Chuck del Prado is stepping down as CEO at ASM International, the company his father Arthur founded. Did he do him proud?
Every son who succeeds his father in the family business has a lot to prove. To himself and his father, but perhaps most of all to the outside world. Even if never said out loud, there always will be suspicions that junior might not have gotten the job if daddy wasn’t pulling the strings. Chuck del Prado, however, had his leadership openly questioned almost immediately after he took the helm from his father at ASM International (which isn’t really a family business, of course). He had to go all the way to the Dutch Supreme Court to get a chance to prove himself. When we look back at his reign over the company in the past decade, Del Prado was clearly worthy of the job, though.
Del Prado, an Industrial Engineering and Technology Management graduate, joined ASMI in 2001 after having worked in various positions at IBM and ASML. He got a taste of the company and its customers in a sales and marketing position but was thrown in the pressure cooker in 2003, when he became general manager of ASM America. This division serves one of the most demanding semiconductor manufacturers in the world: Intel.
All of this must have been smooth sailing compared to the first years of his CEO-ship, though. Chuck replaced his father Arthur in March 2008, right before the start of the financial crisis, and amid a rekindled conflict with activist shareholders that turned nasty without precedent in Dutch corporate history.
Wrench in the works
Previously, father Del Prado appeared to have successfully resisted demands of hedge fund Mellon to unburden ASM Pacific Technology, a profitable back-end subsidiary of ASMI, from the ailing front-end activities of the parent company. Senior as well as his son vehemently opposed this, aiming instead to leverage the back-end proceeds to allow the front-end to innovate its way back to profitability. The issue was a raw nerve, in fact, as two decades earlier senior was forced by bankers to let go of another company he started: ASM Lithography.
But Mellon, later known as Fursa, had its sights set on a quick buck. Only weeks after the annual shareholder meeting in 2007, at which Chuck was approved for CEO-ship, the hedge fund basically accused ASMI of violating corporate governance rules by appointing the founder’s son as CEO. These allegations would be repeated many times, also openly. Questioning Chuck’s legitimacy as a leader became a key element in Fursa’s efforts to split up the company. In fairness, ASMI should have known it was presenting its enemies with a golden opportunity by keeping the CEO position in the family.
Fursa had a powerful partner: Applied Materials, ASMI’s much bigger competitor that had missed the boat on atomic layer deposition (ALD). ASMI had been working on this sophisticated technique with Intel since 1999, aiming to construct the high-k metal gates the processor behemoth desperately needed to keep transistors from leaking too much current. The effort proved successful, basically creating an entirely new business within the semiconductor equipment industry – a business with a lot of potential, as Applied’s interest proved.
Applied saw an opportunity for a bargain. If Fursa managed to isolate the front end, it would be pretty cheap to buy. Reversely, Applied could supply Fursa with plenty of ammunition to sway other shareholders.
The partners put no effort whatsoever in hiding their allegiance, with Fursa employing a team of former Applied executives to attack the ASMI management. “It’s amazing how much information can be gathered by a group of outside experts,” Arthur del Prado once remarked sarcastically after a hostile presentation by one of Applied’s henchmen.
Applied and Fursa, with the support from a couple of other investors, intended to catapult their own people into ASMI’s board of management and go ahead with separating front- and back-end operations. ASMI managed to prevent this only by resorting to an extreme measure, ie by mobilizing a foundation that was established to prevent hostile takeovers. At the 2008 annual shareholder meeting, three months after Chuck del Prado took the helm, the foundation exercised an option on preference shares, throwing a wrench in the works of the Anglo-Saxons.
Intel to the rescue
Although Chuck del Prado lived to see another day as CEO, he had no reason to celebrate. After all, he didn’t survive on his own merits. If anything, the intervention by the foundation had weakened his authority and control over the company.
And the fight wasn’t over yet. After the failed coup in May 2008, Applied made a formal offer on ASMI’s front-end activities, which put the conflict on hold, albeit only briefly. When the extent of the financial crisis became clear later that year, Applied retracted its offer and Fursa, together with pension fund Hermes, took up arms again.
Meanwhile, ASMI’s position was severely weakened. With the company experiencing a dramatic drop in orders because of the recession, hopes of making the front end profitable any time soon seemed more unlikely than ever. Moreover, the ongoing attacks had sown discord among the ranks of ASMI. And obviously Chuck didn’t command the same authority his father did.
Much-needed support came in 2009 from an unexpected source, when the investment arm of Intel took a stake in ASMI. While not an unreasonable step given the crucial part the Dutch company played in realizing high-k metal gate transistors, the US processor manufacturer is traditionally extremely secretive about its supply network. To this day, even de facto monopolist ASML isn’t allowed to mention Intel is among its customers, for example. As an Intel Capital spokesman explained, however, Intel wanted ASMI to keep coming up with competitive technological solutions without any distractions.
From there on out, things gradually started improving for ASMI, at least as far as fighting off activist investors was concerned. Fursa and Hermes, down but not defeated, proceeded to the courtroom, contending the foundation’s intervention at the shareholder meeting was illegal. The Commerce Court agreed but the Supreme Court overturned the verdict.
Next, the investors tried to argue that they weren’t properly informed by the company. This was rejected by the Commerce Court and, after an appeal, by the Supreme Court as well. “Therefore, by principle, the strategy to be pursued by ASMI is an affair of management, and it’s up to management, under supervision of the supervisory board, to assess if and to what extent it’s desirable to confer with external shareholders,” stated the 2012 verdict that put an end to Fursa’s and Hermes’ sieges on ASMI and Del Prado.
While the lawyers battled it out, Del Prado got to work on keeping ASMI afloat. In a major restructuring operation, almost a quarter of the front-end staff was laid off. The company divested minor activities and the notoriously independently operating divisions across the world were accommodated into a matrix organization. Manufacturing of all but specialist components was centralized in Singapore or outsourced. The only division left largely unscathed was ASM Genitech Korea, which was working on a strategic – and eventually successful – ALD project with memory maker Samsung. Furthermore, the company started toeing the line of modern corporate governance.
The efforts bore fruit. As soon as 2010, ASMI – still including its ASMPT subsidiary, of course – started reporting positive quarterly net incomes again. The front end kept weighing down the company until 2013 but from then on started contributing to profit. Over the time period 2013-2018, front-end revenue increased five-fold and in 2018 generated a profit of 109 million euros. ASMI’s stock increased 8,4x in value from 2008-2018, ASMPT’s 1,6x.
Clearly, senior’s leveraged innovation strategy was a resounding success in the hands of junior. How satisfying it must have been to reduce ASMI’s stake in ASMPT, first in 2013 and then again in 2017. His father would be proud.