by Ed Korczynski, Senior Editor, and James Montgomery, News Editor
Semiconductor growth has been very strong in 2006 so far, with “tremendous” demand for tools, particularly in North America, according to SEMI’s Stanley Myers, discussing the group’s midyear outlook for semiconductor equipment and materials during a lunch panel presentation during the first day of SEMICON West on Monday, July 10.
SEMI now pegs the overall equipment segment at $38.81 billion, growing 18.0% from 2005, roughly double the rate SEMI forecasted in its year-end projections in December. Wafer processing sales are seen growing nearly 20% to $27.42 billion this year, almost triple the rate forecasted six months ago. Smaller increases in growth are also projected for assembly and packaging equipment (11.7%, to $2.38 billion).
However, SEMI has slashed its outlook for 2007, similar to a recent outlook from Gartner Inc. SEMI now expects total equipment sales to rise just 1.4% in 2007 to $39.36 billion, instead of a previously projected 12.3% increase. The outlook for wafer processing sales, as well as the catch-all “other” category, have been cut from 12%-13% growth to just about flat for the year, while the assembly/packaging segment will slip 1.7% instead of a previously forecasted 13.4% increase.
The big story so far in 2006 is strong bookings growth in all regions, but particularly in North America, which enjoyed 71% year-on-year growth in equipment bookings from Jan-May, according to Stanley Myers, president and CEO of SEMI. Demand is heavy due to domestic facility investments from IBM, IM Flash (Micron and Intel’s JV), Intel (Fab 12 and 32), Micron (Fab 6), Qimonda (Infineon’s former memory unit), and TI. He noted strong end-market demand for ICs is being fueled by consumer electronics, inventories remain stable, capacity utilization rates are strong, and silicon shipments are at an all-time high.
Panel participants generally agreed with the sentiment that 2006 is shaping up to be a relatively robust year for the industry. “The growth areas are across the board,” said George Scalise, president of SIA, pointing out that the consumer now drives approximately 53% of the chip industry, so the chip industry is more aligned with the economy. 2006 will be “the first billion-unit year for cell phones, Scalise pointed out, while Joseph Bronson, president of FormFactor, added that increased cell phone functionality will drive growth in mobile RAM. “We’re finally at a stage where applications capabilities have caught up with the functionality that semiconductor makers can provide,” he said.
David Miller, VP and GM of DuPont Electronic Technologies, agreed in general terms with long-term positive trends, but countered that “we’re seeing some short-term slow downs in cell phones, especially in Asia but also in the US.” He noted that SEMI and Gartner are forecasting a slowdown in growth in 2007, but “I think it’ll be back to trend growth.”
Richard Wallace, CEO of KLA-Tencor, still sees plenty of opportunities in the ongoing shift to 300mm wafers. “The memory manufacturers are probably only halfway through the conversion,” he said, adding that the emergence of foundries has given chipmakers an option for adding capacity without building their own facilities, allowing them invest at rational levels.
Bronson added that the NAND flash market is “growing phenomenally,” with bit growth this year exceeding 200%, and likely higher in 2007. Wallace agreed that NAND is now seen as a major driver, particularly for leading-edge design rules. Both men agreed that more fabs will be built not only for dual use (DRAM or NAND), but also specifically for NAND flash.
The continued emergence of China and the US’ semiconductor industry’s ability to sustain long-term competitiveness were particularly hot topics addressed by the panel. For equipment suppliers, China remains a longer-term investment strategy, one that’s been slower to materialize than originally thought. DuPont’s Miller, though, said the short-term slowdown “is a short-term thing,” and he still expects to see aggressive investments over the long term, “not just in materials, but up the chain as well.” Bronson of FormFactor noted that subsuppliers will need to be “very local,” actually situated in China to take full advantage of upcoming growth in the Chinese market.
Scalise noted SMIC has announced it will be opening two new fabs, both of which will be financed by local state governments. Meanwhile, US leading-edge capacity as a percent of the world has declined to be only ~15%, down from 35%. “Currently, 85% of Chinese IC demand is supplied by imports, and government and industry there have a very strong plan to invert it so that they’ll supply 85% of their demand internally,” commented Scalise. He noted that the SIA had its first board meeting in China last month, and expressed enthusiasm for what he called “a well-aligned gameplan from the industry and government, noting that Vice-Premier Zeng Peiyan is a former engineer and “very knowledgeable” about the industry.
Three efforts are needed to keep the US at the forefront of global chip R&D efforts, according to Scalise: ratchet up spending, including federal funding, at R&D at universities; figure out how to expand the workforce, including addressing H1-B visa cap issues; and make a commitment to help finance new capacity additions.
FormFactor’s Bronson offered a more critical take on the competitiveness of the US vs. other regions. “This country is not supporting high-technology at the policy level — we can’t even get the R&D tax credit passed,” he said, adding that other countries are ahead of the US in things such as national labs and education opportunities. Another big requirement to remain competitive is solidifying IP protection, but Bronson thinks the US government “doesn’t have a clue how to protect IP.” As much as 65% of FormFactor’s revenues are now coming from Asia, he said, but without IP protection, “our property, in our view, is being compromised all over the globe.” He also acknowledged the need for new SEC requirements such as Sarbanes-Oxley, but such rules also put smaller companies at a disadvantage — “spending millions in compliance costs, while foreign competition is spending it on R&D.”
“The industry is not profitable enough,” Bronson added. “There has to be better pricing to encourage R&D investment. Not getting the prices necessary to make the R&D investment simply slows down innovation.” Added DuPont’s Miller, speaking from a materials-suppliers’ perspective: “The cost of R&D is so high that it must be averaged across multiple product lines, or it’s very difficult to finance.” Many materials used in the past were already available off-the-shelf and merely needed to be filtered and re-packaged for semiconductor manufacturing applications. Now, he said, there are custom designed materials with much greater investment needed in basic R&D, which drives the greater use of pre-competitive consortia for advanced materials development. — E.K., J.M.