What's fueling the materials business?
10/01/2004
Solid State Technology asked materials experts to discuss the new dynamics driving the materials business.
Continuing trends force materials suppliers to keep the lid on costs
 Lita Shon-Roy |
Lita Shon-Roy, John Housley, Steve Holland, Karey Holland, Techcet Group LLC, Genoa, NV
Materials required for producing semiconductor devices are supported by a small group of suppliers whose existence is only measured by their ability to withstand constant pricing pressure in the face of this cyclical industry.
There are 12 semiconductor process material areas cited by International Sematech as "critical" to semiconductor production, including advanced dielectric materials, advanced metallization materials, CMP pads/slurries, gases (bulk and specialty), graphite, photomask (reticles and photoblanks), photoresists/ancillaries, quartz (rods, tubes, ingots, fabricated, crucibles), silicon carbide, targets, and wet chemicals. These materials are supported by a limited number of suppliers; should any of them become suddenly unavailable, semiconductor manufacturing could be severely curtailed, or even worse, interrupted.
Although each of the material areas has its own issues relating to market drivers and technical challenges, Techcet has identified several "MegaTrends" that cross all material borders.
Continued consolidation among materials suppliers could significantly affect the semiconductor supply chain. Acquisitions allow suppliers to spread overhead costs over a wider array of products, usually giving them more ability to discount prices. However, the fewer the suppliers, the greater the impact should an interruption in supply occur.
Pricing pressure is also a continuing problem. Techcet has received a large amount of input from suppliers related to on-line bidding, which has put extreme pressure on profit margins. Over the past two years, several IC fabricators have implemented the practice of on-line bidding (also called a reverse auction) to get the best prices possible on high-volume or commodity materials. Customers often try to sweeten the deal by bundling the requirements of several of their fabs together, or requesting services in addition to products on the same RFQ.
Most fabs include weighting factors such as service, product quality, supplier track record, etc., and claim their buying decision is not based solely on price. Not all fabs will share the details of the rating outcome with a bidding supplier, however, and most will not disclose which suppliers (some of whom may be unqualified) have been invited to bid. The continued use of this bidding may result in the breakdown of customer-supplier relationships that have taken years to build. When margins get too low, suppliers may eventually decide that it is not worth it to stay in the business.
Bundling of products/services with lower margins along with those of higher margins is a strategy that allows the supplier to offer a better discount over a wide variety of products, but this tactic all but eliminates suppliers who only have a few products/services to sell.
The growth of materials companies in Asia adds further pressure to the supply base. The number of semiconductor fabricators is growing in China, and material companies are also proliferating there and in other parts of Asia. Most of the semiconductor gas suppliers are involved in joint ventures or partnerships in Taiwan, Singapore, Korea, and Japan. Notably, Chinese material companies that existed prior to the upturn of 2000 are far behind (some say by ≥10 years) in materials manufacturing technology for semiconductor processing. With multiple alliances in place and more established each year, however, it may take China only a few years to catch up.
Owning process material IP is a tactic equipment suppliers took during the last downturn to develop an additional revenue stream less sensitive to the cyclical perturbation of this industry. OEMs have started to write patents that include ownership of the process material as well as the process.
Additional pressure is placed on the materials supply base because of the reduction in R&D spending and the increased cost to support the next generation of devices. Look at what happened with 157nm — millions of dollars have already been spent on photoresist development. Unfortunately, this investment may go unrewarded with the advent of immersion lithography.
Increased prices for natural resources on which the industry depends is another issue that is being addressed primarily through government intervention.
With so many challenges facing the materials supplier base, it is not surprising that the overall number of suppliers is shrinking, giving way to those who can maintain a low cost position. Many technologists will advocate materials as the enabling factor for next-generation technologies. When the time comes, however, there may only be a few suppliers left that can afford to play in that game.
Acknowledgments
The authors thank VLSI Research for sharing its insights regarding the semiconductor equipment industry. Much appreciation and thanks go to International Sematech for its support of Techcet's Critical Materials Reports. MegaTrends is a trademark of Techcet Group LLC.
For more information, contact Lita Shon-Roy, partner and senior market analyst, Techcet Group LLC; e-mail [email protected].
A new substrate business model: Technical innovation
 Pascal Mauberger |
Pascal Mauberger, Soitec, Bernin, France
The advent of silicon-on-insulator (SOI) and other advanced engineered substrates is a winning proposition for wafer suppliers, providing them with enormous value to offer IC manufacturers. Transistor scaling on bulk silicon has hit the thermal wall: instead of getting faster chips, scaling in bulk has resulted in slower, hotter chips. SOI substrate technology is a key tool for breaking through the thermal wall; it boosts performance by a generation and cuts power consumption in half.
Breaking the commodity cycle. Engineered substrates are also putting an end to the days of the substrate commodity cycle, when bulk and epi were virtually the only options. With the lack of product differentiation, a vicious spiral of increased volumes and decreased pricing drove most to the point where they left the business altogether. That cycle has been broken — engineered substrates offer a new, value-added business model and an opportunity to return to profitability.
In the past, most of the progress made by the industry resulted from joint efforts by IC manufacturers and equipment makers pursuing an unrelenting drive to shrink geometries and increase the transistor count. Now, with the focus on front-end-of-line (FEOL) activities (such as gate stack engineering and transistor architecture), the materials suppliers have become part of the equation.
Volume substrate leaders like SEH and Siltronic are gaining leverage by offering new materials. Such a change requires a new model for industrial innovation, especially since materials suppliers have to be ready one or even two years ahead of IC manufacturers. Reining in long development cycle times for a faster return on investment (ROI) is one of the first requirements.
Tightening the development cycle. Advanced materials suppliers must work more closely with IC manufacturers and key equipment vendors to meet ROI time requirements. For example, the ramp to high-volume production of Soitec's Smart Cut technology took eight years. With strained SOI, new ways to pull in the industrialization cycle had to be found, accelerating R&D and encouraging the adoption of new material. Leaders in the equipment business had to be involved to ensure that the complete toolset for IC production was in place. After working closely with both equipment makers and end users, we expect to reach high-volume production just 5–6 years after starting the R&D phase.
Not surprisingly, to maintain the pace requires substantial investment. In the Soitec model, 8–10% of revenues are invested in R&D. A growing sales volume helps to sustain this, but another key is licensing strategy. The royalty revenues received from licensing Smart Cut technology help foot the bill for R&D efforts. In addition to creating new products, our business model requires us to move quickly to industrialize them. Soitec develops both basic IP and the manufacturing processes used internally, as well as by our licensees for high-volume production.
The evolution of the substrate business model and the industrial models that support it bode well for the future. A new triumvirate of materials suppliers, equipment makers, and IC manufacturers is breaking through the thermal wall and pursuing Moore's law, energized by the advent of engineering substrates.
Acknowledgment
Smart Cut is a trademark of S.O.I.TEC Silicon On Insulator Technologies.
For more information, contact Pascal Mauberger, COO, Soitec; e-mail [email protected].