SEMICONDUCTORS FEI Emerges As Defect Hunter As chips - and margin for error - shrink, company helps firms find problems.(A)

Byline: Jed Graham

The devil may be in the details for chip manufacturers, but that's where the profit is for FEI Co.

Consider that the chip industry is moving toward making chips with transistors that are just 0.13 micron in diameter -- a fraction of the width ofa human hair. There's little margin for error, but semiconductor companies often make mistakes. That's why they measure their production yields, or the percentage of chips they make that can be shipped to customers.

Hillsboro, Ore.-based FEI provides software and services that enable makers of chips and data storage products to analyze the defects in production and iron out the problems.

Though the chip sector has suffered from too much manufacturing capacity, the move to smaller geometries and more advanced processes appears unstoppable.That's helped keep demand for FEI's equipment growing throughout the tech downturn.

"The margin for error (in chipmaking) is getting smaller," said Risto Puhakka, analyst at VLSI Research Inc. "Everything is getting smaller, and it'sgetting harder to analyze what the defect is, and their (FEI's) equipment can do it."

The trend toward miniaturization plays to FEI's strength, but that's just one factor driving its results. The other is what FEI refers to as its move "from lab to fab," industry lingo for a chip plant.