to 65 nm may offer sole relief after 2004 buying binge
initial shift to the 65-nm process node later this year may provide the
only relief for semiconductor equipment manufacturers facing a letdown
after customers went on a spending spree in 2004.
very much going to be a mixed year," asserts Dean Freeman, chief
analyst for Gartner/Dataquest in San Jose. He points to a "precipitous
drop" recently in average selling prices for both DRAMs and flash
devices. Like starving shipwreck survivors, chipmakers binged on tool
buys in 2004. The binge has resulted in a capacity glut, Freeman and other
REDUX: Capital spending comparisons show a doubling of Korea's share
and a significant U.S. drop between 2000 (in parentheses) and 2005
SOURCE: IC INSIGHTS, ILLUSTRATION BY LAUREN NAGODA
by the industry's technology roadmap, the ramp-up to 65-nm processes expected
to come later in 2005 should buck up the industry's fortunes. Sales of
equipment crucial for the technological transition are expected to do
relatively well compared with other systems.
of the things we've been saying all along is that the industry just didn't
need to buy all that equipment and build all those fabs that it did last
year," asserts Robert Castellano, president of The Information Network,
a market research firm based in New Tripoli, PA. "One of the main
problems now is that we combined what could have been two years of growth
in the typical upcycle into one year."
mixed-signal message is reinforced by early semiconductor revenue figures
for 2005. The April edition of the McClean Report from IC Insights
in Scottsdale, AZ, parses data from the Worldwide Semiconductor Trade
Statistics (WSTS) to show a disappointing final quarter of 2004. Those
results are offset by relatively healthy chip sales in January 2005.
1996, the semiconductor market in January declined by an average of more
than 20%, the report points out. However, revenues dropped only 10.5%
between last December and January. This decline was the shallowest since
the industry's 1995 boom year. Then, to muddy the waters further, in February
global semiconductor sales declined by 0.5% from January's results, according
to the report. This decrease is significant because it marks the "first
February on record to show a semiconductor market decline from January's
results." IC Insights cautions, however, that the weak sequential
figures do not necessarily forebode a poor year for semiconductor growth.
of 10 total product categories, only two registered a market increase
between January and February 2005. Sales of MPUs and display drivers grew
22.5% and a paltry 0.6%, respectively, according to the McClean Report.
The remaining eight categories saw sequential declines as steep as 11.7%
for digital signal processors. In other product categories, revenues for
analog ICs dropped 5.5%, DRAMs decreased 4.1%, and MCUs declined 5.3%.
By contrast, in 2004 only two of the 10 categories—MCUs and display
drivers—saw sequential declines from January to February.
do these figures portend for capital spending in 2005? "We're right
in the middle of forecasting at this point," Gartner's Freeman says.
"But what we're looking at for this year is what we said in April.
Right now we think capital spending is going to decline about 7% for the
year. That means fab equipment [revenues] will be down in the low teens
to maybe low single digits at, say, 10%, plus or minus a couple of percent."
insists that the ghosts of 2004's binge will spook the industry this year.
"Anything they bought in 2004 is going to haunt them in 2005. We're
looking for on the order of a 9.5% drop in equipment sales for 2005, and
most likely another 5% decrease in 2006, then 20% growth in 2007 and 27%
growth in 2008."
McClean Report asserts that the industry's "historically
volatile" trends will continue through 2009. Following the big bust
of 2001–2002, capital outlays grew 13% in 2003 and 56% in 2004.
The latter year represents the industry's peak during the current business
cycle. As a result, the research firm forecasts a 5% decrease in capital
spending to $43.4 billion this year, followed by a further 7% decline
in 2006 to $40.2 billion. IC Insights forecasts a return to growth beginning
in 2007 and continuing through 2008. The April report shows total semiconductor
industry capital expenditures reaching $66.1 billion in 2008 before decreasing
8% to $61.1 billion in 2009.
for front-end equipment grew 68% in 2004 over the previous year, according
to Gartner. In 2005, however, the research firm forecasts a 12.2% decrease,
followed by another decline of 4.3% in 2006.
reports that worldwide equipment billings reached $9.35 billion in 1Q05,
a 2.3% increase over 1Q04 and 6.5% higher than 4Q04. In a press release
announcing the figures, Stanley Myers, the trade association's president,
says the January-through-March revenues "showed some positive momentum."
SEMI also noted, however, that new orders of $7.25 billion in 1Q05 were
12% below bookings for the last three months of 2004 and 21% lower than
the same quarter last year.
did single out South Korea as a particular bright spot for billings. Chipmakers
in the Asian nation spent $2.3 billion on equipment in 1Q05, a 165% increase
over 4Q04 and a 61% increase over 1Q04.
VLSI Research in Santa Clara, CA, reports equipment-sector growth of 8%
in 1Q05 over the final quarter of 2004. However, bookings dropped approximately
3.5% in the first quarter compared with the first quarter of last year.
The firm forecasts orders to grow in 2Q05 by single-digit rates and billings
to dip below those in 1Q05. Global equipment revenues for 2005 are predicted
to increase only 3.9% to $54 billion.
you start to look at it, so much of the market in an upturn like last
year is driven by capacity buys," says Dan Hutcheson, CEO of VLSI
Research. "When you have to go back to the technology buys, it's
like going on a no-fat/no-sugar diet."
buys may prove to be the industry's bright spot in 2005 when the ramp-up
to 65 nm begins later this year. "The drivers right now are in 65
nm," Hutcheson says. "That move is really kicking off this year,
so that's going to be good for another couple of years; 65 nm means they
need the high-numerical-aperture steppers to pull it off."
VLSI executive notes that copper deposition tools—both for barrier
metal and copper plating—also need upgrading. "It used to be
you could lay the copper in there with a trowel. Not now. Now it's really
difficult." The industry also will continue its "tremendous
effort" to find a workable solution for high-k dielectrics, Hutcheson
emphasizes that the expected slowdown should have little effect on the
development of needed technology, such as immersion lithography. "Basically,
the technology segments are going better; capacity is not doing as well.
has been doing reasonably well. They're bringing in new material, they're
trying to shrink linewidth; they've got new problems to solve."
Nikon and ASML have introduced immersion lithography systems, Hutcheson
notes. ASML has a prototype tool at customer sites, while Nikon has chosen
not to sell prototypes and is waiting until it has production-ready systems.
The key to the different approaches is that a production immersion lithography
system with a numerical aperture of 0.8 means the wet tool is "no
better than the dry tool" at the moment. "If you really wanted
to buy a cutting-edge system you'd buy dry today, you don't buy the wet."
is no question that the technology works, Hutcheson says, because it has
existed for more than 100 years in tools such as the oil-immersion microscope.
Questions regarding cavitation and the interaction of water and photoresist
are "really just an engineering problem." Other next-generation
lithography solutions "were science problems, they weren't engineering
agrees about the positive effects of the 65-nm push taking place in the
second half of 2005, which he asserts "will give us the underlying
support for the industry for the year." As for "200-mm-type
purchases," the analyst foresees strict limits on any capacity additions.
mixed-year expectations will show on the faces of participants at SEMI's
annual mid-July equipment extravaganza in San Francisco, Freeman says.
"Some people will come into Semicon West smiling because things are
very good, and then you are going to see other firms trying to figure
out how to make ends meet through the year."
smiling equipment company reps will be the ones with firms "well
positioned with respect to logic manufacturing. Firms that are well integrated
with Intel will do well, because Intel's going to spend roughly $5 billion
this year. Those firms are going to be in good shape because of the 65-nm
ramp that's hitting late in the year."
for potential growth include 193-nm steppers, associated metrology equipment
for E-beam and thin-film measurements, as well as mask inspection tools.
"Single-wafer spin-array processes look good, and ECD copper deposition
probably won't drop as much as the rest of the marketplace," Freeman
notes. "You've also got a new integrated technology that's emerging
such as gate-stack technology where you do oxidation and nitridization
in a cluster tool. That will see pretty strong growth with 65 nm."
heavily involved in memory chips may fare less well, Freeman notes. Everyone's
mood will depend to a great extent on the demand for memory products.
"Right now, our assumption is that it's going to be declining."
factors, particularly consumer attitudes, will play a big role in the
industry's fortunes. "Consumer sentiment is fairly negative,"
Freeman points out. "You've got inflation worries. When all that
stuff happens, people historically tend to hold onto their money. You're
not going to see the consumer segment being driven very strongly during
the second half of the year." Freeman foresees a reasonably strong
Christmas rush, but he believes that the typically healthy back-to-school
sales of electronic equipment "probably are not going to be as strong
as they might have been had oil prices not topped $50 per barrel."
addition to global oil prices, Castellano also points to the ripple effect
of worldwide economic problems, such as a recession in Germany. "When
you have pressures such as this, people are not going to be buying DVD
recorders, laptops, and Palm Pilots that require these semiconductors."
says IC producers are smart for monitoring their inventory control "so
that they're not shipping a lot of chips and making chip prices go down.
At the same time, the capacity utilization is dropping because they're
just not building as many chips. The tools are all in place, but they're
trying to avoid a capacity utilization problem and an inventory problem
by not building all the chips."
utilization will continue to drop, Castellano says. Even 300-mm foundries
are using only 73% of their capacity at the moment. Total utilization
for all manufacturers stood at only 86% at the end of 4Q04, down from
96% at the end of 2Q04, he says.
to Castellano, in 2001 and 2002, chipmakers had $10 billion in excess
inventory and "didn't need to build any more fabs for the next several
years." Chipmakers believed forecasters' predictions and expected
long queues at the purchasing desks. The semiconductor manufacturers asked:
"'What if these guys are right? We're going to be waiting a year
now for a lithography tool. Let's place all of our orders early in the
year again as a hedge.' It turns out these analysts were right [about
equipment sales growth]...but all the tools really weren't needed."
and Freeman both emphasize that the industry is focused like a laser on
inventories right now. "They've turned off the spigot faster than
they've historically done," Freeman says. "As a result, we didn't
boom as strong as we potentially could have, but it doesn't look like
we're going to bust as we have historically. We think we're going to have
two slow years, and as demand begins to improve and capacity begins to
tighten up, you'll begin to see an overall upturn."
for 2005 are not bleak, the analyst insists. "It's not gloomy. It's
more of an 'is-the-glass-half-empty-or-is-the-glass-half-full' look at
the overall market."—JC
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