Fei Company Report

I. INTRODUCTION

A new universe of discovery is taking place at the nanoscale. FEI is the world leader in electron optics and focused ion beam technologies. Found in 1971 as a support group providing high-purity, oriented single crystal materials for field emission research in Oregon, through a partnership with the former Philips Electron Optics division вЂ" a part of FEI since 1997 вЂ" FEI has pioneered the world’s first DualBeamв„Ñž system, incorporating both a scanning electron column and a focused ion beam. FEI is still the only company with both ion beam and electron beam solutions in-house, allowing to develop more functionally-integrated solutions for customers. FEI’s enabling Tools for Nanotechв„Ñž are helping to make once unimagined possibilities a reality by delivering breakthrough results to diverse users. FEI has more than sixty years of technology leadership and field expertise for a wide variety of applications including the advanced study and development of new materials, nanoscale process control and the development of new Nano-enabled products. They provide the best-in-class solutions for imaging, characterization, analysis and modification to world-class customers. They have more than seven thousand systems installed at thirty-five hundred customer sites worldwide. As the recognized leader in innovative tools for researchers and developers working down to the atomic level, FEI is committed to helping customers succeed in solving some of the greatest challenges of our time. Following the acquisition of Philips Electron Optics, FEI pioneered the Tecnaiв„Ñž TEM. As the world’s first fully integrated TEM, it provided new levels of productivity and ease-of-use. Most recently, FEI’s Titanв„Ñž has graphically demonstrated how we continuously raise the performance bar. With its sub-Ð"...ngstrÐ"¶m resolution, the Titanв„Ñž is the most powerful system of its type on the commercial market.

Their market-leading solutions deliver precision imaging for three-dimensional characterization, analysis and modification of materials and structures with resolution down to the sub-Ð"...ngstrÐ"¶m level. FEI is a global community of industry-leading technical and applications specialists collaborating closely with world-class customers who are mainly working in advanced research and manufacturing with supported by their field-experienced applications specialists and represent an accomplished list of advanced research institutes, academic centers, and industrial enterprises--all of whom share a passion for discovery. Together working in pioneering areas, using best-in-class imaging & analysis tools to address today's most demanding scientific and commercial challenges, FEI is committed to helping customers push the boundaries of discovery and accelerate new product commercialization. FEI maintains a global reach with operations in more than 50 countries to serve their customers with speed and efficiency and support their continuing success. Their NanoPorts in North America, Europe and Asia provide centers of technical and applications expertise where customers and specialists work together on the ongoing development of new ideas and innovative solutions.

In over more than five decades of operations, FEI Company has reinvented itself numerous times through innovations and acquisitions to become one of the world's largest producers of nanoscale with revenue totaling $592 million with remaining of approximately 9.78% Net Margin for the fiscal year ended December 31, 2007. FEIC’s strong performance has been mainly due to its adequate execution of its business strategy, diverse portfolio, strong international market position, favorable commodities prices, global demand and international economic environment.

However, FEI’s growth prospects are uncertain due to future performance of the US and other foreign economies, changes in technological and consumer trends and the competitive environment within the industry. Factors such as high energy prices, a weak dollar, growth prospects in major emerging markets, the housing slump in the US, and future demand will have a say in FEI’s ability to grow at higher rates and maintain its market position.

The following sections provide brief analysis of the outlook of the global and US economic conditions; the characteristics, trends and competitive environment of the industry; a brief SWOT analysis that will put the company in perspective; an explanation of FEI’s business model; a comparative analysis to assess the overall performance of the company relative to its main competitors and the industry; and a valuation of the company’s fundamental intrinsic value.

II. THE ECONOMIC ENVIRONMENT

Real GDP growth, Prices, Exchange rates

According to the International Monetary Fund, the global economy is still solid and it is expected to grow at a “healthy economic expansion rates” of about 5.2% and 4.8% in 2007 and 2008 respectively. The IMF mentioned that this rate is possible as “global expansion remains above trend but it is expected to ease down in 2007 and 2008 helping to contain inflation” and as “world trade continues to grow significantly faster than output”. The IMF also said that this growth rate is expected to be driven by the overall stable or high growth rates in several regions and emerging markets such as Africa (Sub-Sahara), Middle East, Eastern Europe, India, China and other developing countries which still show high real GDP growth rates (see appendix A, table 1, and figure 1). The high growth figures in these emerging markets are a positive sign for the scientific tech instruments industry.

Another important global economic indicators that the IMF reported were as follows: “1) consumer prices have decreased since the 1970s and is expected to decline further into 2010; and the US dollar has depreciated modestly in real effective terms since late 2005 while the euro has appreciated and Japan’s real effective value of the yen has depreciated significantly below its long term average.” Particularly, lower consumer prices should have a downward pressure on computer manufacturer’s profit margins. On the other hand, the exchange rate is and will affect industries differently. As for FEIC, a weak dollar actually enhances its competitiveness as the company reports to be a net receiver of funds. FEIC mainly income cash flows are in Euros, North America and Asia Pacific (FEIC 2006 report).

2006