Rapid recover ramp in semiconductor equipment market

NEW TRIPOLI, USA: Applied Materials’ results clearly confirmed that the downturn in the semiconductor equipment market is over, although the overall market will drop 46 percent in 2008, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

To understand how fast the market has turned, Applied’s Silicon Systems Group (SSG) had net sales of $498 million, up 91.5 percent sequentially in the previous quarter ending July.

Applied’s fiscal quarter ends one month later than competitors, so a comparison with Applied’s recent quarter will indicate what happened in the month of July.

Close competitor in the vacuum space, Novellus, reported net sales increased 20.5 percent in the latest quarter ending June. KLA-Tencor, competitor and market leader in the metrology/inspection space, saw net sales decrease 6.3 percent sequentially.

ASM Lithography, not a direct competitor but the number two player in the semiconductor equipment market, reported net sales increased 50.5 percent sequentially in the latest quarter.

“To further understand if there is a huge ramp in July, which could impact the current quarter for equipment manufacturers, or whether Applied Materials is increasing shares, we need to look closer at overall market share data and increase granularity by looking at the individual sector shares, noted Dr. Robert Castellano, president of The Information Network.

Applied Materials led the world in equipment sales beginning in the early 1990s, and has essentially continued to outperform the industry average. The chart here shows how Applied has positioned itself in the market in 1979, 1989, 1999, and 2008.Source: The Information Network

In 1999 Applied had more than double the revenues of its closest competitor -- Tokyo Electron. In 2008, the company was only 35 percent ahead of number 2 player ASML.

Applied competes in the semiconductor equipment market in nearly 20 sectors, significantly more than any other supplier. As a result, there is little overlap in individual sectors between Applied and the other top 10 market leaders.

For example, there is no competition with ASML whereas Applied competes with Tokyo Electron in the plasma etch, deposition, and clean sectors. It competes with KLA-Tencor in the metrology/inspection sectors, and Lam Research in the plasma etch sectors.

If we hone in on the sectors, we can better understand how Applied is faring and whether July was a rapid ramp in overall equipment sales or share gains.Source: The Information Network

In 2001, Applied Materials held a 42 percent share of the overall equipment market, holding greater than a 50 percent share in seven of the 17 sectors. Year 2001 is an important year to look at since the overall semiconductor equipment market nosedived after a record breaking 2000, dropping 45 percent year-on-year.

The overall market continued to drop another 45 percent in 2002, but Applied’s revenue decreased only 16.6 percent sequentially. Applied’s overall share thus increased to 48 percent of the overall semiconductor equipment market, and the company held greater than a 50 percent share in nine of the 17 sectors it competed in.

Year 2008 started out to be a good year until the market collapse in Q4, and ended down 29 percent. Applied’s overall market share eroded to 38 percent of the overall equipment market, although it maintained a market share greater than 50 percent in seven of the 16 sectors it competes in (we have not included share date for the company’s gate or clean sectors).

What can be concluded from all this data? Although Applied’s feathers are a bit ruffled, it continues to be the market leader. It may have lost some share over the past decade and may be increasing it this year. But, the 91.5 percent sequential growth exhibited in the latest quarter clearly indicates a rapid ramp in the semiconductor equipment market.