors. For example, ferrofluids are used as a 'frictionless' sealed bearing which allows a hard disk to spin at incredible rates. Another advantage of ferrofluids is that the seal prevents foreign particles from damaging the disks.

The company developed numerous products based on ferrofluid technology. Ferrofluids were sold as raw materials to some manufacturers, however, most sales and product offerings were small component parts, which were based on ferrofluid technology. In the later 1970's Ferrofluidics developed an innovative ferrofluidic sealed bearing for equipment used in the production of silicon. These huge machines, called silicon crystal pulling furnaces, or "pullers", were much more efficient with the addition of the ferrofluid seal (See Table 5 for Physical Dimensions of puller equipment). The product was clearly superior to the sealed bearing technology, which had been employed, and became very popular. Sales of these retrofit vacuum sealers reached $600,000 in the first year, and were the first real commercial success for Ferrofluidics. These seals became the "flagship technology" and were instrumental in making Ferrofluidics a profitable organization. (See figure 1 for an example of a puller.)

In the early 1980's, Ferrofluidics realized that ferrofluid technology had many applications. Corporate management also reasoned they might be able to increase profits by forward integrating into industries where ferrofluid technology was important. With this strategy in mind, the company searched for possible acquisition candidates. When it became known that Varian wanted to divest itself of a silicon crystal puller division, management thought they had a perfect match. They were familiar with silicon crystal pullers, and they thought the semiconductor silicon industry had great potential. During 1981, Ferrofluidics purchased the puller division from Varian for approximately $1.5 million. Pullers contained millions of parts, many major subsystems and sold for upwards of $500,000. Overnight, Ferrofluidics became a capital equipment supplier.

SED Division History

Management at Ferrofluidics was attracted to SED for a number of reasons. They projected that the silicon puller market would grow from average sales of 70 pullers per year to sales of 100 to 150 pullers per year. They wanted to be part of this burgeoning market. In addition, they perceived the production of silicon pullers as a relatively "low technology" industry, where the application of their technological expertise would give them a huge advantage. Ferrofluidics had built their reputation by utilizing their strong research and development capabilities to deliver innovative products. The management at Ferrofluidics was convinced they could apply their "materials" based technological capabilities to the fabrication and assembly of silicon pullers.

During 1982 Ferrofluidics marketed the puller design, which they had inherited from Varian, and met limited success. During the year, Ferrofluidics began development of a new puller, the "Six-Four-Two" puller. This puller derived its name from the fact that it could produce silicon ingots with a six inch diameter, as well ingots with diameters of four and two inches. After a six-month design phase, the new puller was introduces to the market. The general manager of SED, Walter Hegaland, believed that the "Six-Four-Two" puller would be the technology leader in the industry. It was the most automated and most technologically advanced puller available. As this quote from the 1981 annual report shows, Ferrofluidics anticipated great things from the new product:

"The successful integration of ferrofluid technology to subsystems and systems is exemplified in the development of our innovative Six-Four-Two computer controlled, silicon crystal growing furnace. The system was designed to meet the total processing requirements for converting polycrystalline silicon into semiconductor grade, single crystal ingots at high productivity and yield. This new system incorporates a number of evolutionary advances including a sophisticated process control computer, complete vacuum integrity with Ferrofluidic rotary sealing, and a proprietary new simplified materials handling system, which in aggregate results in a revolutionary machine that meets the needs of the industry in the 1980's."

The market for pullers is tied to the demand for silicon. The demand for silicon, in turn, is dependent on the demand for microelectronic devices. During the early 1980's, the silicon industry was experiencing rapid growth due to the demand for microelectronic devices. Silicon producers such as SHE, Monsanto-MEMC, and Wacker purchased pullers to produce the silicon ingots, which were converted into wafers. These wafers were the substrate on which most microelectronic devices were produced.

To better market the newly designed puller, Ferrofluidics attempted to increase their