I think the typical global IC sales pattern will be muted -
The state of the semiconductor industry: Q&A with SEMI president Stanley Myers
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Michael McManus, DIGITIMES, Taipei [Thursday 11 September 2008]
When looking to divine the direction of the semiconductor industry, it makes sense to turn to SEMI, the global industry association serving companies that provide equipment, materials and services used to manufacture semiconductors devices.
Before Semicon Taiwan 2008 kicked off, Digitimes had the opportunity to correspond with Stanley T Myers, president and CEO of SEMI since 1996 to discuss updates and forecasts for the semiconductor equipment market, the transition of 300mm production to the mainstream and the role of cycles in the industry.
Equipment market forecast
Q: SEMI expects global semiconductor equipment sales to fall 20% to US$34 billion in 2008. Does SEMI see this drop as part of an industry cycle or are there any seismic shifts being seen in the industry?
A: Keeping in mind, the market for capital equipment nearly doubled from US$22-43 billion between 2002 and 2007, and has grown four of the past years, the current decline is primarily a reflection of investment cyclicality. Unit demand remains strong, and sales of semiconductors are improving, so fundamental demand is intact.
Manufacturers remain cautious at this time due to concerns about more fundamental global economic trends, but we do not see a "seismic shift," rather, a continued relentless focus on productivity, efficiency and technology, to satisfy consumer demand for electronics.
Q: While many market watchers look at growth in the semiconductor industry, they often look at sales growth while neglecting to take into account shipment growth. However, in terms of unit shipment growth the market is seeing strong growth (capacity should increase about 10% this year I believe). Can you comment on the role and effects of unit shipment growth on industry players, and the influence such growth has on the equipment industry?
A: Obviously, unit shipment growth directly influences the requirements for manufacturing capacity.
Over the past 3 to 4 years, where unit growth has been stronger than chip revenue growth, which is really a reflection of the market dynamics occurring in the memory sector, where a significant amount of new capacity that has been installed in recent years to meet growing demand in several applications such as portable electronics.
However, memory makers are competing for market share and as a result, the average selling price of their devices have fallen sharply. This creates a challenge for these manufacturers and the suppliers that support them, as the companies must invest in new capacity and new technology to compete, while existing margins are being squeezed.
So here in 2008, the cutback in capital spending is quite noticeable in the memory sector and is a big contributor to overall 20% (or more) decline in equipment spending we are estimating for this year.
Q: What will be the key areas of growth over the next few years, and which technologies should we keep our eye on?
A: Investments in 65nm technology are well underway, and we will see increased spending for 45 nm and below technology. This will require a whole new set of materials to fabricate transistors, gates, and interconnects, and has resulted in a lot of exciting and challenging developments in materials processing, from deposition and CMP to metrology.
Packaging continues to be a segment that spawns many new innovations. Multiple stacked die and wafer technologies are driving materials and process development in the Back-end, and in some respects, these innovations create a convergence with Front-end wafer processing.
Key segment: Memory
Q: The memory sector has been a key driver of growth in the semiconductor equipment market, and despite a slowdown in investment in 2008, the sector is the biggest in terms of capacity and its share of overall capacity and its share should increase in 2008 (I believe). How do you foresee the memory market rebounding in the future and do you think capex growth in the segment will return to previous levels?
A: In addition to our data collection program for equipment, we track company by company spending in our World Fab Forecast report, which looks at the capex for equipping Front End, Pilot line and R&D fabs.
As mentioned, we are seeing significant contraction in 2008. However, we are expecting positive growth year for 2009, which is mainly driven by memory. The demand prospects for memory devices—in units—is expected to increase dramatically over the next several years, thus memory makers need to continue to invest in capacity in order to maintain or increase market share.
The industry seems to learn from past experience (such as the spending cutbacks in 2001/2002 and 2008), and most companies are more careful with their capex plans. This is why the trend for capex will continue to rise, albeit at a slower rate for the next couple of years. Beyond this, the equipment market may eventually reach the levels we witnessed in 2000.
Effects of geography
Q: As key economies, such as Europe and North America, see slower growth, do you think that will affect how (and in what market segments) semiconductor players will invest?
A: The economies of Europe and North America are large, though consumers in these markets are affected by rising energy and commodity costs and by the global financial crisis. An economic slowdown will impact consumer spending, which is a key driver for the semiconductor industry. Specifically regarding European and North American device makers, a number of companies are increasing investments in their manufacturing capacity in Asia or forming manufacturing partnerships/joint-ventures in Asia.
Another aspect of consumer spending is the growing economies of China, India and other emerging regions, where the buying power of the consumer is increasing and contributing to the growing demand for semiconductors. Spending in these and other emerging markets is a contributor to electronics demand growth.
Fab-lite
Q: Many IDMs have taken a fab-lite approach to manufacturing and have limited their investments in advanced submicron manufacturing. Has this trend had an influence on overall investment in the industry (or has the investment simply been shifted over to the foundry segment) and can we expect this trend to continue in the future?
A: Looking at the World Fab Forecast, there are more foundries in the market in 2008 than in 2000, but looking at the share of capacity of foundries compared to overall fab capacity has been quite steady at about 20-25 percent share of the total global fab capacity base.
IDMs are still contributing major capex and will do so in the future, especially in the memory segment of the industry, which is still IDM-dominated. The type of business may look different though as fabs get larger and larger, while the continued shrinking of advanced technology nodes drive costs up. Any single company cannot bear the burden of cost and risk so this leads to the formation of joint ventures and alliances. We see this for R&D as well as for manufacturing. The Fab-lite approach may have caused a slower growth rate of capex, but capex will still continue to grow mainly for IDMs.
Energy and material prices
Q: The semiconductor industry has benefited from strong growth in emerging markets, but this growth has also gone hand in hand with higher energy and commodity prices. Can you comment on how the issues of rising energy and commodity prices is influencing the semiconductor industry, especially in terms of materials providers?
A: There is the immediate impact of higher prices for materials consumed in the fabs and the packaging plants. Prices for process chemicals, gold wire, encapsulant materials, etc., have increased over the past couple of years and, as such, we have seen an increase in the percentage of materials spending per overall semiconductor revenues.
This, and the requirement for new materials, has also contributed to higher R&D and manufacturing costs, is a factor in the development of joint ventures and collaboration through consortia.
Also, companies look to reduce the impact of materials pricing through reducing the amount of materials consumed or using a substitute material. A prime example of this is seen in the bonding wire market where companies have transitioned to smaller diameter gold wire to reduce the impact of gold metal pricing and increased development activity in using copper wire as an alternative. Higher gold wire costs may make flip chip technology a much more attractive interconnect approach for some device types.
450mm production
Q: With the semiconductor manufacturing industry only currently moving to 300mm as the mainstream, SEMI (and equipment makers) have come out against a quick move to 450nm. Can you provide some insight about how SEMI believes investment should be targeted to what you call "smaller, cheaper, faster"?
A: We believe the industry can benefit from working on technology and productivity improvement in 300mm.
A 450mm wafer transition could cost the industry between US$20 and US$30 billion. A recent 450mm economic analysis published by the SEMI Equipment Productivity Working Group (EPWG) concluded that the return on such an investment is not there for the equipment and materials industry at this time.
While it is true that productivity gains were realized during the 300mm transition, close analysis showed that almost all the improvements were unrelated to an increased wafer size. Significant productivity gains were achieved by the adoption of automation and FOUP technology, and these benefits were underway before the 300mm transition began, and may not be again realized with a 450mm transition.
SEMI does not permanently discount a transition to larger wafers. However, it is important to note that such a shift will only make sense when we have truly exhausted the technology and productivity improvements that can be done in the 300mm base, and when the market growth is there to support such a significant investment.We believe 300mm still has a long life. I would also like to point out that there are abundant opportunities to address productivity and other issues for the older generation 200 mm fabs, which still represent a significant share of operational capacity around the world.
Challenges in 2009
Q: What are some of the key issues for SEMI to address moving into 2009? Does the organization see its role evolving?
A: SEMI remains committed to its core mission to help members grow more profitably, create new markets and meet common industry challenges. In 2009, SEMI will be further focused on the issues of intellectual property protection; environment, health and safety issues; energy conservation; the evaluation of economic justification for a potential wafer transition; workforce development and other issues which members' rate as top industry-wide priorities.
In addition to the core focus on semiconductor manufacturing technologies and business trends, greater numbers of SEMI members are pursuing emerging market opportunities – and specifically, the quickly developing photovoltaic industry. About 20 percent of SEMI members are actively interested in PV manufacturing supply-chain In fact, this year, we announced the formation of the SEMI PV Group to – address opportunities and obstacles in bringing low cost PV technology and sustainable, clean energy to the world.
In 2009, we will continue to strengthen important services for the PV industry, including standards, market information, policy advocacy and world-class events. |
