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Item 1. Business

2020-11-19 compared with 2019-11-21 · 113 added, 143 removed, 157 unchanged (62% of the section changed)

We are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing, and related consumables used in fabricating semiconductor devices, such as silicon carbide (SiC) and silicon power chips, electronic assemblies and light-emitting diodes (LEDs).

We sell these products to semiconductor and automotive component manufacturers worldwide, particularly in Asia, North America and Europe.

Our strategic focus is on semiconductor growth opportunities in power electronics, leveraging our strength in our core competencies in thermal and substrate processing.

We are a market leader in the high-end power chip market (SiC and 300mm silicon horizontal thermal reactor), developing and supplying essential equipment and consumables used in the semiconductor industry.

We were incorporated in Arizona in October 1981, under the name Quartz Engineering & Materials, Inc.

We changed to our present name in 1987.

We categorize each of our subsidiaries into one of three operating segments, based primarily on the industry they serve:

We are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing, and related consumables used in fabricating semiconductor devices, such as silicon carbide (SiC) and silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes (LEDs).

We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.

Our strategic focus is on semiconductor growth opportunities in power electronics, sensors and analog devices leveraging our strength in our core competencies in thermal and substrate processing.

We are a market leader in the high-end power chip market (SiC substrates, 300mm horizontal thermal reactor, and electronic assemblies used in power, RF, and other advanced applications), developing and supplying essential equipment and consumables used in the semiconductor industry.

We categorize each of our subsidiaries into one of two operating segments, based primarily on the industry they serve:

Operating Segment

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Semiconductor

For information regarding net revenue, operating income and identifiable assets attributable to each of our three operating segments, see Note 18 of the Notes to Consolidated Financial Statements included in “Item 8.

Financial Statements and Supplementary Data” and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

For information on the products of each operating segment, see “Semiconductor and SiC/LED Products” and “Discontinued Solar Operations and Products” within this “Item 1.

Business” section.

For information regarding risks to our business, see “Item 1A.

Risk Factors.”

Our fiscal year is from October 1 to September 30.

Unless otherwise stated, references to the years 2019, 2018 and 2017 relate to the fiscal years ended September 30, 2019, 2018 and 2017, respectively.

Our operating segments are made up of the following four wholly-owned subsidiaries:

These operating segments are comprised of the following three wholly-owned subsidiaries:

Semiconductor:

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BTU, a Delaware corporation based in North Billerica, Massachusetts, with operations in China, Malaysia and the United Kingdom, acquired in January 2015.

Hoffman, an Arizona corporation based in Carlisle, Pennsylvania, acquired in July 1997.

R2D, a French corporation located near Montpellier, France, acquired in October 2007.

Additionally, our discontinued operations are comprised of:

Tempress, a Texas corporation based in Vaassen, the Netherlands, acquired in 1994 and subsequently reincorporated in the Netherlands.

Our previously reported Solar segment also included SoLayTec, a Netherlands Corporation, and R2D.

SoLayTec was sold in 2019 (see Notes 2 and 16).

R2D became the Automation segment.

In April 2019, we announced that our Board determined that it was in the long-term best interest of Amtech to exit the solar business segment and focus our strategic efforts on our semiconductor and silicon carbide/polishing business segments in order to more fully realize growth opportunities we believe are presented in power semiconductors.

After announcing the planned divestiture of our Solar segment, we conducted an evaluation of our organizational structure.

Beginning with the second quarter of fiscal 2019, we made changes to our reportable segments as shown above.

Prior period amounts have been revised to conform to the current period segment reporting structure.

Our major emphasis in the semiconductor industry is the development of equipment for thermal processing and deposition for semiconductor manufacturing, specifically focusing on substrate, fabrication, packaging and surface-mount technology (“SMT”).

PR Hoffman, an Arizona corporation based in Carlisle, Pennsylvania, acquired in July 1997.

Our strategic focus in the semiconductor industry is the development of equipment for thermal processing and deposition for semiconductor manufacturing, specifically focusing on substrate, fabrication, packaging and surface-mount technology (“SMT”).

The markets we serve are experiencing technological advances and are, historically, cyclical.

Therefore, future profitability and growth depend on our ability to invest in, develop and/or acquire and market new technology products and on our ability to adapt to cyclical trends.

Integrated circuits, optoelectronic, sensor, and discrete (O-S-D) components, such as power chips, LEDs, and some MEMS are semiconductor devices fabricated on silicon and compound silicon, such as silicon carbide, wafer substrates.

Semiconductor chips are part of the circuitry of many products including inverters, computers, telecommunications devices, automotive electronics and sensors, consumer electronics, and industrial automation and control systems.

Integrated circuits, optoelectronic, sensor, and discrete (O-S-D) components, such as power chips, LEDs, and some MEMS, are semiconductor devices fabricated on silicon and compound semiconductor, such as silicon carbide, wafer substrates.

Semiconductor chips are part of the circuitry of many products including inverters, onboard charging, computers, telecommunications devices, automotive electronics and sensors, consumer electronics, and industrial automation and control systems.

LEDs manufactured using our equipment are used in industrial, commercial and residential lighting.

Our wafer handling, thermal processing and consumable products currently address the diffusion and deposition steps used in the fabrication of semiconductors, LEDs, MEMS and the polishing of newly sliced silicon and compound semiconductor wafers, as well as the packaging and assembly of the electronic components and assemblies.

Our thermal processing and consumable products currently address the diffusion and deposition steps used in the fabrication of semiconductors, LEDs, MEMS and the polishing of newly sliced silicon and compound semiconductor wafers, as well as the packaging and assembly of the electronic components and assemblies.

Our reflow ovens provide key thermal processing steps for both semiconductor packaging and electronics assembly.

Key end-markets for these packages and assemblies include:

communications, automotive electronics and sensors, computing & networking, and consumer and industrial electronics.

communications, automotive electronics and sensors, computing and networking, and consumer and industrial electronics.

Our SiC/LED segment provides solutions to the lapping and polishing marketplace for SiC power chip applications, LED, optics and photonics.

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We have been providing manufacturing solutions to the semiconductor industry for over 30 years and have leveraged our semiconductor technology and industry presence to capitalize on growth opportunities.

Our customers use our equipment to manufacture semiconductor chips, silicon and compound semiconductor wafers and MEMS, which are used in end markets such as telecommunications, consumer and industrial electronics, computers, automotive electronics and sensors, and mobile devices.

Our customers use our equipment to manufacture semiconductor chips, silicon and compound semiconductor wafers and MEMS, which are used in end markets such as telecommunications (5G), consumer and industrial electronics (IoT and embedded devices), computing (data centers), automotive electronics and sensors (xEV), and mobile devices (smart devices).

To complement our research and development efforts, we also sell our equipment to, and coordinate certain development efforts with, research institutes, universities and customers.

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Our revenue is impacted by these broad industry trends.

The COVID-19 world-wide pandemic and the domestic and international impact of policy decisions being made in major countries around the world has had, and is expected to continue to have, an impact on various aspects of our business.

While we and many of our semiconductor customers continue to operate as essential businesses, in accordance with the government regulations in place at each of our facilities, we have taken various actions to augment our operating and human resource policies and procedures to guard against the potential health hazards of COVID-19.

These augmented procedures can have a negative impact on our operational efficiencies.

Given the uncertainty surrounding the continuation of economic slow-downs domestically and abroad, we cannot predict with any level of certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the United States and abroad will be on our future financial operating results.

For information regarding net revenue, operating income and identifiable assets attributable to each of our two operating segments, see Note 18 of the Notes to Consolidated Financial Statements included in “Item 8.

Financial Statements and Supplementary Data” and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

For information on the products of each operating segment, see “Semiconductor Products” and “SiC/LED Products” within this “Item 1.

Business” section.

For information regarding risks to our business, see “Item 1A.

Risk Factors.”

Our fiscal year is from October 1 to September 30.

Unless otherwise stated, references to the years 2020, 2019 and 2018 relate to the fiscal years ended September 30, 2020, 2019 and 2018, respectively.

GROWTH AND INVESTMENT STRATEGY

Our objective is to grow revenue and expand our operations, which we seek to accomplish through the pursuit of the following strategies:

Historically, we have grown our business primarily through acquisitions, including the businesses that currently comprise our two operating segments in the Semiconductor and Sic/LED industries – Bruce Technologies, BTU and PR Hoffman, as well as the Solar businesses we divested of in 2019 and 2020.

The businesses we own today have provided substantial returns on our original investments.

Our acquisition of BTU demonstrates our ability to unlock value in a company, to grow revenue and improve the performance of acquired assets.

While we continue to believe this inorganic growth strategy is the backbone of who Amtech is as a company, we have also employed the complimentary strategy of pursuing organic growth, particularly during times when we lacked sufficient capital resources to pursue growth through acquisitions.

In 2017 and 2018, the divestiture of our interest in Kingstone Hong Kong and the completion of a secondary offering, respectively, provided us with the capital foundation to renew our acquisition efforts;

however, these efforts were temporarily interrupted by our focus on divesting of our Solar business beginning in 2019 and the impact of the COVID-19 pandemic in 2020.

With these events behind us, we have a renewed objective to grow our revenue and expand our operations through strategic acquisitions, while at the same time pursuing organic growth.

We intend to accomplish these parallel objectives through the pursuit of the following strategies:

Capitalize on Growth Opportunities in the Semiconductor Industry by Leveraging Our Thermal and Material Processing Expertise, Top-Tier Customer Relationships, Track Record of Technological Innovation and Exceptional Customer Service.

We believe that long-term growth in the semiconductor industry will be driven by emerging growth in new compound substrates, such as silicon carbide and gallium nitride, and the growing demand for 5G and mobility, consumer and industrial Internet-of-Things (IoT), A.I., Big Data, accelerated adoption of sensors and electronics in the automotive industry, and China’s investment in their domestic semiconductor production capacity.

We believe that long-term growth in the semiconductor industry will be driven by emerging growth in new compound substrates, such as silicon carbide and gallium nitride, and the growing demand for 5G and mobility, consumer and industrial Internet-of-Things (IoT), increased adoption of sensors and electronics in the automotive industry, electric vehicles (EV) and charging infrastructure, and China’s investment in their domestic semiconductor production capacity.

As the semiconductor market continues to develop and evolve, advances in process technology will be vital to remaining competitive.

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We are focused on acquiring, developing and licensing new products across our business in response to customer needs in the markets we serve.

As we add to our product portfolio, we plan to continue expanding our offerings within the semiconductor and silicon carbide production processes, thus capturing a greater percentage of capital spent on increasing semiconductor and silicon carbide production.

As we add to our product portfolio organically or through acquisitions, we plan to continue expanding our offerings within the semiconductor and silicon carbide production processes, thus capturing a greater percentage of capital spent on increasing semiconductor and silicon carbide production.

We have successfully developed products to expand our addressable market and continue to make evolutionary upgrades to our existing equipment and service offerings across our operating segments.

In addition to developing new products, we plan to invest in upgrades to our existing product offerings to stay competitive in the markets we serve.

As a result, we expect to increase our capital expenditures and research and development expenses in fiscal 2020 and beyond for these upgrades as well as for the development of specific new products.

As a result, we saw increased research and development expenses in 2020 and expect to continue to increase our capital expenditures and research and development expenses in fiscal 2021 and beyond for these evolutionary upgrades as well as for the development of specific new products.

Pursue Strategic Acquisitions That Complement Our Strong Platform.

Historically, we have developed and implemented an acquisition strategy consistent with our focus of maintaining market leadership and technology innovation that addresses the continued growth in the semiconductor industry.

As part of this strategy, we continually evaluate potential technology, product and business acquisitions or joint ventures that we believe will increase our existing market share in the semiconductor and SiC/LED industries and expand our addressable market.

In evaluating these opportunities, our objectives include:

enhancing our earnings and cash flows, adding complementary product offerings, expanding our geographic footprint, improving our production efficiency and expanding our customer base.

As discussed above, we have historically pursued an acquisition strategy consistent with our focus of maintaining market leadership and technology innovation that addresses the continued growth in the semiconductor industry.

In conjunction with the divestiture of our solar business and the promotion of Michael Whang to Chief Executive Officer, our Executive Chairman’s focus has shifted to the pursuit of inorganic growth opportunities.

In evaluating these opportunities, our objectives include enhancing our earnings and cash flows, adding complementary product offerings, expanding our geographic footprint, improving our production efficiency and expanding our customer base.

As a result, we continue to manage our balance sheet to maintain adequate liquidity in order to react quickly as these opportunities arise.

Invest in Our Infrastructure and Capacity.

In July 2019, we announced that we would be moving our SiC/LED segment to a new location in January 2020.

This new location allows us to sufficiently increase our manufacturing footprint and position our business to meet the expected longer-term increase in demand for our SiC, optics, and silicon substrate product solutions.

We are also assessing the manufacturing space used by our Semiconductor segment for capacity expansion, added efficiencies and cost savings.

In the fourth quarter of 2020, we finished the move of our SiC/LED segment to a new location.

This new location allows us to sufficiently increase our manufacturing footprint and position our business to meet the expected longer-term increase in demand for our SiC, optics, and

silicon substrate product solutions .

W e are also assessing the manufacturing space used by our Semiconductor segment for capacity expansion, added efficiencies and cost savings.

This assessment could result in a future relocation of a manufacturing facility and/or investments in upgrades to existing facilities.

In addition, we are evaluating our ERP systems and needs in order to allow for greater efficiencies and to ensure our infrastructure can support our future growth plans.

In addition, we are evaluating our management information systems and needs in order to allow for greater efficiencies and to ensure our infrastructure can support our future growth plans.

SEMICONDUCTOR AND SiC/LED OPERATIONS

We provide diffusion and reflow equipment as well as wafer polishing equipment and related services to leading semiconductor manufacturers.

Our products include horizontal diffusion furnaces used to produce semiconductors, silicon wafers and MEMS, as well as double-sided lapping and polishing equipment, double-sided lapping and polishing carriers, single side polishing templates, mass wafer transfer systems, loaders and sorters.

As demand for increasingly sophisticated electronic devices continues, new technologies such as electric and autonomous automobiles, artificial intelligence, advanced power management, advances in consumer electronics, mobile devices and IoT will help to drive futu re growth.

Our products include horizontal diffusion furnaces used to produce semiconductors, such as analog, sensors, and discrete devices, and MEMS, as well as double-sided lapping and polishing equipment, double-sided lapping and polishing carriers, and single side polishing templates.

As demand for increasingly sophisticated electronic devices continues, new technologies such as electric vehicles, artificial intelligence, advanced power management, advances in consumer electronics, 5G communications, and IoT will help to drive future growth.

Electronic equipment continues to become more complex, yet end users are still demanding smaller, lighter and less expensive devices.

This, in turn, requires increased performance and reduced cost, size, weight and power requirements of electron ic assemblies, printed circuit boards and semiconductors.

In response to these developments, manufacturers are increasingly employing more sophisticated production and assembly techniques requiring more advanced manufacturing equipment, such as that suppli ed by our subsidiary, BTU.

This, in turn, requires increased performance and reduced cost, size, weight and power requirements of electronic assemblies, printed circuit boards and semiconductors.

Although the semiconductor market has experienced significant growth over the past fifteen years, it remains cyclical by nature.

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Conversely, when capacity utilization increases, so does capital spending.

AUTOMATION OPERATIONS

We are a leading supplier of semiconductor and solar automation with in-house design and manufacturing capabilities and offer a full array of single wafer transfer tools as well as batch transfer tools and stocker options.

We offer furnace automation and wafer handling systems used within semiconductor wafer and device processing steps.

Our automation equipment includes mass wafer transfer systems, sorters, long-boat transfer systems, load station elevators, buffers and conveyers, which we sell both in connection with our diffusion furnaces and on a standalone basis.

In November 2019, we completed the sale of our subsidiary, R2D, to certain members of R2D’s management team.

We will recognize a loss of approximately $3.0 million in the first quarter of 2020 and R2D will no longer be included in our consolidated financial statements.

SEMICONDUCTOR PRODUCTS

Our furnace and automation equipment are manufactured in our facilities in Massachusetts, the Netherlands, France and China.

Our furnace and automation equipment are manufactured in our facilities in Massachusetts and China.

The following paragraphs describe the products that comprise our semiconductor business:

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These products utilize forced impingement convection technology to transfer heat to the substrate.

Using thermal power arrays of up to five kilowatts, they can process substrates in dual lane, dual speed configurations, thereby enabling our customers to double production without increasing the machine’s footprint.

Using thermal power arrays of up to five kilowatts, they can process substrates in dual lane, dual speed configurations, thereby enabling our customers to double production without increasing the

machine’s footprint.

These products are available in four models based on the heated lengths of thermal processing chambers.

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High-Temperature Belt Furnace.

We also produce and sell custom , high - temperature belt furnaces , which have been manufactured in Massachusetts for over six decades with ISO 9001:2015 quality certification safeguarding that each unit is subject to exacting build and test criteria.

We also produce and sell custom, high-temperature belt furnaces, which we have manufactured in Massachusetts for over six decades with ISO 9001:2015 quality certification safe-guarding that each unit is subject to exacting build and test criteria.

SiC/LED PRODUCTS

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We target the compound substrate, semiconductor, optical sapphire, glass, quartz, ceramics, medical, computer disk and metal working markets.

AUTOMATION PRODUCTS

Our R2D automation equipment includes batch wafer transfer systems, sorters, long-boat transfer systems, load station elevators, buffers and conveyers.

We use vacuum technology in our Standalone and our Full Automation wafer transfer systems designed to ensure high throughput and reduced breakage, resulting in increased yield.

Use of our automation products reduces human handling and, therefore, reduces exposure of wafers to particle sources and breakage during the loading and unloading of the process tubes and protects operators from heat and chemical fumes.

The top reactor chamber of a horizontal furnace can be as much as eight feet from the floor on which the operator stands when manually loading wafer boats.

Typical boats of 150mm to 300mm wafers weigh three to six pounds.

Given these two factors, automating the wafer loading and unloading of a diffusion furnace improves employee safety and ergonomics in silicon wafer and semiconductor manufacturing facilities.

Our patented S-300 model provides an efficient method of automatically transporting a full batch of up to 300 wafers to the designated tube level and automatically placing them directly onto the cantilever loader of a diffusion furnace.

This product is suitable for the production of nearly all semiconductors manufactured using a horizontal furnace.

The S-300 can be used in conjunction with all current wafer sizes and is particularly well suited for manufacturers of 300mm wafers.

Comet and Gemini .

Our Come t and Gemini series of wafer transfer systems include a wide range of configurations and footprints to meet the needs of our customers who serve the semiconductor industry.

Comet Sorter with Optical Character Recognition (OCR) is used in sorting, randomiz ing, compacting or tracking.

The Comet Sorter is cassette to cassette with OCR front and back scribe functions, notch alignment and SECSII Gem communication.

Comet ID Readers check tag carriers, then read each wafer scribe.

The Comet ID Reader sends the information to the host with SECSII Gem commands.

We also specialize in precision controlled, high-temperature belt furnaces for a wide range of custom applications, such as brazing, direct bond copper (DBC), diffusion, sintering and heat treatment.

These controlled atmosphere furnaces are available with temperature ranges up to 1150°C and with various process atmospheres, including hydrogen and nitrogen.

MANUFACTURING, RAW MATERIALS AND SUPPLIES

Our semiconductor manufacturing activities consist primarily of engineering design to meet specific and evolving customer needs and procurement and assembly of various commercial and proprietary components into finished thermal processing systems and related automation in North Billerica, Massachusetts;

Shanghai, China;

and Clapiers, France.

Our manufacturing activities in the polishing business include laser-cutting and other fabrication steps in producing lapping and polishing consumables, including carriers, templates, gears, wear items and spare parts in Carlisle, Pennsylvania, from raw materials manufactured to our specifications by our suppliers.

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Since much of our polishing supplies know-how relates to the manufacture of these products, our Carlisle facility is equipped to perform a significantly higher percentage of the fabrication steps required in the production of its products.

However, injection molding for our insert carriers and the manufacture of raw cast iron plates are subcontracted out to various third parties.

However, injection molding for our insert carriers and the manufacture of raw cast iron plates are

subcontracted out to various third parties.

Our polishing supplies business relies on key suppliers for certain materials, including two steel mills in Germany and Japan, an injection molder, a single-sourced pad supplier from Japan and an adhesive manufacturer.

To minimize the risk of production and service interruptions and/or shortages of key parts, we seek to maintain appropriate inventory levels of key raw materials and parts.

Throughout fiscal 2019, we experienced increased lead times for various parts and services across all our operating segments.

The most significant lead times related to silicon carbide and custom-molded parts.

As a result of the increases in lead-times for these parts, we have increased the amount of on-hand inventory related to long-lead time items, however, there can be no assurance that we will have enough inventory on-hand at the time we receive orders and that we will not incur delays in production time.

To minimize the risk of production and service interruptions and/or shortages of key parts, we s eek to maintain appropriate inventory levels of key raw materials and parts.

Beginning in 2019 and throughout 2020, we experienced increased lead times for various parts and services across both our operating segments.

As a result of the increases in lead-times for these parts, we have increased the amount of on-hand inventory related to long-lead time items.

We have also increased on-hand inventory of certain parts as part of a strategy to mitigate supply chain risk, primarily at our operations in China, due to the trade and tariff environment between China and the United States.

Despite these strategic increases, there can be no assurance that we will have enough inventory on-hand at the time we receive orders and that we will not incur delays in production time.

CUSTOMERS AND SEASONALITY

Our customers are primarily manufacturers of integrated circuits.

Our customers are primarily manufacturers of semiconductor substrates and devices and electronic assemblies.

During 2020, 65% of our net revenue from continuing operations came from customers outside of North America.

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In 2020, net revenue from continuing operations was distributed among customers in different geographic regions as follows:

North/South America 41% (35% of which is in the United States), Asia 41% (including 18% to China, 5% to Malaysia and 10% to Taiwan) and Europe 18%.

N o individual customer accounted for 10% or more of net revenues from our continuing operations in 2019.

In 2018, one Semiconductor customer individually accounted for 14% of our net revenues.

North/South America 35% (28% of which is in the United States), Asia 52% (including 25% in China, 15% in Taiwan and 5% in Malaysia) and 13% in Europe.

One Semiconductor customer accounted for 11% of our net revenues from our continuing operations in 2020.

In 2019, no individual customer accounted for 10% or more of our net revenues.

In 2018, one Semiconductor customer accounted for 14% of our net revenues.

A turnkey customer accounted for 58% and 50% of net revenues at our discontinued operations in 2018 and 2017, respectively.

A turnkey customer accounted for 58% of our net revenues at our discontinued operations in 2018.

Our business is not seasonal in nature, but is cyclical based on the capital equipment investment patterns of semiconductor manufacturers.

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Due to the highly technical nature of our products, we market our products primarily by direct customer contact through our sales personnel and through a network of domestic and international independent sales representatives and distributors that specialize in semiconductor equipment and supplies.

Our promotional activities include direct sales contacts, participation in trade shows, an internet website, advertising in trade magazines and the distribution of product brochures.

Our promotional activities include direct sales contacts, participation in trade shows, advertising in trade magazines and the distribution of product brochures.

We use a mix of representatives and distributors globally.

Manufacturer representatives provide sales coverage in specific geographic regions and are paid a commission when equipment is sold.

Sales to distributors are generally on terms comparable to sales to end-user customers, as our distributors generally quote their customers after first obtaining a quote from us and have an order from the end-user before placing an order with us.

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Distributors of our semiconductor equipment do not stock a significant amount of our products, as the inventory they hold is generally limited to parts needed to provide timely repairs to customers.

Our manufacturer representatives and distributors are closely managed by our global sales team.

Historically, each of our segments have been responsible for their own sales and marketing activities, including managing sales personnel and representative and distributor relationships, however, as we continue to refocus our organization, we are developing opportunities for increased collaboration and teamwork across our divisions.

These cross-segment collaboration opportunities will continue to be a focus at all levels and departments of the organization, as we believe they can lead to greater efficiencies while reducing operating costs.

These efforts are further coordinated by our Vice President of Sales and Customer Service, who oversees all sales and marketing activities at each division.

RESEARCH, DEVELOPMENT AND ENGINEERING

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We periodically receive research grants for research and development of products, which are netted against our research, development and engineering costs.

In 2019, 2018 and 2017, we recorded research, development and engineering expense of $3.1 million , $2.9 million and $2.7 million, respectively.

We plan to continue to add new products and also to invest in upgrades to existing product offerings to stay competitive in the markets we serve.

As a result, we expect to increase our capital expenditures and research and development expenses in fiscal 2020 for these upgrades as well as for the development of specific new products.

We compete in several distinct equipment markets for semiconductor devices, semiconductor wafers, MEMS, electronics assembly, lapping and polishing machines as well as the markets for supplies used in the LED, mobile devices and semiconductor industries.

In 2020, 2019 and 2018, we recorded RD&E expense of $3.3 million , $3.1 million and $2.9 million, respectively.

We plan to continue to develop new products and also to invest in upgrades to existing product offerings to stay competitive in the markets we serve.

As a result, we saw increased RD&E expenses in 2020 and expect to continue to increase our capital expenditures and RD&E expenses in fiscal 2021 and beyond for these upgrades as well as for the development of specific new products.

We compete in several distinct equipment markets for semiconductor devices, semiconductor substrates, MEMS, semiconductor packaging, and electronics assembly, as well as the markets for supplies used in power semiconductor applications.

Each of these markets is highly competitive.

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Significant competitive factors for succeeding in these markets include the product’s technical capability, productivity, cost-effectiveness, overall reliability, ease of use and maintenance, contamination and defect control and the level of technical service and support.

The Semiconductor Device and MEMS Markets .

The Semiconductor and MEMS Markets .

Equipment and automation produced by our Semiconductor operating segment primarily competes with those produced by other original equipment manufacturers, some of which are well-established firms that are much larger and have substantially greater financial and other resources than we have with which to pursue development, engineering, manufacturing, marketing and distribution of their products and may generally be better situated to withstand adverse economic or market conditions.

Competitors of our horizontal diffusion furnaces include Centrotherm GmbH, Sandvik Thermal Process, Inc., a subsidiary of Sandvik AB, CVD Equipment, Inc., Semco Engineering S.A.

and Meyer Burger, Ltd.

Our principal competitors for printed circuit board assembly equipment and advanced semiconductor packaging vary b y product application.

Competitors of our horizontal diffusion furnaces include Centrotherm GmbH, Sandvik Thermal Process, Inc., a subsidiary of Sandvik AB, and CVD Equipment, Inc.

Our principal competitors for printed circuit board assembly equipment and advanced semiconductor packaging vary by product application.

The principal competitors for solder reflow systems are ITW/EAE Vitronics-Soltec, Heller, Folungwin, ERSA, Shenzhen JT Automation Equipment Co., Ltd.

The principal competitors for advanced semiconductor packaging are ITW/EA E Vitronics-Soltec and Heller.

The principal competitors for advanced semiconductor packaging are ITW/EAE Vitronics-Soltec and Heller.

Our in-line, controlled atmosphere furnaces compete primarily against products offered by Centrotherm and SierraTherm/Schmid Thermal Systems.

We also face competition from emerging low-cost Asian manufacturers and other estab lished European manufacturers.

We also face competition from emerging low-cost Asian manufacturers and other established European manufacturers.

Although price is a factor in buying decisions, we believe that technological leadership, process capability, throughput, safer designs, uptime, mean time-to-repair, cost of ownership and after-sale support have become increasingly important factors to purchasers of our products.

As such, we believe we compete primarily on the basis of these criteria, rather than on the basis of price alone.

General Industrial Lapping and Polishing Machines, Supplies and Semiconductor Wafer Markets .

General Industrial Lapping and Polishing Machines, Supplies and Semiconductor Substrate Markets .

Our SiC/LED operating segment experiences price competition for wafer carriers from foreign manufacturers for which there is very little publicly available information.

As a result, we are intensifying our efforts to reduce the cost of our carriers and will continue to compete with other manufacturers of carriers by continuing to update our product line to keep pace with the rapid changes in our customers’ requirements and by providing a high level of quality and customer service.

We produce steel carriers, including insert carriers, on an advanced laser-cutting tool, which reduces our costs and lead times and increases our control over quality.

We produce steel carriers, including insert carriers, on advanced laser-cutting tools, which reduces

our costs and lead times and increases our control over quality.

Competitors of our lapping and polishing machines and supplies include Lapmaster Wolters, Speedfam Co.

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Of these employees, 8 were based at our corporate offices in Tempe, Arizona, 43 at our manufacturing plant in Carlisle, Pennsylvania, 96 at our manufacturing plant in N.

Billerica, Massachusetts, 134 at our facilities in China, 12 at other Asia-Pacific offices, 37 at our facilities in France, 7 at our office in the United Kingdom and 75 at our Solar discontinued operations.

Billerica, Massachusetts, 132 at our facilities in China, 10 at other Asia-Pacific offices and 7 at our office in the United Kingdom.

Of the 43 people employed at our Carlisle, Pennsylvania facility, 18 were represented by the United Auto Workers Union - Local 1443.

We have never experienced a work stoppage or strike, and other than employees at the Carlisle facility, no other employees are represented by a union.

Certain of our employees are subject to collective bargaining agreements.

We consider our employee relations to be good.

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Pending Approval

Multiple methods for manufacturing a solar cell and related equipment

Method for manufacturing a solar cell;

N-type cells with reverse flow

and metal wrap-through

Method for manufacturing a solar cell;

N-type cells with reverse flow

and metal wrap-through

United States

Wafer boat and use thereof

Wafer boat loader assembly, furnace system, use thereof and method for

operating said assembly

IBAL (Individual Boats with Automated Loading) Model S-300

United States

Systems and methods for charging solar cell layers

Ultrafast gas bearing-based reactive ion etching

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Polishing machine wafer holder

To our knowledge, there are currently no pending lawsuits against us regarding infringement of any existing patents or other intellectual property rights or any material unresolved claims made by third parties that we are infringing the intellectual property rights of such third parties.

Wafer Boat Elevator System and Method

United States

To our knowledge, there are currently no pending lawsuits against us regarding infringement of any existing patents or other intellectual property rights or any material unresolved claims made by third parties that allege we are infringing the intellectual property rights of such third parties.

DISCONTINUED SOLAR OPERATIONS AND PRODUCTS

Our previously reported, Solar segment included Tempress (a Texas Corporation based in the Netherlands), SoLayTec (a Netherlands Corporation), and R2D (a French Corporation).

Tempress was sold in 2020, SoLayTec was sold in 2019, and R2D was sold in 2020 (see Note 2).

Our discontinued operation results consist of Tempress and SoLayTec.

R2D was also previously reported as the Automation segment prior to its disposal.

On April 3, 2019, we announced that the Board determined that it was in the long-term best interest of the Company to exit the Solar business segment and to focus our strategic efforts on our semiconductor and silicon carbide/polishing business segments in order to more fully realize the opportunities we believe are presented in those markets.

The anticipated divestiture included our Tempress and SoLayTec subsidiaries, which comprised substantially all of our Solar segment.

The Board made its decision after analyzing our past performance, current market conditions and the strategic outlook for our Solar segment, which operates in a highly competitive market among lower cost manufacturers, particularly in China.

Historical fluctuations in the solar cell industry combined with downward pricing pressure has negatively affected the Company’s results of operations in recent years.

This pricing pressure has contributed to the losses incurred by our Solar segment and overshadowed the revenue growth and profitability of our semiconductor and silicon carbide/polishing segments.

While we have in the past and are currently taking actions to reduce headcount and lower our cost structure, the process involved in the Netherlands to accomplish these actions takes significant time, during which losses and cash burn are likely to continue.

As previously disclosed in our periodic reports, we had been pursuing strategic alternatives for the continued operation of the Solar segment.

After further assessment, however (including input from management of the Solar segment and our professional advisors), the Board determined that the investment required to return our Solar business to profitability would be better utilized to pursue strategic opportunities in the Semiconductor and SiC/LED segments.

On June 7, 2019 (“Sale Date”), we completed the sale of our subsidiary, SoLayTec, to a third party located in the Netherlands.

Upon the Sale Date, we recognized a gain of approximately $1.6 million, which we included in loss from discontinued operations reported in our Consolidated Statements of Operations for the year ended September 30, 2019.

Also, effective on the Sale Date, SoLayTec is no longer included in our consolidated financial statements.

SoLayTec is not material to Amtech’s results of operations or financial position.

Our Solar discontinued operations provide process equipment and related cell manufacturing equipment to many of the world’s leading solar cell manufacturers.

Our primary process equipment focus is our existing solar diffusion furnace and the development of next-generation diffusion furnaces, including our proprietary N-type systems and our PECVD systems.

The divestiture included our Tempress and SoLayTec subsidiaries, which comprised substantially all of our Solar segment.

The portion of our Solar segment not included in discontinued operations was our Automation division, R2D, which historically sold automation products to both solar and semiconductor customers.

R2D experienced a significant decline in sales of automation to other divisions in our Solar segment and was also negatively impacted by the slowdown in the broader semiconductor industry.

We evaluated how and whether R2D could fit into our current semiconductor and silicon carbide/polishing strategy and determined that the disposition of R2D was in the best interests of our Company and our shareholders.

See “Acquisitions and Dispositions” within this “Item 1.

Business” section for information related to the disposal of our former Solar subsidiaries.

Our Solar discontinued operations provide d process equipment and related cell manufacturing equipment to many of the world’s leading solar cell manufacturers.

O ur primary process equipment focus was our existing solar diffusion furnace and the development of next-generation diffusion furnaces, including our proprietary N-type systems and our PECVD systems.

Additionally, through SoLayTec, we produced, developed, delivered and serviced ultrafast ALD machines used in high efficiency solar cells.

Although the solar market has experienced tremendous growth over the past five years, it is characterized by periods of rapid capacity expansion followed by periods of rapid contraction in our customers’ capital spending.

When actual and expected end-user demand outstrips available capacity, this triggers the beginning of the next period of expansion.

Solar Cell Markets.

Our Solar discontinued operations experiences increased competition from local Chinese equipment manufacturers, including S.C New Energy, 48th Institute and Naura Technology Group Co., which may receive varying levels of financial support from the Chinese government.

Our primary competitive advantages over such local manufacturers include our high-throughput equipment platforms, higher-efficiency solar cell production technologies, greater knowledge of the complete cell manufacturing process and advanced automation, which we develop in collaboration with customers and research institutes.

We have developed two applications utilized in solar device technology.

Our solar PECVD product applies an anti-reflective coating to solar wafers;

a coating critical to the efficiency of solar cells.

PECVD layers are also used for passivation of the front and/or back side of the solar cell.

We recently introduced TOPCON technology, a new application in solar cell processing offering cell efficiency potentials of greater than 22%.

We are exploring next-generation high-efficiency technology and dedicating our efforts to process development.

ACQUISITIONS AND DISPOSITIONS

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Effective June 29, 2018, we sold this remaining 15% ownership interest in Kingstone Hong Kong to the majority owner for approximately $5.7 million.

In December 2014, in furtherance of our business model and growth through strategic acquisitions, we expanded our presence in the solar market by acquiring a 51% controlling interest in SoLayTec, which provides ALD systems used in high efficiency solar cells.

In December 2014, we expanded our presence in the solar market by acquiring a 51% controlling interest in SoLayTec, which provides ALD systems used in high efficiency solar cells.

In July 2017, we acquired the remaining 49% interest in SoLayTec.

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Upon the sale, we recognized a gain of approximately $1.6 million, which we included in loss from discontinued operations reported in our Consolidated Statements of Operations for the year ended September 30, 2019.

Effective January 22, 2020 (“Tempress Sale Date”), we completed the sale of Tempress for nominal consideration to a third party located in the Netherlands.

We recorded a pre-tax loss on sale of approximately $10.9 million, of which approximately $7.2 million was the recognition of previously recorded accumulated foreign currency translation losses.

The loss was included in loss from discontinued operations reported in our Consolidated Statements of Operations for the year ended September 30, 2020.

The total pre-tax loss does not have a material effect on our cash balances at our continuing operations.

Effective on the Tempress Sale Date, Tempress is no longer included in our consolidated financial statements.

On December 13, 2019 (“R2D Sale Date”), we finalized the sale of R2D to certain members of R2D’s management team.

Upon the sale, we recognized a loss of approximately $2.8 million, which we reported as loss on sale of subsidiary in our Consolidated Statements of Operations for the year ended September 30, 2020.

Effective on the R2D Sale Date, R2D is no longer included in our consolidated financial statements.

R2D did not meet the discontinued operations or held-for-sale criteria.

AVAILABLE INFORMATION

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Through our website, we make available, without charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after such materials are electronically filed, or furnished to, the SEC.

The Company intends to disclose any amendment to its Code of Ethics on the above-referenced corporate website.

The information found on our website, or information that may be accessed through links on our website, are not part of this or any other report we file with, or furnish to, the SEC.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business