Electronic attraction

09 October 2000 00:00  [Source: ICB]

The Asian crisis hit electronic chemicals hard through 1998. The decline in the global market for electronic chemicals and the related pressure on suppliers kick-started industry consolidation, according to UK-based IAL Consultants.

The global market for printed circuit boards (PCBs) is now recovering from a wider downturn in the electronics sector, which followed in the wake of the Asian economic crisis. Pricing in this market is very competitive. Recent IAL research indicates that pressure on electronic chemicals suppliers to this market has resulted from increased globalisation of PCB manufacturing and supply networks.

Electronic chemical suppliers have introduced new technologies and products in a bid to stimulate market growth. One example is the SiLK low dielectric constant resins used as insulating layers in high-density and high-speed integrated circuits.

Today's semiconductor manufacturers are demanding more for less - better products and services at lower prices. One of the big trends to result from this is the formation of alliances between suppliers of different processing materials. The marketing alliances seen between gas companies such as Air Liquide and chemical suppliers such as Arch Chemicals are a typical example. IAL says that another growing trend among businesses involved in supplying electronic chemicals is to subcontract chemicals management to include water and recycling facilities.

As well as blaming the Asian crisis for the recent slump in the semiconductor industry, global semiconductor overcapacity and tight inventory management by equipment manufacturers were also at play.

But the market is now expanding once again, thanks largely to booming Internet use and the exponential increase in e-commerce throughout the world, which has taken over from the PC as the main driver behind growth.

Chasing the dragon

Taiwanese manufacturers benefited from the Asian currency devaluation. Taiwan is one Asian country now moving towards self-sufficiency in terms of sourcing its own electronic chemicals. Companies such as Laporte Electronic are able to capitalise on this through local subsidiaries.

Other countries in the Asia-Pacific region with low manufacturing costs, like China and Thailand, are also benefiting from foreign investment and new electronic production technology. US and European markets are likely to see the impact from cheap imports from South East Asia.

Production drift to China

China in particular has seen PCB production transferred from countries such as Japan, Hong Kong and Taiwan, says IAL. Taiwan's Union Petrochemical Corp (UPC) formed a joint venture with Rohm and Haas' electronics division Shipley Ronal and Rexam Image Products last month to build China's first dry-film photoresist plant, at Zhongshan. Dry-film photoresist is used in PCBs and cellular telephones.

Shipley is supplying dry-film photoresist and related products to the Chinese and other Asian markets from its production facilities in Japan, North America and Europe.

US technology group Honeywell is also striding into Asian territory. In July it announced a global alliance to combine its wet process chemical business with Mitsubishi Chemical. The new alliance - due to be formed later this year - will have production facilities in the US, Europe, Japan and Taiwan, and it plans to add further manufacturing capacity in Southeast Asia. It will supply less-than-100ppt (parts per trillion) high-purity, wet process chemicals such as hydrofluoric acid, ammonium hydroxide, hydrogen peroxide and hydrochloric acid.

According to Honeywell chemical specialties' vice president Fred Lynch, the aim is to provide a comprehensive one-stop shop for semiconductor industry customers. 'The alliance creates the first truly global wet-process chemicals provider serving the semiconductor industry,' he said.

Honeywell's electronic materials group generates around $1bn of the company's revenues. Its offerings have swelled considerably following the merger in 1999 with AlliedSignal, which had electronic chemicals operations in the US, China, Korea, Japan, India and Singapore. AlliedSignal had just bought US-based Johnson Matthey's electronic materials business for $655m when it was subsumed by Honeywell. This incorporated European and Asian sites.

The latest move from Honeywell is an investment of $25m in a Singapore headquarters to support its business in Asia-Pacific. Annual sales growth in the region for electronic chemicals is around 20%. Honeywell chairman and ceo Michael Bonsignore said: 'We have significant growth potential in Asia-Pacific and will most definitely invest more in this region, expand our presence in China and India, and also pursue acquisitions in areas such as electronic materials, building controls and polymers'.

JP Morgan Securities puts the value of global semiconductor sales at $149.4bn in 1999. According to the Semiconductor Industry Association, semiconductor sales will increase by 31% in 2000, and 22% next year. Future growth areas include telecommunications and information technology, smart cards, electronic gaming and digital cameras.

The global consumption of electronic chemicals and materials in 1999 is estimated at $17.2bn, with the US garnering 38% of this, worth $6.5bn, according to Kline & Co.

Gas giants

Determined not to be dragged down by the impact of the Asian economic crisis on the semiconductor industry, industrial gas companies have been taking the lead in brokering alliances and acquisitions to remain competitive. The goal? To set up as 'one-stop shop' suppliers of multiple services to semiconductor manufacturers.

Market leaders Air Liquide and Air Products tried to take over the UK-based BOC Group for $11.2bn, but were scuppered by the US regulatory authorities.

US-based Air Products and Chemicals is an international supplier of industrial gases and chemicals, with 1999 sales to the semiconductor industry in excess of $600m and anticipated sales of $800m in 2000.

In July 2000 it formed a new business group - Air Products Electronic Chemicals (APEC) - focused solely on supplying a wider range of electronic chemicals and related on-site management services to the semiconductor industry.

APEC provides semiconductor manufacturers with the wet process electronic chemicals and related services. Air Products said the move was a response to the growing trend among semiconductor manufacturers to form relationships with industrial and speciality electronic gas suppliers. APEC president Donald Mitchell said: 'We want to be the single point of contact for all of the products and services our semiconductor industry customers require'.

At the same time the company also launched Trimega Electronics, a 50:50 joint venture with Kinetics Group focused on delivering total solutions service for new, start-up semiconductor fabricators and for major expansions of operating semiconductor facilities.

Trimega supplies a gamut of services including bulk gases, electronic chemicals, total gas and chemical management services, speciality gases and related equipment, utility management, turnkey high-purity piping, ultra high-purity flow control components, chemical and slurry distribution and blending equipment, ultra pure water and wastewater equipment, and reuse and reclamation systems.

Air Products said last month it will boost manufacturing capacity by more than 35% for its Gasguard ultra-high purity speciality gas equipment used by semiconductor manufacturers. The investment will be at its hub facilities in Allentown, Pennsylvania, and Ansan, South Korea.

Meanwhile, former takeover target BOC's electronic gases subsidiary BOC Edwards has been making moves to establish itself even more firmly as an electronic gases supplier and service provider to the semicondustor industry. It, too, offers onsite service to the semiconductor manufacturer. Gases and chemicals are provided at one end and abatement technology and vacuum services are provided at the other.

In August 1999 BOC Edwards bought FSI's Chemical Management division for $38m, providing it with expertise in high-purity chemical distribution systems and slurry blending and distribution systems for the semiconductor industry.

BOC expansion in US and SA

In February 2000 BOC Edwards agreed to buy Phoenix, US-based Kachina Semiconductor Services, to further expand its on site services business. Kachina is a tool component cleaning company providing selective chemical stripping, CO2 cleaning and surface enhancement technologies.

BOC Edwards recently acquired an equity stake in Texas, US-based Isinc, a semiconductor industry design and construction management provider. It is now building an NF3 plant in South Africa with local gas manufacturer Pelchem. NF3 is used to clean the chemical vapour deposition chambers used in semiconductor manufacture.

Air Liquide Electronics services producers of integrated circuits and silicon wafers, offering products and services including carrier and speciality gases, chemicals, projects and systems engineering and gas and chemical delivery and distribution systems.

Air Liquide has a global marketing alliance with Arch Chemicals. Under this alliance, each company provides customers with the unique products and services at which it excels, but also collaborates by promoting the other's complementary services as a comprehensive solution to chipmakers' needs.

In addition to ultra-pure gases and handling equipment, Air Liquide offers experience in the generation, purification and distribution of chemicals directly on customer sites as well as gas and chemical management services.

Arch's semiconductor chemicals and services group provides both current and next generation process chemicals for semiconductor manufacturing as well as on-site chemical management services.

Beyond the big three, Praxair offers design, engineering, construction, installation and ongoing site services through its Point One alliance. It has brokered a global alliance with Merck Electronic Chemicals, allowing it to provide a one-stop shop for gases and chemicals, as well as related equipment and services.

GLOBAL MARKET FOR ELECTRONICCHEMICALS BY REGION, 1994-2004, $M

			Growth,
Region	1999	2004	%/year
Japan	5511.3	7372.9	6.0
Nafta	5601.2	8361.5	8.3
Asia-Pacific	5136.8	7981.8	9.2
Western Europe	4125.2	6622.5	9.9
Rest of world	707.4	2551.2	29.2

SOURCE: IAL CONSULTANTS

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