June quarter top and bottom-line results for Rudolph Technologies, Inc. (RTEC) beat consensus estimates. The company recently closed two acquisitions involving front-end and back-end business that more than doubled the size of the firm.

Orders were cut drastically over the past few quarters. The question of whether they are being pushed out or canceled is very important for investors to consider. Until this becomes clearer, we would be on the sidelines. We are reiterating our Hold rating on RTEC.

However, the RTEC/August Technology Corporation merger is moving along faster and smoother than we had originally anticipated. Rudolph should outgrow the industry since yield management firms are much more important as nodes become more advanced. RTEC sees demand increasing with new technology as well as the addition of capacity.

The semiconductor process diagnostics and control (PDC) equipment market is expected to grow at a rate of 40-50% over the next several years. Metrology and inspection tools are expected to take an increasing amount of the capital equipment budget in the newer fabs, moving from 10% to 15%. Capital spending will be weaker in 2008 and bounce back in 2009 as managers will continue to emphasize new leading-edge 300mm technology rather than legacy 200mm capacity expansion.

RTEC’s recent product introductions are strongly positioned in 300mm and copper metallization that should make a meaningful revenue contribution in 2008. The addition of the August and RVSI merger has allowed the company to diversify its revenue base. RTEC’s revenue is now spread among back-end and front-end equipment as well as across market segments such as inspection and metrology.

Read the full analyst report on RTEC