Doug - here's an interesting article on why the market for photomasks should continue to do well - deals with a competitor but is intesting what is said with regard to the photomask market:
Copyright 1997 Investor's Business Daily, Inc. Investor's Business Daily
April 17, 1997
DUPONT PHOTOMASKS INC.
Janet Purdy Levaux, Investor's Daily
Like other firms that make semiconductor equipment, DuPont Photomasks Inc. Chipmakers are cramming more circuits onto each generation of chips. And they're taking less time to do it.
''We are at an inflection point in the industry,'' said Michael Hardinger, chairman and CEO. ''Since (chipmakers) can now put more content onto a chip, our value - if we can deliver on time - is going up.''
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DuPont, which has seven mask plants worldwide, is quickly raising capacity to meet growing demand for the latest masks. These account for about 40% of sales, up roughly 10% from a year ago, analysts say.
Masks, which are quartz or glass plates, act like negatives of chip designs. They are placed on stepper machines and used to make reproductions of chip images on silicon wafers. The stepper serves as both a camera and a film developer in the process. It replicates an image on wafers coated with chemical film and, by exposing the film, leaves an impression of the design contained in the mask. That image is made of minute lines, spaces and dots - which are quickly getting even smaller.
Why? This allows chipmakers to squeeze more circuits onto chips, thus raising functionality and prices. In some cases, chip firms can also put more chips onto a wafer, which boosts their productivity.
But to make the shift, chipmakers need better technology. They have two choices, says Leonard Sanders of Needham & Co., a co-manager of DuPont's public offering in June. They can buy expensive new steppers - which might cost $ 6 million each - or turn to better masks. The latter option is far cheaper, with some sets of new masks costing $ 30,000 to $ 40,000.
That price difference is helping the mask industry catch up and perhaps outpace the chip industry in terms of growth. ''As we go from (designing at) 0.5 microns to 0.35 and below, mask technology is becoming even more important,'' Hardinger said.
The mask market is now growing at about 15% to 20% a year. But between '88 and '95, it grew only 8% annually. The chip industry, by contrast, grew at much higher levels in the past few years but has slown down recently. Analysts say, however, that mask sales are tied more to changes in chip designs than to changes in chip sales.
DuPont now has about a 40% share of the $ 600 million global market for masks made by independent companies. That makes it largest mask producer in the world, the company believes. Including sales in Japan -now basically closed to foreign suppliers - and chipmakers that make their own masks, the global mask market is valued at $ 1.8 billion.
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Today's rising demand is a welcome change from what happened in the late '80s and early '90's. ''A few years ago, as the resolution of steppers improved, standards for masks relaxed,'' Sanders said.
But no more. ''The mask, once again, is critical,'' Sanders said. ''The average selling price is rising. This change started last year, but we're still in the early stages.'' The latest masks can cost $ 5,000 to $ 7,000 each compared with $ 2,000 to $ 2,500 for older masks. That figure should continue to rise as the size of chip designs gets even smaller and resolution levels in steppers stop growing.
The race to design chips at 0.5 microns and below began several years ago. But the move to 0.35 microns and below got a big boost last year when memory-chip prices crashed.
''Chipmakers looked for every way in the world to raise the output of new devices and lower costs,'' Hardinger said. ''They (did) so by shrinking the geometry.''
But that move happened faster than DuPont had expected. ''Chipmakers accelerated the shift to 0.35 by a year or more,'' he said.
That caught the company off guard. ''We add capacity on a steady basis,'' Hardinger said. ''But demand outpaced it.''
In the second fiscal quarter ended Dec. 31, earnings rose 49% to $ 9.4 million, or 61 cents a share, from $ 6.3 million, or 41 cents, a year before. Sales were up 28% to $ 64.3 million.
DuPont Photomasks' stock, which trades by DPMI, is priced near 41. DuPont Co. owns about 70% of the shares.
Due to capacity constraints and softer sales in Korea, the mask maker's results came in short of growth rates in the preceding three quarters. In these periods, earnings growth had topped 120% on sales growth of 38% or better. In the March quarter of '97, results - which should be released April 23 -could suffer a bit for the same reasons, Hardinger says. But for the fiscal year ending in June, analysts expect the mask maker to earn $ 2.41 a share, up 46% from $ 1.65 last year, according to First Call.
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