Growing signs that semicon equipment market recovery has begun!

NEW TRIPOLI, USA: Rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out. BUT THERE’S A PROBLEM, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

Positive signals are pointing to a recovery:

SEMI reported this week that North America-based manufacturers of semiconductor equipment posted $323.4 million in orders in June 2009 (three-month average basis) and a book-to-bill ratio of 0.77, according to SEMI. The three-month average in June grew about 12 percent from $287.8 million in May, with the on-year drop narrowing to 69 percent.

Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

However, capital equipment expenditures as a percentage of semiconductor revenues have been dropping precipitously, as shown in the chart going back to 1995. In January 1995, 11.4 percent of revenues generated by semiconductor manufacturers were spend on new processing equipment. Forward to May 2009 and only 3.8 percent of semiconductor revenues were spent on equipment.

For all of 1995, 13.8 percent of semiconductor revenues were spent on equipment purchases. For 2007, a healthy year for the equipment market, 11.7 percent of semiconductor revenues were spent on equipment.Source: The Information Network

For 2009, we forecast that semiconductor revenues will drop 26 percent, whereas, we forecast semiconductor equipment revenues to drop 46 percent. The chart clearly illustrates this difference. Capital equipment purchases from January through May 2009 were only 4.9% of semiconductor revenues.

Semiconductor equipment manufacturers, in an effort to gain one-upmanship in the market, have been increasing throughputs of their product. Fifteen years ago, 60 wafers per hour was the norm. Now tools are on the market with a throughput twice that amount, meaning that only half the number of tools are needed to process the same number of wafers.

The semiconductor industry started replacing the manufacture of chips from 200mm to 300mm wafers in 1997. Because of the larger diameter, 2.25 times more chips can be made on a 300mm wafer than a 200mm wafer. In 1997, approximately 8,000 300mm wafers were utilized, representing a small fraction of the 141 million wafers with diameters ranging from 100mm to 200mm.

In 2008, nearly 32 million 300mm wafers were processed, representing 21% of the 149 million wafers processed. Here again, half the number of tools are needed to process the same number of chips.

Technology advances have mitigated the reduction. In 1995, state-of-the-art ICs were manufactured with dimensions of 350nm (0.35 microns). Currently, state-of-the-art chips are manufactured with dimensions as small as 45nm.

Equipment to make these chips doesn’t come cheap. Lithography equipment, for example, from companies such as ASML, Canon, and Nikon cost about $4 million to manufacture a chip with 350mm dimensions but $40 million to manufacture a chip with 45nm dimensions. That’s why, a semiconductor manufacturing plant (fab) that cost $1 billion in 1995 now costs $4 billion.

The semiconductor equipment industry is also suffering from competition from some really large vendors. The top 10 equipment suppliers registered $24.5 billion in sales in 2008, compared with $30.7 billion for the whole market. That left on $6.2 billion in revenues to be shared by the next 50 equipment companies.

So, while things look better for the equipment industry going forward through the remainder of 2009, the long term prognosis doesn’t bode well for the industry in general, and particularly for the small players.