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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (11302)	11/17/1997 8:47:00 PM
From: Platter	Respond to of 70976

Taken from Briefing.com 11/17/97..... Briefing: What is your expectation for the pace of orders growth in the semiconductor equipment industry next year? What factors will contribute to either a slow down or an increase in orders? Jerry Fleming: There are two sets of variables impacting the growth rate for this industry. The first is the currency/banking situation and DRAM prices which we think will be short-term (next couple of quarters). The more serious issue is that the group is on the verge of having to make significant technological changes in the way chips are made. Wafer size is going from 8 inches in diameter to 12 inches and the interconnect material is going to copper from aluminum. This conversion will be expensive - one and a half to two times the cost of prior chip making equipment but will yield two and a half times as many chips per factory which will ultimately be a boom. In the interim, the chip equipment companies will have to incur the cost of developing and producing the new equipment and endure the lag time while the chip makers first upgrade existing equipment and then slowly, when the technology is perfected, make the capital expenditures for the conversion. We think that growth in the next two years will be relatively moderate. The semiconductor equipment industry has been growing at roughly 17-18% for the past 20 years. We are forecasting 5-10% growth in 1998 and 1999. We think that the following segments will beat the industry average because they are already selling equipment for the next generation and/or will benefit from plant upgrades before the conversion. (1) Lithography (imaging chip patterns on silicon): In this interim period, chip makers will shrink chips so that they can get more chips per wafer and to do so, they need smaller lenses. The large players are all foreign - Nikon (NINOF), Canon (CANNY), and the Dutch company, ASM Lithography (ASMLF). ASMLF does the best job in DeepUV, but it is number three in terms of overall market share. The US way to play this part of the market is Cymer (CYMI) which makes the laser that is the heart of each of these lithography systems. The stock has not been cheap so we shied away from it. However, since it has come down quite a bit (19 1/4 from its 52-week high of 49 1/4), we may be adding it to our radar screen. (2) Wafer inspection/ Metrology: The industry norm for inspection historically was random sampling. In an effort to increase the number of good chips per plant, companies are moving to increased inspection during more of the steps in the manufacturing process. The solid number one player in this arena is KLA-Tencor (KLAC). ADE Corp (ADEX) makes inspection equipment for bare wafers and has as strong a sales position in that market as KLAC has in sales to chip makers. (3) Interconnect technology (deposition and etch equipment): Prior to the transition to copper, chips will get smaller and the aluminum wires connecting the transistors will get narrower but more of those wires will need to be stacked on a chip to preserve speed. Novellus (NVLS), Applied Materials (AMAT), and Lam Research (LRCX) are our favorites. Long-term, Novellus wins as they have a good portfolio of products for the transition phase and are one of the leaders in development of copper technology. A new process has emerged in deposition called CMP (Chemical Mechanical Planarazation) which will be used with copper as well. It smoothes and polishes each layer which is necessary before another layer can be applied. Integrated Process Equipment (IPEC) and SpeedFam International (SFAM) both have this as their principal business. LRCX and AMAT have entered this market, but IPEC and SFAM have the superior equipment. We may add SFAM to our radar screen in the near future.