Chip Makers Gird for Rise In Semiconductor Demand [WSJ]
By DON CLARK
Staff Reporter of THE WALL STREET JOURNAL 7.14.03
Throughout a three-year slump, semiconductor makers have invested in technology to make their products more powerful. So have makers of the esoteric manufacturing tools used in chip factories.
But orders for tools slowed to a trickle. Chip companies bought enough equipment to refine new manufacturing processes, but have held back from major purchases to prepare their factories for high-volume production.
"Our customers are really quite cautious about adding capacity," says Michael Splinter, chief executive officer of Applied Materials Inc., the largest maker of chip-manufacturing tools.
That caution could soon end. As the toolmakers gather for an annual U.S. trade show, dubbed Semicon West, industry executives point to signs of improved chip demand and are readying new tools and production techniques to exploit any resulting shopping spree.
One piece of evidence: Factories are filling up, hastening the day that manufacturers will increase capacity to meet demand. Taiwan Semiconductor Manufacturing Co., a foundry that makes chips for other companies, last week said its factories operated at 86% of capacity in the second quarter, up from 67% in the first quarter.
Market-research firm Gartner Inc. puts plant utilization at 81% for the entire industry, compared with 59% in mid-2001. Gartner last week predicted that world-wide capital spending by semiconductor makers, though off slightly in the second quarter, will rebound to grow 8% to $29.9 billion in 2003 -- after a 38% drop in 2002 -- and jump 37% next year.
"If the utilization at foundries keeps inching forward, and other major companies keep on their expansion plans, this thing could start coming back," says Jeffrey Benzing, an executive vice president at Novellus Systems Inc., a toolmaker in San Jose, Calif.
One spender is Samsung Electronics Co. The big South Korean company plans to sink $4.3 billion into semiconductor plant and equipment this year, up nearly 39% from the $3.1 billion it spent in 2002. That is more than even market leader Intel Corp., though Samsung's figures include $800 million for computer displays rather than on chips alone. Intel, after a multiyear investment binge, plans to spend between $3.5 billion and $3.9 billion in 2003, down as much as 25% from last year.
Excess optimism is possible. TSMC and other companies began placing equipment orders in the spring of 2002, only to cancel many of them by last year's Semicon because chip demand proved illusory, says Klaus-Dieter Rinnen, a Gartner analyst.
Toolmakers never stopped developing products, however, for fear of losing market share. The fruits will be on display at Semicon, which fills convention centers in both San Francisco and San Jose with production systems costing millions of dollars each.
Ultratech Inc., for example, will discuss an unusual machine that uses a laser for an important step in creating the microscopic transistors on chips. The process, called annealing, uses intense heat to diffuse chemicals into silicon wafers.
Chip makers originally used special furnaces for annealing, and then turned to a technology called rapid thermal processing, which is based on powerful lamps. But RTP systems are expected to stop working effectively when transistors get too small, because chemicals will spread imprecisely and cause current to leak.
Arthur Zafiropoulo, chief executive officer of the San Jose company, says it spent $70 million since 1994 on the laser-based technology, which is extremely precise. Ultratech expects its new machines to work on transistors as small as 20 nanometers, or billionths of a meter. That is four generations smaller than today's leading-edge chips, which could take manufacturers to 2018, says Somit Talwan, Ultratech's vice president of laser technology.
Another radical approach involves immersing the silicon wafers in water, using the liquid's refractive attributes to extend the ability of optical lithography systems to trace tiny lines of circuitry. A group of researchers who met Friday in San Jose, in a gathering sponsored by a consortium called International Sematech, concluded that there are no insurmountable barriers to the immersive approach, though toolmakers are still running their own feasibility studies, says Tony Chen, the consortium's co-director of lithography.
Other new products, from big companies such as Applied and KLA-Tencor Inc., reflect competitive battles in the industry. An Applied tool for a process called electrochemical plating, for example, is designed to breach a stronghold of rival Novellus. Applied also is introducing two etchers, another market where it faces tough competition, as well as an advanced system for polishing wafers.
But young companies also are taking a high profile. FormFactor Inc., a maker of chip-testing equipment, went public in mid-June and has seen its stock rise 38% since then. Intel was an early investor in that company, and is taking a more active role in funding young start-ups with promising technology.
"The focus is back on start-ups instead of shutdowns," says Sean Doyle, a managing director with Intel's venture-capital arm.
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