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June 10, 1999 - 6:55am
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Date: 6/10/99
300mm is finally here!
Intel announced on June 9 its plan to start production on 300mm wafers in
2002. This is the long-awaited event that, in our view, will trigger
accelerated transition to 300mm wafer diameter. The ramifications for the
leading equipment vendors are extremely positive, because wafer size changes
drive the strongest equipment renewal cycles. We believe the larger equipment
companies will benefit disproportionately from this transition, given their
better readiness for 300mm and their ability to accelerate R&D spending in the
event of a faster-than-expected transition.
The Intel announcement: Intel (INTC, $53 1/8, Not Rated) announced
yesterday (June 9, 1999) that it is moving forward with its $1.2 billion 300mm
project. The company plans to start production on 300mm wafers in 2002, one
year after its planned introduction of 0.13 micron linewidth and copper
interconnect technologies. Equipment installation in the new 300mm fab will
start in 2000.
The Semiconductor300 announcement: Semiconductor300, a joint venture of
Infineon (formerly Siemens) and Motorola (MOT, $84 11/16, BUY-FocusList) and
the world's first 300mm pilot line, also announced yesterday that production
yield is now above 60%, enabling the fab to produce more good dice per wafer
than a comparable 200mm line. This indicates that Semiconductor300 is on
track to launch full-scale production on 300mm wafers some time in year 2001.
The TSMC announcement: TSMC (Taiwan Semiconductor Manufacturing Co.
Ltd., TSM, $33 7/16, BUY), the world's leading semiconductor contract
manufacturing company, announced on May 21, 1999 that it is forming a joint
venture with another foundry in Taiwan to build a 300mm wafer fab. Volume
production is slated for 2002.
Why are these important? In our view, these announcements are convincing
validations that the industry is ready to move forward with the 300mm
transition. Commitments from Intel, Motorola, TSMC and Infineon demonstrate
that the momentum of this transition is strong across the semiconductor
industry, because these companies represent different segments of the
semiconductor business, including microprocessors and micro-controllers
(Intel, Motorola and Infineon), ASICs (TSMC) and DRAM (Infineon). We expect
other leading semiconductor companies to quickly follow suit, revitalizing and
intensifying their development programs for 300mm. The cost advantages of
chip production on 300mm wafers over 200mm are estimated to be around 30% on a
per chip basis. This cost differential will create enough competitive
pressure for semiconductor companies to move quickly. We expect the
transition to 300mm wafer size will happen rapidly within a 2-3 year time
frame starting around 2001-2002.
Wafer size transitions drive the strongest equipment purchase cycles, and
hence represent the most important product transitions for the equipment
industry. The last wafer size transition happened in the 1993-1995 time
period and drove an equipment market CAGR of 55%. For a new wafer size, the
entire factory needs to be built with new tools, while during a shrink
transition (e.g., from 0.35 to 0.25 micron), more than 80% of the old tools
can potentially be re-used.
Wafer size transitions cause major changes in equipment companies'
competitive positioning, because the semiconductor companies will re-evaluate
and re-qualify the equipment vendors for each tool in the fab. We believe the
larger companies will benefit disproportionately from this transition, given
their better readiness for 300mm and their ability to accelerate R&D spending
if the transition happens faster than expected.
Applied Materials (AMAT, $64 13/16, BUY). Management stated that they
are not "surprised" by the Intel announcement. We believe the company has
been closely involved in Intel's decision making process. Applied has spend
$15-20 million per quarter on 300mm development and currently has 65 300mm
tools announced. We believe the company is very well positioned to lead the
charge during this transition.
Novellus (NVLS, $60 1/16, BUY-FocusList). Novellus has also invested
aggressively in 300mm capabilities. On last quarter's conference call,
management provided guidance for increased R&D spending, and 300mm was cited
as a major reason for the increase. We believe the company is closely involved
with some of the customers' application module and process development work
for 300mm. We believe Novellus is very well positioned to take advantage of
two imminent and profound transitions of semiconductor technology: copper
interconnect and 300mm wafer size.
Other segments and companies can also become prime beneficiaries of this
transition. Particularly, we see huge opportunities for automation, (e.g.,
PRI Automation, PRIA, $33 5/8, Not Rated), lithography (e.g., ASM Lithography,
ASML, $49 1/4, Not Rated), wafer manufacturing equipment (e.g., SpeedFam-IPEC,
SFAM, $15 3/16, Not Rated) and process control (e.g., KLAC, $54 11/16, Not
Rated).
1999 Copyright Hambrecht & Quist LLC.
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