by Caryn Sykes, Frost & Sullivan

MANUFACTURERS NEED TO PURSUE OTHER AVENUES AND NEW MEDIA TO DIVERSIFY PRODUCT DEMAND.

The semiconductor industry is at it again. Growing and stalling, then shrinking, then growing again, usually leaving cleanrooms goods and services providers to ride the crest, or perish in the wake. The cleanrooms air filtration industry is no exception to this, and provides companies supplying cleanrooms with non-contaminated air with their own set of challenges.

Inconsistent growth

The semiconductor industry traditionally has been the largest user of cleanrooms in the United States. Therefore, the semiconductor market has historically dictated the ups and downs of the cleanroom filtration market. In 1995, semiconductor sales skyrocketed, with growth rates in the high 30s, according to the Semiconductor Industry Association. This fueled a boom in which not only an increased number of filters for cleanrooms were purchased, but these were filters of higher efficiency rates.

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However, with the onset of the Asian Economic Crisis in 1997, and saturation of other markets of products that use semiconductors, the semiconductor industry saw sales drop dramatically, prompting manufacturers to cut back production. This caused construction and use of cleanrooms to drop off, significantly hampering sales of filtration products and other equipment. Now, since the resolution of the crises, and with the increasing use of wireless communications and Internet applications, the Asian semiconductor industry is again seeing healthy growth, which is expected to continue and increase back into the double digits, at least for the short term.

However, the U.S. semiconductor industry is not expected to see growth at the same level it did in 1995 in the near future, as less-expensive semiconductor products produced overseas have become increasingly popular.

The predominant types of filtration used in cleanrooms are high-efficiency particulate air (HEPA) and ultra-low penetration air (ULPA), although ASHRAE and carbon filters are used for some applications. The market for HEPA filters and ULPA filters is generally the fastest-growing segment of the air filtration market, due to its extensive use in cleanrooms, when the semiconductor industry is having an “on” year.

The concern for contamination in the cleanroom environment along with demand for higher-efficiency filtration continue to drive this market. In 1999, sales of HEPA and ULPA filters at the manufacturer's level for the cleanrooms market were estimated to be $55 million. The growth rate was an estimated six percent. The growth rate in the last six months of 1999 was higher, and is expected to increase in the short term to levels of approximately eight percent.

Strong market influence

With the changes in semiconductor growth, and needs of that industry, combined with other electronics industries and the bio-clean industries, the cleanroom filtration landscape is constantly changing. The semiconductor market has a strong influence on the air filtration market in a number of ways. Although many of these general trends are happening in other cleanroom industries as well, the inconsistent growth of the semiconductor industry amplifies its influence. Current ways the semiconductor industry is influencing the market include capacity and labor problems, demand for higher standards, and increasing use of minienvironments.

Capacity and labor problems. The inconsistent growth of the semiconductor industry has spurred two major issues for many manufacturers; excess manufacturing capacity during slow periods in the market, and a shortage of labor when the market is growing at high rates.

Many companies geared up manufacturing and labor to supply the large demand in 1995. After the slow-down in growth in 1997, many manufacturers have been left with excess capacity in terms of both equipment and space. Some manufacturers have taken this as an opportunity to expand production of other types of filters. This is one of the causes of the mass consolidation that has occurred in the industry. Filter companies with a hot product may be able to use manufacturing resources of new subsidiaries that may be having an off year.

Now that the cleanroom filtration market is on the upswing again, and demand is increasing, excess capacity is being utilized to a larger extent. However, many manufacturers are finding that during an economy with a low unemployment rate, skilled labor is becoming difficult to find. This especially is the case as the U.S. moves towards becoming a service economy, thus limiting the size of the potential workforce being trained in manufacturing and industrial engineering.

High standards. As a result of the increasing growth rates in the semiconductor markets, price has become somewhat less important to users than issues such as quick delivery times and lower failure rates. However, the intensifying competition in the air filtration market has prevented prices from increasing. In fact, prices have stayed low while users have been able to have their demands for higher standards fulfilled without paying a premium.

Much of the manufacturing world has embraced a “just-in-time” mentality. This is especially apparent in the electronics and semiconductor industries where time periods are no longer measured in years, but in quarters. Users are under pressure from customers to get products out yesterday. In turn, semiconductor manufacturers and cleanroom operators pressure air filter manufacturers to respond in a rapid manner as well.

Not only do users want quick delivery times, they want higher quality checks and lower fail rates in order to produce higher yields. This is especially important because of the critical nature of the work being done in cleanrooms. This pressures Quality Assurance departments to spend more time and expense to rigorously test filters.

One of the issues that increasingly higher standards has brought up is the use of materials for filters. Although filter media has not been a major cause of problems, non-media components are sometimes being found to be the sources of contamination in cleanrooms. With increasingly higher levels of cleanrooms, many times users run into contamination problems and have problems identifying the source. Users may give manufacturers specifications they believe will handle the work, but may return complaining of contamination problems that can sometimes be traced to materials like sealants and testing materials. Quality control is expected to remain an important issue in the future, and should be addressed by companies seeking to succeed in this market.

Minienvironments. As manufacturers push for lower levels of contamination, cleanrooms are seeing an increased use of mini-environments over the traditional ballroom type settings. This allows cleanroom operators to more strictly control the level of contamination in the room, along with lowering operating costs. While good for cleanroom operators, it is not as welcome by filter manufacturers as it reduces overall demand for air filtration products. However, this trend will probably increase sales of highly durable, low-outgassing media, such as polytetrafluoroethylene (PTFE). The high durability of this media makes it less susceptible to damage, thus decreasing the long-term operational costs.

Confronting cyclical growth. In the second half of 1999 and first half of 2000, the semiconductor industry has been experiencing growth rates closer to levels prior to the Asian Economic Crisis. However, the market is not expected to experience the same explosive growth rates as in 1995, due mostly to excess capacity left over from the past few years and relocation of manufacturing facilities from the U.S. to Asia.

While current growth rates in the semiconductor market might show promise, it is very important to keep the cyclical nature of the market in mind. As the ups and downs of the semiconductor market are projected to continue, companies that are able to coordinate capacity and production with upswings and downswings in the cleanrooms demand are likely to stay ahead of competition.

Part of this planning is incorporating sales to other markets such as biotech and pharmaceutical, to lessen the impact of a bad year for the semiconductor industry. Biopharmaceutical industries are areas that are expected to experience high, consistent growth, in the low double digits, over the next five years. In addition, biopharmaceutical industries are expected to experience more even growth than the semiconductor industry, due to technologies driven by more constant factors such as the increasing size and age of the population.

Embracing new media. As the semiconductor industry pushes for higher yields, it has also made contamination issues more delicate. The push for lower levels of contamination has led to an increase in demand for synthetic media such as PTFE, an increasingly popular media in the cleanrooms market. Traditionally, process and materials in the semiconductor market produced a great deal of outgassing, contaminating chips and other products being manufactured.

Also, due to the delicate nature of traditional media, HEPA filters are easily torn or destroyed. PTFE is a media that offers greater durability and less outgas than traditional media. Although more expensive, users are finding that the PTFE media is more economical in the long run, due to increased durability and reductions in costs from contamination.

An increase in the use of mini-environments should increase the need for filters that outgas less and are more durable. Although this trend may reduce overall sales, due to the need for fewer filters, it is expected to increase sales for more expensive filters made of PTFE, thus driving up average unit prices in the filtration market. As demand for these filters is expected to increase with the rise in mini-environments, filter manufacturers that can fulfill those demands will have the advantage in the market.

Effectively consolidating. The air filtration market has experienced a mass amount of consolidation over the past several years. This has given big companies more buying power and technical ability. Consolidation has also had an effect on distribution. Many distributors prefer to give business to the big companies that have a full line of products, dropping smaller companies that cannot provide one-stop shopping in the process. Among major mergers that have occurred are Clarcor's purchase of Puralator, Filtration Group's purchase of Environmental Filter Corporation, and Flanders' purchase of Eco-Air.

As the largest user of cleanrooms, the semiconductor industry strongly influences the well-being of air filter manufacturers. Only time will tell which manufacturers will be able to take on the challenges in the market, while making the best of the many opportunities still in existence.

Caryn Sykes is a research analyst, environmental health and safety, at Frost & Sullivan.