26 July 2004 00:01 [Source: ICB Americas]
Exhibitors at this year’s Semi-Con West were celebrating the end of the downturn that had afflicted the semiconductor industry, and theymade a unified front to show it—but even the more sanguine among them commented on potential market cycli-
cality. Organized by the San Jose,Calif.-based Semiconductor Equipmentand Materials International (SEMI), SemiCon is the largest exposition in North America dedicated to semiconductor manufacturing. The show was recently held in San Francisco and San Jose over the course of five days, with an estimated 60,000 to 70,000 people attending, and more than 1,500 exhibitors, representing all facets of the industry.
Customers “may still be feeling the bruising effects of the stock market downturn,” says Stuart McIntosh, exec-utive vice president of the Veldhoven, the Netherlands-based chip manufacturer ASML Holding NV. However, “the overall tone at SemiCon was cautiously optimistic,” says Deutsche Bank’s David Begleiter. Eric Johnson, chief operating officer of the Sunnyvale, Calif.-based JSR Micro Inc., adds that after this last downturn, “which was particularly bad,” producers and suppliers “are moving a bit slower; they’re a bit more cautious…The decisions seem to be more considered.”
Improved semiconductor production volumes, coupled with the ongoing shift to 300 mm fabs are driving increased demand for electronic chemicals and gases, “even as next-generation technologies create new opportunities for electronic materials,” notes Mr. Begleiter. SEMI says that the electronic materials market, which was valued at $23 billion in 2003, will reach $30 billion by 2007. The San Jose-based Semiconductor Industry Association (SIA) projects that semiconductor sales will grow by 28.6 percent to a new high of $214 billion this year. The previous sales re-cord was in 2000 with revenues of $204 billion. The SIA forecasts sales of $223 billion in 2005 (4.2 percent growth), $221 billion in 2006 (a decline of 0.8 percent), and $247 billion in 2007 (11.7 percent growth).
“The post-2000 trough was a very unusual event that won’t be repeated anytime soon,” says George Scalise, the SIA’s president. “Cycles are becoming more moderate,” says Tetsuro Higashi, chairman of Tokyo Electron Ltd., because applications for devices are more diversified and production times are shorter. He points out that while PCs and mobile phones used to be the major applications for the market, digital consumer applications now dominate.
Cycles going forward will be more like those in the early 1990s, adds George Chamillard, chairman of the Boston-based equipment supplier Tera-dyne Inc., with small declines for a shorter period, as opposed to the bubble of 2000 and the protracted and deep downturn that followed. “I do not think we’ll see a trough that looks like the previous one,” he says. He adds that the equipment industry is well positioned for strong earnings growth because it was able to reduce costs during the previous downturn and achieved productivity gains in engineering.
Others perceive at least one more stronger dip before cyclicality moderates. ASML’s Mr. McIntosh says semiconductor cyclicality points to a drop at some point to where sales return to a range of $140 billion and $160 billion, but then surge again.
The current strong growth is partly due to the previous slump as there was essentially no investment for two to three years during the downturn, indi-cates San Jose-based consultancy VLSI Research. “Then suddenly, the industry woke up sometime last year and realized they were running out of capacity,” says VLSI analyst Risto Ruhakka. The majority of the current growth is in Asia, especially Taiwan, Japan, Korea and China. “All the activity is in Asia,” he says. “US investment numbers are declining for chip making.”
“The supply chain tells me that more and more business is in Asia,” agrees Mr. McIntosh, who reports that about two-thirds of ASML’s sales originate in that region. “We see higher Asian visibility in this upturn.”
“The growth in our semiconductor equipment revenues and profits this year is primarily from increased demand in Asia and market share growth in our OEM [original equipment manufacturers], equipment business,” says Sean Mallory, vice president for the semi-conductor sector for Nor-Cal Products.
Mary Puma, president and CEO of the Beverly, Mass.-based Axcelis Technologies Inc., stated at a newspanel hosted by the San Francisco-based marketing firm Loomis Group, that by 2009 the Asia Pacific market, “more specifically China,” will be-come the leading consumer and manufacturer of electronics. This will drive several changes, including “design for price”—when engineers design next-generation tools using both technology and low-cost parameters, not just technology targets as it had been in the past. Ms. Puma points that more suppliers will develop Asian manufacturing capabilities, “and it’s quite possible that we’ll see one or two major equipment suppliers move their headquarters to the region.”
Gartner Dataquest of Stamford, Conn., projects that the Asia Pacific semiconductor industry will grow 27.4 percent to $90.8 billion this year, fueled by demand in China. By 2008, the Asian semiconductor market is expected to reach $138.8 billion. “The migration of the electronics equipment market to the Asia-Pacific region continues unabated,” adds the SIA.
While industry observers note that with better telecommunications a company’s headquarters could be anywhere, they also note that the industry’s moving to China will not be total and complete. The connection to the academic world is too strong—as well as too important—to move elsewhere, and people want to stay in the US for access to the capital markets, says Jerry Cutini, president and CEO of Scotts Valley, Calif.-based Aviza Technology. “They want access to Wall Street.” And while China is actively developing capacity, Mr. Cutini warns “that will lead to overcapacity.”
“People are not going offshore as much as it might seem,” says JSR Micro’s Mr. Johnson. “While the number of companies has dwindled some, the US customers that are still hereappear to be committed to keeping some sort of manufacturing and technology investment in the US.”
But Mr. Cutini sees a time in the near future when, as the cost and complexity of integrated circuit design and manufacturing increases, so will semiconductor capital equipment and fab costs. “Economic realities will force industry consolidation and result in an industry with fewer customers and suppliers,” he says. In June, Goldman Sachs US Research reported, “We believe that the maturation of the semiconductor industry is leading to fewer new entrants in to the semiconductor market in this cycle as compared to previous cycles when there were a significant number of new entrants.”
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