GENERAL
Background
CyberOptics Corporation was founded in 1984 and is a leading global developer and manufacturer of high precision sensing technology solutions and system products for inspection and metrology. Our headquarters are located at 5900 Golden Hills Drive in Golden Valley, Minnesota. Our website address is www.cyberoptics.com. You can access, free of charge, our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, at our website, or at the Commission’s website at www.sec.gov. Proxy materials for our upcoming 2020 annual shareholders meeting to be held on May 14, 2020 will be available electronically via the internet at the following address: http://www.idelivercommunications.com/proxy/cybe/.
We are a leading global developer and manufacturer of high precision 3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology (SMT) and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression (MRS) technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. Another key element in our strategy is the continued development and introduction of new sensor applications for our WaferSense® family of products.
Our products are used in the SMT and semiconductor industries to significantly improve our customers' manufacturing yields and productivity, and to assist our customers in meeting their rigorous demands for manufacturing quality. Our products use a variety of proprietary technologies such as lasers, optics and machine vision, combined with software, electronics and mechanical design. Our products help manufacturers solve their most complex manufacturing challenges by providing them with key information relating to their manufacturing processes, which allows them to improve production volumes, yields and product quality.
Manufacturing yield challenges, as electronics and semiconductors become more complex, are driving the need for more precise inspection and metrology. As a result, we believe 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications, particularly with respect to complex circuit boards and semiconductor advanced packaging inspection and metrology applications.
We manufacture 3D and 2D optical sensors for use in our own proprietary inspection system products and for sale to original equipment manufacturers (OEMs), system integrators and end customers in the SMT and semiconductor markets. Our inspection system products are sold to manufacturers of SMT electronic circuit boards to control quality as in-line systems, particularly with respect to complex circuit boards used in smart phones and other high-end electronic products. These products are used by manufacturers to measure screen-printed solder paste, to inspect circuit boards and components after component placement, to confirm proper placement after full assembly of circuit boards and to inspect solder joints on printed circuit boards. We also sell our inspection system products to leading semiconductor manufacturers and outsourced semiconductor assembly and test (OSAT) companies. Manufacturers of DRAM and Flash Memory use our inspection system products to inspect assembly of their memory modules. Increasingly, our inspection system products are being used for various semiconductor related inspection and metrology applications, including advanced packaging.
We believe that a strategy of developing and selling complete inspection systems and metrology products to end-users provides us with valuable customer input in the markets we currently serve, and allows us to refine the sensors and sensor subsystems for these markets and adjacent markets. At the same time, sales to OEMs and system integrators allow us to capitalize on our strengths in optical physics, sensor design and software algorithm development. We believe that the resulting sensor products and subsystems are unique and add significant value to our products and the products of our customers.
Our WaferSense® family of products assist with yield improvement and tool uptime in semiconductor wafer fabrication and flat panel display manufacturing by providing highly accurate measurements of critical process factors. These measurements are impossible or very difficult to obtain without powering down the equipment used for wafer fabrication and flat panel display manufacturing. Customers who use our products have better yields, through-put and tool up-time. Our products are more accurate when compared to the various manual techniques historically used by semiconductor manufacturers to obtain critical wafer fabrication process measurements. We have continued to invest in our WaferSense® product family and anticipate strong future sales growth for these products.
Our ability to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K. There can be no assurance that our strategy will be successful.
OPERATIONS AND PRODUCTS
Multi-Reflection Suppression Technology
We have successfully launched a number of products based on our 3D MRS technology, including our SQ3000™ Multi-Function inspection and measurement machines (SQ3000 and SQ3000™ 3D CMM) and our recently introduced MX3000 memory module inspection system. We are continually developing new high precision 3D sensors and system products based on our proprietary MRS technology. We believe 3D inspection and metrology represent a high growth segment for both the SMT and semiconductor capital equipment industries. Our recent and planned product introductions are designed to strengthen our competitive position in our current markets and expand into adjacent markets.
Challenges with shrinking transistor dimensions has resulted in increased 3D stacking of chips. Accordingly, advanced semiconductor packaging is expected to experience significant growth in the next 5 to 10 years. Micro electromechanical systems devices (MEMS) are now being used for many advanced applications. Yield challenges with these products are driving the need for inspection and metrology, and we believe our 3D MRS technology platform is well suited for many of these applications. We are introducing new products based on our MRS technology that we believe will allow us to capitalize on these opportunities and significantly increase our revenues in the future.
We have significantly advanced our MRS-enabled 3D sensor technology as part of a research initiative aimed at applying our 3D MRS technology to semiconductor advanced packaging inspection and metrology. Our next generation ultra-high resolution 3-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds, which makes this sensor suitable for many semiconductor wafer level and advanced packaging inspection and metrology applications. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers per hour. We have received initial purchase orders for our 3D NanoResolution MRS sensor from three OEM customers, and are currently demonstrating this technology to other OEMs, system integrators and directly to semiconductor manufacturers. We believe sales of 3D MRS-enabled sensors and systems for semiconductor wafer level and advanced packaging inspection and metrology represent compelling long-term growth opportunities.
We intend to expand sales of products based on our MRS technology in the SMT and semiconductor markets, including inspection and metrology for advanced packaging applications, through new OEM partners, system integrators and direct sales to end-user customers.
High Precision 3D and 2D Sensors
We manufacture high precision sensors for inspection and metrology in the SMT and semiconductor markets. We sell our 3D MRS sensor subsystems to OEMs and system integrators for use in their proprietary system products, and we integrate our 3D MRS sensor subsystems into our own proprietary system products for inspection and metrology. Our SMT electronic assembly alignment sensor products are a family of sensors that are customized and incorporated into the equipment manufactured by our customers for use in SMT circuit board assembly. We work closely with our OEM customers and system integrators to incorporate our high precision 3D and 2D sensors into their product offerings. Sales of high precision 3D and 2D sensors accounted for 21% of revenues in 2019 and 33% of revenues in 2018.
3D MRS Sensors
Our proprietary 3D MRS sensor technology enables metrology grade accuracy by inhibiting optical measurement distortions and reflections. Our sensor architecture simultaneously captures and transmits multiple images in parallel while proprietary 3D fusing algorithms merge the images together. The result is ultra-high quality 3D images and high-speed inspection. Our 3D MRS sensors are used for inspection and metrology in a variety of applications, including SMT (printed circuit boards), CPU sockets, solder balls and bumps, wafer bumps, copper pillars and other wafer level and advanced packaging applications. Our high precision 3D MRS sensors are based on commercially available cameras, digital light projectors and other hardware components, which are combined with our proprietary MRS technology, 3D fusing algorithms and precision optics. The combination of these elements allows our sensors to capture microscopic quality images at production speeds. Our 3D MRS sensors include two models featuring varying fields of view (FOV), 3D acquisition time and minimum feature sizes of 130 microns and 180 microns. Our ultra-high resolution 3D MRS sensor has a minimum feature size of 110 microns. Our next generation ultra-high resolution three-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds, and is suitable for many semiconductor wafer level and advanced packaging inspection and metrology applications. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers in an hour. Sales of high precision 3D MRS sensors accounted for 10% of our revenues in 2019 and 12% of our revenues in 2018.
SMT Electronic Assembly Alignment Sensors
Our LaserAlign® sensors align both large and extremely small surface mount and through-hole components, known as chip capacitors and resistors, during transport on a pick-and-place machine prior to placement. LaserAlign sensors are incorporated into the placement heads of pick-and-place machines to ensure accurate component placement at high production speeds. LaserAlign sensors integrate an intelligent sensor, composed of a laser, optics and detectors with a microprocessor and software for making specific measurements. LaserAlign sensors enable quick and accurate alignment of each component as it is being transported by the pick-and-place arm for surface mount or through-hole assembly. Using non-contact technology, LaserAlign sensors facilitate orientation and placement of components at higher speeds than can be achieved using conventional mechanical or machine vision component centering systems.
Our board alignment cameras are used to identify fiducial markings on a circuit board to ensure accurate board registration in a pick-and-place machine or a solder paste screen printer. Accurate board placement is needed to ensure proper placement of solder paste deposits and components on a printed circuit board. In some instances, our board alignment cameras are used for 2D solder paste and stencil inspection.
Sales of SMT Electronic Assembly Alignment Sensors accounted for 10% of revenues in 2019 and 20% of revenues in 2018.
Inspection and Metrology Systems
Our inspection and metrology system products are primarily used in the semiconductor and SMT industries for process control, inspection and metrology. These systems are sold to end-user manufacturing customers that use them in a production line or alongside a production line to maintain process and quality control. Our products incorporate our proprietary 3D and 2D optical sensors, off the shelf, translation or robotics hardware and conveyors and complete computer systems or processors with internally developed software. Sales of inspection and metrology systems accounted for 55% of our revenues in 2019 and 46% of our revenues in 2018.
Automated Optical Inspection (AOI) Products
We have been selling AOI products for well over a decade and have continued to develop and improve our AOI offerings since they were first introduced. These products are typically used to inspect circuit boards after component placement to determine whether all components have been placed correctly, and to measure the quality of solder joints after reflow. These products can also be used for various semiconductor related inspection and metrology applications, including advanced packaging, and for certain industrial metrology applications.
SQ3000™ Multi-Function inspection and measurement machines (SQ3000 and SQ3000™ 3D CMM). Our SQ3000™ Multi-Function inspection and measurement machines for AOI, solder paste inspection (SPI) and coordinate measurement (CMM) applications, are designed to expand our presence in markets requiring high precision inspection and metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and electronics packaging and increasing component density on circuit boards. We believe the combination of our proprietary 3D MRS sensor technology, Ai2 (Autonomous Image Interpretation) software and sophisticated 3D fusing algorithms allows us to offer microscopic image quality at production line speeds. The SQ3000 is an all-in-one solution for AOI and SPI in a single product. The SQ3000™ 3D CMM goes a step further by adding metrology functionality. Manufacturers in a variety of industries, including the SMT and semiconductor markets, can use the SQ3000™ 3D CMM as an in-line or off-line metrology tool to help solve their most complex manufacturing and product quality challenges.
We believe there are a growing number of sales opportunities for our SQ3000™ Multi-Function inspection and measurement machines in the markets for semiconductor inspection and metrology, particularly for advanced packaging applications. We believe our 3D MRS sensor technology is uniquely suited for many of these applications. Our SQ3000™ Multi-Function inspection and measurement machines are also available in versions that can accommodate dual production lanes and larger circuit board sizes. Sales of SQ3000™ Multi-Function inspection and measurement machines accounted for 30% of our revenues in 2019 and 20% of our revenues in 2018.
QX Series 2D AOI products. Our QX AOI systems feature our strobe inspection module (SIM) sensor technology and are designed for 2D inspection of circuit boards. We offer QX products with varying levels of resolution and inspection speeds. We also offer versions of the QX product that can accommodate dual production lanes, larger circuit board sizes and both top and bottom inspection of a circuit board.
MX products. Our MX products are used for inspection of memory modules following the singulation step of the manufacturing process. Our MX600 system utilizes our SIM sensor technology and Ai2 software, and is used for 2D inspection of memory modules. Our 3D MRS-enabled MX3000 utilizes our MRS sensor technology, SQ3000 system software and Ai2 software, and is used for 3D inspection of memory modules. We recently received our first purchase order for the MX3000. This order, which is expected to become revenue in the first quarter of 2020, was made to a new memory customer. As a result, two of the world’s three largest memory manufacturers now use either our 2D MX600 or 3D MX3000 memory module inspection systems. We believe the potential market opportunity for the MX3000 system is significant.
SPI Products
SE3000™. The SE3000™ is an in-line system solder paste inspection system based on our 3D MRS sensor technology. The SE3000™ measures in 3D the amount of solder paste applied to a circuit board after the first step of the SMT circuit board assembly process. Because of the small size of the components that must be placed on each pad of solder paste and the density of components placed on the circuit board, a significant amount of SMT assembly problems are related to the quality of solder paste deposition. Misplaced solder paste or excess or inadequate amounts of paste can lead to improper connections or bridges between leads causing an entire circuit board to malfunction. The SE3000™ inspects the height, area and volume of solder paste placed on an entire circuit board at production line speeds and with resolution that allows the SE3000™ to measure the smallest chip scale packages and micro ball array component sites. The SE3000™ can be integrated into most SMT production lines, providing real time quality control immediately after a printed circuit board leaves the screen printer and before component placement commences.
SE600. The SE600 is an in-line solder paste inspection system incorporating a dual-illumination sensor that measures in 3D the height, area and volume of solder paste placed on an entire circuit board at production line speeds. The SE600 can be integrated into most SMT production lines.
SE500ULTRA. The SE500ULTRA is an in-line solder paste inspection system incorporating the same proprietary 3D inspection technology as the SE600 but utilizes a single illumination sensor. The SE500ULTRA inspects at faster speeds than the SE3000 or SE600 and is intended for use in high-volume production environments. Because the SE500ULTRA performs inspections at very high speed, it does not provide the same level of resolution and measurement performance as the SE3000 or SE600.
General Industrial Metrology Products and Services
CyberGage®360. Manufacturers in a variety of industries use CyberGage®360 as a near-line or off-line metrology tool to capture surface data to help solve complex manufacturing and product quality challenges. Our sales of CyberGage®360 to date have not been significant. There can be no assurance that CyberGage®360 will ever achieve widespread market acceptance.
Other Metrology Products and Services. We also sell 3D scanning and metrology equipment manufactured by other suppliers and provide 3D scanning and metrology services for objects of all sizes and complexity for customers that do not have their own 3D scanning and metrology equipment.
Semiconductor Sensors
Our principal semiconductor products, the WaferSense® family of products, are a series of wireless sensors that provide measurements of critical factors in the semiconductor fabrication process. We designed our WaferSense® family of sensors to be used where wafers or reticles are located in semiconductor fabrication to provide measurements of critical factors that are currently impossible or extremely difficult to obtain without powering down the fabrication process equipment. Because the user is not required to break down semiconductor fabrication equipment when using our WaferSense® products, significant time is saved. In addition, measurement accuracy is increased over the accuracy of the manual techniques currently used by many customers when checking the process parameters measured by our WaferSense® products. As a result of WaferSense® technology, our customers are able to improve the up-time, through-put and process yield for their semiconductor fabrication equipment. We intend to continue to enhance and expand the WaferSense® family of products in the future. Sales of semiconductor sensors accounted for 24% of our revenues in 2019 and 21% of our revenues in 2018.
Automatic Leveling Sensor (ALS). The ALS is a wireless, vacuum-compatible sensor that can be placed in cassettes, FOUPS, on-end effectors, aligners, in-load locks and process chambers used in semiconductor fabrication to ensure that all stations are level and coplanar.
Automatic Gapping Sensor (AGS). The AGS is a gapping tool that measures the gap in three places between the showerhead and pedestal in semiconductor process equipment. The amount of gap between the showerhead and pedestal can affect uniformity when material is deposited on semiconductor wafers.
Automatic Teaching Sensor (ATS). The ATS measures X-Y-Z offset from robotic transfers of wafers to the pedestal in semiconductor process equipment. The amount of gap and offset after robotic transfer of wafers to the shower pedestal can affect film thickness and uniformity when material is deposited or etched on semiconductor wafers, impacting quality and product yields.
Automatic Vibration Sensor (AVS). The AVS measures X-Y-Z acceleration for shock and vibration, which can generate wafer particles, scratches or wafer breakage that reduce yield.
WaferSense® Airborne Particle Sensor™. The WaferSense® Airborne Particle Sensor™ (APS) allows engineers to efficiently detect and classify particles and their exact sources in a process as wafers are transferred, slit valves are actuated and chambers are cycled, pumped down and purged. The APS is designed to be compatible with front-ends, coater/developer tracks, and deposition and etch equipment. ReticleSense® Airborne Particle Sensors allow users to quickly identify geographic particle sources in reticle environments. The ReticleSense Airborne Particle Sensor is compatible with ASML, Nikon and Canon scanners and can travel the entire reticle path to detect in real-time when and where particles might exist. The ReticleSense Airborne Particle Sensor helps our customers exceed manufacturing quality and productivity standards in the Photo lithography scanner environment.
In-Line Particle Sensor™. The new In-Line Particle Sensor™ (IPS™) with CyberSpectrum software detects particles in gas and vacuum lines 24/7 in semiconductor process equipment. The IPS™ quickly identifies, monitors and enables troubleshooting of particles down to 0.1 micron in size. The IPS™ can be installed in any gas or vacuum system, and is particularly relevant for EUV lithography tools where the ability to monitor particles in-line can significantly improve EUV lithography tool yield and productivity. For example, an IPS™ can be installed at the vacuum line in between the EUV process chamber and the vacuum pump, saving significant time compared to current methods of sending a monitor dummy reticle into the EUV system to check for particles before and after sending the reticle into the EUV system. The IPS™ is constantly collecting data, which is especially critical during chamber purging. Process and equipment engineers in semiconductor fabs can increase the speed of equipment qualification. Contamination sources can be identified quickly and the effects of cleaning, adjustments and repairs can be seen in real-time. Through use of the IPS™, fabs can shorten equipment maintenance cycles, lower equipment expenses and optimize preventative maintenance plans.
WaferSense® Auto Multi Sensor™. The WaferSense® Auto Multi Sensor™ is an all-in-one wireless real-time device that allows engineers to quickly take leveling, vibration and humidity measurements. Humidity measurements are becoming more important as the use of Fin Field Effect Transistor technology increases among semiconductor manufacturers. The ReticleSense® Auto Multi Sensor™ allows users to quickly take leveling, vibration and humidity measurements in reticle environments.
WaferSense® 300mm Auto Resistance Sensor. The new WaferSense® 300mm Auto Resistance Sensor (ARS) with CyberSpectrum software enables real-time resistance measurements of plating cell contacts in semiconductor Electrochemical Deposition (ECD) applications. The ARS quickly identifies and monitors resistance measurements with 50 separate pads around the perimeter utilizing a Kelvin sensing (4-wire resistance) method to detect residue affecting plating pins. Process and equipment engineers in semiconductor fabs can predict when a tool needs maintenance with quantitative analysis of measured mean resistance over time, shorten equipment maintenance cycles, and improve cell-to-cell uniformity with the wafer-like, 4-wire resistance sensor and CyberSpectrum software's objective and repeatable data.
WaferSense® Auto Vibration and Leveling Sensor. The new WaferSense® Auto Vibration and Leveling Sensor (AVLS3) with a thickness of 3.5mm can travel to most locations and tools within a semiconductor fab where a real semiconductor wafer travels. The Chemically Hardened Glass (CHG) substrate enables smooth wafer handling and improved vacuum chucking. The AVLS3, with CyberSpectrum software, collects and displays both vibration and leveling data simultaneously for fast equipment set-up and alignment and real-time equipment diagnostics to speed equipment qualification and shorten equipment maintenance cycles.
Markets and Customers
We sell the majority of our products into the markets for SMT and semiconductor inspection and metrology. The value of automation is high in these markets because the products produced have high unit costs and are manufactured at speeds too great for effective human involvement. Trends in these markets include further efforts to reduce the cost of the manufacturing process and to increase automation. Moreover, the trend toward smaller electronic devices with higher circuit densities, smaller circuit paths and extremely small components requires manufacturing and testing equipment capable of extremely accurate alignment and multidimensional measurement. Challenges with shrinking transistor dimensions have resulted in 3D stacking of chips. Yield challenges with these products are driving the need for more accurate inspection and metrology. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications.
High Precision 3D and 2D Sensors
3D MRS Sensors
We sell 3D MRS-enabled sensor subsystems to KLA for use in its semiconductor back-end packaging inspection systems. We also have an agreement to supply Nordson-YESTECH with 3D MRS sensor subsystems for its 3D AOI inspection equipment serving the SMT market. We are currently demonstrating our next generation ultra-high resolution 3-micron pixel 3D NanoResolution MRS sensor to OEMs, system integrators and directly to semiconductor manufacturers, and we have received our first purchase orders for sales of sensors and subsystems based on this technology. We believe sales of 3D MRS-enabled sensors for advanced packaging inspection applications represent significant long-term growth opportunities. We estimate that the total available market for sales of our 3D MRS sensors to manufacturers of semiconductor inspection and metrology equipment for the advanced packaging market was approximately $50 million in 2019, and will grow to approximately $110 million in 2023.
SMT Electronic Assembly Alignment Sensors
The vast majority of our SMT electronic assembly alignment sensors are sold on an OEM basis to Juki Corporation, Kulicke & Soffa Industries, Inc. and ASM Pacific Technology Ltd. for integration into DEK brand equipment serving the SMT circuit board assembly market. Viscom AG purchases our SPI sensors on an OEM basis for integration into their SPI inspection equipment.
Inspection and Metrology Systems
We sell our AOI and SPI inspection and metrology systems to many of the leading SMT electronic assembly circuit board manufacturers, end-user customers manufacturing their own circuit boards, semiconductor manufacturers and OSAT companies. Manufacturers of DRAM and Flash Memory use our inspection system products to inspect assembly of their memory modules. Sales of AOI systems account for roughly two-thirds of the approximately $800 million total annual SPI and AOI SMT inspection systems market, with 3D AOI representing the fastest growing segment of this market. We estimate that the total available market for sales of 3D AOI systems to the SMT inspection systems and metrology markets was approximately $200 million in 2019, and will grow to approximately $1.3 billion by 2024. The markets for 2D and 3D semiconductor wafer and advanced packaging inspection and metrology equipment totals approximately $500 million per year.
The total available market for general industrial metrology equipment is very large, diverse and growing. Our 3D scanning and metrology services scan, model and inspect objects of all sizes and complexity for customers who do not have their own scanning and metrology equipment.
Semiconductor Sensors
Our semiconductor products, primarily our WaferSense family of products, are used by process and equipment engineers as non-contact precision measurement tools to optimize the process for production of semiconductor wafers and manufacturing of flat panel displays. Most of the world’s largest manufacturers of semiconductors and semiconductor equipment purchase our WaferSense products. We believe the available market for our WaferSense products is potentially significant, and will continue to increase in the future as new product applications are added.
Export Sales and Significant Customers
Export sales totaled $44.8 million or 76% of our total sales in 2019, compared to $46.4 million or 72% of our total sales in 2018. Export sales represent a large percentage of our total sales because a large portion of electronics assembly and semiconductor production occurs outside the United States. In addition, a significant portion of our export sales include high precision 3D and 2D sensors sold to OEM customers located in Europe and Asia. See Note 12 to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for information regarding the percentage of total sales revenue represented by total export sales (sales of products into countries other than the United States, including sales delivered through distributors) by location during the past two years. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our inspection system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase our products.
No customer accounted for more than 10% of revenue in 2019.
Sales and Marketing
We market our products by offering on-site demonstrations and evaluations, through appearances at industry trade shows, advertising in industry journals, articles published in industry and technical journals and on the Internet. We support our sales efforts by utilizing internet-based search engine marketing programs to generate leads from prospects who have expressed interest in obtaining the types of products and services that we offer.
High Precision 3D and 2D Sensors
Our high precision 3D and 2D sensors are sold in most countries to OEMs, system integrators and manufacturers by direct sales personnel located in Minnesota and Asia. Some of the global channel partners for our semiconductor products also market our high precision 3D MRS sensors to semiconductor manufacturers and system integrators.
Inspection and Metrology Systems
Our AOI and SPI inspection and metrology system products are sold in most countries. Sales of these products are more heavily concentrated in Asia where a significant portion of the worldwide production capacity for circuit board assembly and semiconductor manufacturing occurs. Our sales of AOI and SPI systems are sold by direct sales personnel located in Singapore, as well as in the United Kingdom, the United States and China and through independent sales representatives and distributors. Our sales and service office in the United Kingdom serves the European market and we have sales and service team members based in the United States and Mexico to serve the Americas market. We have sales and service offices in China and Singapore to serve the markets for SMT and semiconductor inspection and metrology equipment in Asia. We have agreements with 43 independent sales representatives and distributors, which focus on sales and service of our AOI and SPI inspection and metrology system products to end-user customers. These agreements cover North and South America (14), Europe (16) and China and Asia-Pacific (13). We sell our general industrial metrology products and services to end-user customers mainly through a direct sales staff located in Minnesota.
Semiconductor Sensors
We sell our semiconductor products, primarily our WaferSense family of products, to semiconductor fabrication facilities through a separate worldwide sales channel of independent sales representatives and distributors. We also sell our WaferSense products directly to large OEM customers, which are mainly semiconductor capital equipment manufacturers. We currently have agreements in place or in process with 14 independent sales representatives and distributors, which focus on sales and service for our WaferSense products. These agreements cover the United States (4), Europe (3) and the Asia-Pacific (7). Our sales to OEM customers and our worldwide network of independent sales representative and distributors are managed by direct sales personnel located in the United States and Asia.
Backlog and Seasonality
Product backlog was $17.7 million at December 31, 2019, $13.6 million at December 31, 2018 and $11.4 million at December 31, 2017. Product backlog at September 30, 2019 was $14.4 million. Our products are typically shipped two weeks to two months after the receipt of an order. Sales of some inspection and metrology system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these product sales, revenue is recognized at the time of customer acceptance. Although our business is generally not of a highly seasonal nature, sales may vary based on the capital procurement practices in the SMT and semiconductor fabrication industries. However, we are not able to quantify with any level of precision the impact of these practices on our sales in any given quarterly period, and any seasonal cyclicality is often masked by more dramatic changes in demand caused by the normal volatility in electronics and semiconductor markets that are associated with changes in the economy. Our scheduled backlog at any time may vary significantly based on the timing of orders from OEM customers. Our order backlog at December 31, 2019 and September 30, 2019 includes a significant order for 3D MRS sensors from an existing OEM customer that are scheduled for delivery in the next 18 months. Accordingly, backlog may not be an accurate indicator of performance in the future.
Research and Development
We differentiate our products primarily on the basis of innovative and proprietary technology and on our ability to combine several different technologies to address industry and customer needs. In addition, we actively seek ongoing strategic customer relationships with leading product innovators in existing and new markets. We actively investigate the needs of, and seek input from, these customers to facilitate the adoption of current innovative technologies and to identify opportunities to improve manufacturing processes.
We commit substantial resources to the development of important next-generation technologies that, we believe, will position us to be a global technology leader in high precision 3D sensors and capture additional market share in our key markets of SMT and semiconductor inspection and metrology. We maintain our commitment to research and development and product development even during periods when strong demand in the markets for our products does not exist. During the past two years, research and development efforts have been focused on a number of activities that are critical to our future growth and success, including the following:
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Our next generation ultra-high resolution three-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers in an hour. The 3D NanoResolution MRS sensor is suitable for many semiconductor wafer level and advanced packaging inspection and metrology applications. We have adapted the system software used in our SQ3000™ Multi-Function inspection and measurement machines to work with wafer handling equipment to facilitate sales of our NanoResolution sensor to OEMs and system integrators.
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Additional new MRS sensors for semiconductor back-end component inspection and metrology, in-line CPU socket metrology and advanced packaging and wafer level inspection and metrology applications.
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Our next generation MRS-enabled MX3000 AOI system for 3D inspection of memory modules following the singulation step of the manufacturing process. The MX3000 utilizes our MRS sensor technology, SQ3000 system software and Ai2 software. We expect to recognize our first revenue from the sale of the MX3000 in the first quarter of 2020.
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We have continued to advance our SQ3000™ Multi-Function inspection and measurement machines, the SQ3000 and SQ3000™ 3D CMM, for 3D AOI, SPI and CMM applications, which are designed to expand our presence in markets requiring high precision inspection and metrology. Improvements include faster programming time and more software features to support new applications. We believe there are a growing number of sales opportunities for our SQ3000™ Multi-Function inspection and measurement machines in the markets for 3D AOI of complex circuit boards and semiconductor inspection and metrology, particularly for advanced packaging applications.
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Development of new semiconductor products, including new applications for our WaferSense® family of products. We recently launched a new In-Line Particle Sensor™ (IPS™) with CyberSpectrum software to detect particles in gas and vacuum lines 24/7 in semiconductor process equipment. The IPS™ is particularly relevant for EUV lithography tools where the ability to monitor particles in-line can significantly improve EUV lithography tool yield and productivity. We also recently launched the new WaferSense® 300mm Auto Resistance Sensor (ARS) with CyberSpectrum software that enables real-time resistance measurements of plating cell contacts in semiconductor ECD applications. The ARS quickly identifies and monitors resistance measurements with 50 separate pads around the perimeter utilizing a Kelvin sensing (4-wire resistance) method to detect residue affecting plating pins. Other new WaferSense® products are currently under development.
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Research and development expenses were $9.4 million or 16% of revenue in 2019 and $8.8 million or 14% of revenue in 2018. Research and development expenses consist primarily of salaries, project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. Research and development resource utilization is centrally managed based on market opportunities and the status of individual projects.
Manufacturing
All of our high precision 3D and 2D sensors and semiconductor sensors are assembled at our Minneapolis, Minnesota headquarters facility. Our inspection and metrology systems, including the SQ3000 and SQ3000™ 3D CMM products, are assembled in Singapore. We rely on third party automation suppliers to provide the material handling platforms for our 2D MX600 and 3D MX3000 system products. Much of our product manufacturing, which is primarily circuit board manufacturing, lens manufacturing and metal parts production, is performed by outside contractors. Our production personnel inspect incoming parts, perform final assembly, calibrate and perform final quality control testing of finished products. We have elected not to make the capital investments necessary for complete internal manufacturing of our products.
A variety of components used in our products are available only from single sources and involve relatively long order cycles, in some cases up to six months. We believe we have identified alternative assembly contractors for most of our sub-assemblies. Use of those alternative contractors could require substantial rework of the product designs, resulting in periods during which we could not satisfy customer orders. An actual change in such contractors would likely require a period of training and testing.
Accordingly, an interruption in a supply relationship or reduced production capacity experienced by one or more of such contractors could result in the inability to deliver one or more of our products for a period of several months. To help prevent delays in the shipment of our products, we maintain in inventory, or on scheduled delivery from suppliers, components that we believe will be sufficient to meet forecasted demand, often times for a minimum of six months or longer.
Competition
We face competition from a number of companies in the machine vision, image processing and inspection and metrology systems markets, many of which are larger and have greater financial resources than we do. However, we believe our current and planned products offer advantages from competing products in terms of price and suitability for specific applications.
High Precision 3D and 2D Sensors
Our high precision 3D and 2D sensors mainly compete with the sensors and vision systems developed by OEMs using their own design employees for incorporation into their products. Some of the competitors in the market for AOI and SPI inspection equipment serving the SMT market rely on 3D sensors manufactured by Keyence Corporation. We believe the advantages offered by our 3D MRS sensor technology and SQ system software allow our customers, including OEMs and system integrators, to compete favorably in the markets for SMT inspection equipment and semiconductor back-end, wafer level and advanced packaging inspection and metrology.
Our SMT electronic assembly alignment sensor products compete with vision (camera and software-based) systems and component libraries available from Cognex Corporation and others. Although advances in vision systems have reduced some of the advantages of our SMT electronic assembly alignment sensor products in some configurations, we continue to believe that our sensors compete favorably based on our ability to custom design products with stringent physical form requirements, speed, flexibility, low cost and ease of use.
Inspection and Metrology Systems
The primary competition for sales of our AOI and SPI inspection and metrology system products has been from Korean-based companies, including Koh Young Technology, MirTec Ltd., and PARMI Co. Ltd. We also compete with Taiwanese-based Test Research, Inc. and German-based Viscom AG, among others. In our view, the 3D MRS sensor technology, system software and Ai2 software used in our SQ3000™ Multi-Function inspection and measurement machines differentiate our products from competing products and that our products compete effectively in the SMT inspection systems and metrology markets based on cost, ease of use and the low rate of false calls. We also believe that our SQ3000™ Multi-Function inspection and measurement machines, enabled by our proprietary MRS technology, 3D fusing algorithms and precision optics, offer advantages over competing products and will allow us to gain market share based on our ability to offer microscopic quality images at fast production line speeds.
The markets for semiconductor wafer and advanced packaging inspection and metrology equipment are fragmented. Our competitors in the markets for semiconductor wafer level and advanced packaging inspection and metrology equipment include, among others, Camtek, Inc., Unity SC, Utechzone Co. Ltd. and Onto Innovation, Inc.
The multi-billion dollar market for 3D scanning and metrology products is highly fragmented. The primary competition for the various metrology products and solutions we sell include coordinate-measuring machines sold by Hexagon, Zeiss and others, and assorted other 3D measurement products offering varying combinations of speed and accuracy. The market for 3D scanning and metrology services is dominated by small regional market participants.
Semiconductor Sensors
We believe our semiconductor sensors, primarily consisting of our WaferSense family of products, are unique to the marketplace and mainly face competition from the manual techniques currently used by most customers to monitor their semiconductor fabrication or flat panel display manufacturing equipment. For some WaferSense applications, there are other products available in the marketplace that are capable of monitoring semiconductor fabrication equipment, but these competing solutions are typically not wireless or fully automated like our WaferSense products. We believe that our WaferSense products provide more reliable and accurate measurements than the manual techniques currently in use or other solutions currently available in the marketplace. In a semiconductor fabrication environment, we believe that our WaferSense products save significant time because the user is not required to break down process equipment, or pressurize a vacuum chamber, which improves tool up-time, through-put and process yield.
Employees
As of December 31, 2019, we had 173 full-time employees worldwide, including 40 in sales, marketing and customer support, 53 in manufacturing, purchasing and production operations, 63 in engineering, research and development, and 17 in finance, administration and information services. Of these employees, 104 are located at our corporate headquarters in Minneapolis, Minnesota and 69 are located in other offices (6 in other states throughout the U.S., 5 in the United Kingdom, 44 in Singapore, 6 in China, 3 in Taiwan, 2 in Mexico, 1 in Malaysia, 1 in Japan and 1 in Korea). Although we have been successful in attracting and retaining qualified technical personnel, there is an ongoing need for more employees with advanced degrees and training in mathematics, optical physics and other key disciplines. There can be no assurance that we will be able to successfully retain or recruit qualified technical personnel in the future. None of our employees are covered by collective bargaining agreements or are members of a union.
Proprietary Protection
We rely on the technical expertise and know-how of our personnel and trade secret protection, as well as on patents, to maintain our competitive position. We attempt to protect intellectual property by restricting access to proprietary methods by a combination of technical and internal security measures. In addition, we make use of non-disclosure agreements with customers, consultants, suppliers and employees. Nevertheless, there can be no assurance that any of the above measures will be adequate to protect our proprietary technology, and it is possible that any of our products could be duplicated by other companies in the same markets in which we participate.
We hold 50 patents (27 U.S. and 23 foreign) on a number of technologies, including the technologies used in our SQ3000™ Multi-Function inspection and measurement machines for AOI, SPI and CMM applications; other SMT inspection systems; MRS™ high-precision 3D sensors; SMT electronic assembly alignment sensors, SIM sensors and semiconductor sensors, primarily consisting of our WaferSense® wireless measurement devices; and other products. In addition, we have 30 pending patents (10 U.S. and 20 foreign). We protect the proprietary nature of our software primarily through copyright and license agreements, and also through close integration with our hardware offerings. We utilize 31 registered trademarks (13 U.S. and 18 foreign) and have 1 U.S. trademark registration pending. We also have 13 domain names and several common law trademarks. It is our policy to protect the proprietary nature of our new product developments whenever they are likely to become significant sources of revenue. No guarantee can be given that we will be able to obtain patent or other protection for other products.
As the number of our products increases and the functionality of those products expands, we may become increasingly subject to attempts to duplicate our proprietary technology. As a result, we may be required to bring patent infringement lawsuits against parties that have duplicated our proprietary technology. We periodically receive communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of these third parties or others. These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products stopped by an injunction. Infringement lawsuits or claims could also cause product delays, require us to redesign our products, hinder our ability to sell our products, or make the sale of these products more expensive. In addition, although we do not believe that any of our products infringe the rights of others, there can be no assurance that third parties will not assert infringement claims in the future or that any such assertion will not require us to enter into a royalty arrangement or result in litigation.
Government Regulation
Our business is subject to many foreign, federal, state and local legal and regulatory requirements, including among others those related to securities, employment, international trade, anticorruption, health, safety and the environment. Significant costs may arise from these requirements, or from new, modified or more stringent requirements, which could affect our operations and competitive position.