Thursday, January 12, 2012

Applied Materials’ earnings to see no impact by Lam-Novellus merger - yet

NEW TRIPOLI, USA: Comments in the press and on the Internet about the Lam Research-Novellus are still being written, probably in light of earning season coming up.

Much of the speculation centers on the impact of the merger on Applied Material’s earnings and even more so theories that it will lose business at Intel because Lam has a long-standing relationship with the deep-pocketed chip giant.

The Information Network has been analyzing the semiconductor space since 1985, and the table below is part of our database. In it, we address the major semiconductor equipment segments where Applied competes directly with either Lam or Novellus. The years 2000, 2005, and 2010 were chosen at random and merely represent a five-year span. Again, these are major segments, because within most there are subsectors, such as metal, dielectric, and polysilicon etch.

In the Plasma Etch segment, Lam has continued to gain market share over the past five years, not against Applied, but other competitors, primarily Tokyo Electron.

In the CVD (chemical vapor deposition) segment where Applied competes with Novellus, market shares of these two companies have been steady over the past five years.

In the PVD (physical vapor deposition or sputtering) segment Applied gained share at the expense of Novellus and other competitors.

In the ECD (electrochemical deposition), Applied lost significant share to Novellus by 2005, but regained share by 2010 with the acquisition of Semitool.

In the CMP (chemical vapor deposition), Novellus entered the market in 2002 with its acquisition of SpeedFam-IPC, but subsequently dropped out of the business in 2009.Source: The Information Network, USA.

These data bring us to the question of whether Applied will lose market share to Novellus because of the merger, particularly at Intel. Our response is a big NO, based on the observation in these data that if Novellus hadn’t gained share in the past five years, then clearly Applied is doing something right by continuing to optimize its equipment, processes, and personnel. Not that Novellus was doing anything wrong, by any means, because if it was, it’s shares would have plummeted and they didn’t.

Secondly, companies like Intel got to be as big as they are because they too do most things right. One is their concept of “best-of-breed”, in which they evaluate all equipment on the market at every technology node and purchase based on the overall performance – the “best-of-breed”. Intel chose Lam for etch because it considers its tools the “best-of-breed”, and Applied for it’s CVD, PVD, and CMP tools because these were the “best-of-breed”. Just because Lam acquired Novellus will not mean that Intel will automatically replace Applied equipment with those from Novellus – yet.

And that brings me to another point. Lam clearly knows how to make etch equipment. It will soon begin to channel their way of designing and building etch equipment into Novellus’ legacy deposition equipment, and most likely enhance the equipment, processes, performance, cost-of-ownership of these tools. Just how long until this is translated to market share gain depends on Applied Materials.

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