Buffing Up Its Performance in Electronics

Cars and trucks whiz along I-95 outside CMP Technologies Inc. The blurring vehicles are a metaphor for the company's fast-moving business.

The Rohm & Haas Co. subsidiary in Newark, Del., has become one of the world's largest manufacturers of special urethane pads for the semiconductor industry. The pads, when coated with a chemical slurry, smooth tiny imperfections in computer chips.

And as chip-makers boost the circuitry and power in their devices every 18 months to two years, CMP's urethane pads have to keep pace with the innovations.

"This is the electronics business, and you have to invent to a time line. You have to come up with new inventions when you're expected to," said Sam Shoemaker, president of CMP.

Rohm & Haas is an old-line chemical company, best-known for inventing Plexiglas, that is juicing up its performance by expanding into the electronics industry. Last year, revenue in its electronics-materials division jumped 17 percent to $1.6 billion in annual sales, or 20 percent of corporate revenue. The division's revenue has quadrupled since the late 1990s. Rohm & Haas will release fourth-quarter and full-year earnings for 2006 today.

A top executive calls the business "fantastic" and says its performance in the pad market had blown away projections.

But there are challenges. Research costs are punishing, consuming about 40 percent of the company's budget. In 2005, the company spent $273 million on research and development. New technology threatens to undermine current products. And the division faces competition.

Air Products & Chemicals Inc., of Allentown, and DuPont Co., of Wilmington, have targeted electronics materials, too. Cabot Corp. spun off a division in Aurora, Ill., in 2000 called Cabot Microelectronics Corp., which produces chemical slurries for the electronics industry and is elbowing into Rohm & Haas' pad business.

Cabot announced the release of a new pad earlier this month and said it could supply 400,000 of them annually. The pad technology is generally called chemical-mechanical planarization, or CMP.

Analysts say Rohm & Haas dominates the pad business, with 85 percent to 90 percent of the market. Its position in the global slurry business is about 15 percent.

Slurry is a liquid containing tiny abrasive particles. As the slurry-coated urethane pad is spun on a device, it sands away the tiny imperfections on a silicon wafer - in a process similar to sanding wood.

"When you look at the future, electronics materials underpins the earnings potential of the company through 2010," said Michael Sison, specialty-chemicals analyst with KeyBanc Capital Markets, of Cleveland.

Sison said Wall Street investors had failed to recognize the transition Rohm & Haas had made into specialty chemicals with electronics-related products. He said that, in the last year, Rohm & Haas' stock price has underperformed other specialty-chemical companies.

Kevin McCarthy, equity analyst with Banc of America Securities L.L.C., said in a Jan. 12 report that the electronics-materials and paint divisions were why he had maintained a "buy" rating on Rohm & Haas shares.

Ivan Feinseth, equity analyst with Matrix Investment Research L.L.C., said Rohm & Haas was investing more heavily in electronics materials. "We believe this will lead to shareholder value," he said.

Rohm & Haas entered the electronics business in the mid-1980s by buying part of Shipley Co. in the Boston area, which produced photoresist chemicals for silicon wafers. Rohm & Haas later bought the entire company.

With Shipley, Rohm & Haas entered a different industry and culture, said Pierre Brondeau, a French engineer who is executive vice president of electronics materials at Rohm & Haas. Researchers rolled out new products quickly.

"It was about speed, speed, speed," Brondeau said. Conversely, in petrochemicals, Rohm & Haas' traditional business, the same manufacturing technology was used, many times, for decades.

The Shipley acquisition put the chemical company at the heart of the decisions computer-chip manufacturers were making about chip design and complexity.

That knowledge led Rohm & Haas to Rodel Inc. in Newark, which had been founded by local entrepreneur William Budinger. When Rohm & Haas bought its first stake in the Newark company in 1997, the urethane-pad business for sanding the circuitry on silicon wafers produced about $100 million a year in revenue. The business now has more than $500 million in annual revenue. Rohm & Haas completed its Rodel acquisition in 2001.

Spread over 15 buildings in an industrial park right off I-95, the operation now called CMP employs 725. The complex operates 24 hours a day, seven days a week. Workers do everything from research and testing to urethane-cake baking. About 60 percent of the plant's pad output is exported to wafer-fabrication plants around the world.

It takes heavy investment to develop new pads with the necessary grooves that interact with the slurry. But once designed and engineered, the pads do not cost much to manufacture.

"It's a little more like Pharma than it is like bulk chemicals," said Catherine L. Markham, vice president of technology at the Newark plant.