ASML, KLA-Tencor, and Lam Research to benefit from 450mm wafer transition

Dr. Robert N. Castellano, The Information Network

USA: The semiconductor industry has been increasing the size of wafers about every 10 years. In 2000, semiconductor device manufacturers migrated from 200 mm substrates to 300 mm substrates due to technological advances and manufacturing cost advantages.

300 mm wafers provide more than 2.25 times as many die per wafer, and offer significant economies of scale in the manufacturing process. Approximately 96 percent of 2012 net orders for wafer fabrication equipment were for 300 mm manufacturing systems. The next planned wafer size increase is expected to be up to 450 mm substrates.

Increases in wafer sizes have been a natural evolution and manufacturing efficiency improvement for the semiconductor industry for decades, as shown in the figure below.

The table below shows the impact of the conversion from 300mm to 450mm technology on several processing parameters.

Shown in the figure below, this illustrates the special dual “S-curve” timing required when a new wafer generation is being introduced, which was modeled after the experience with the 300 mm wafer generation ramp around 2000.

The ITRS has proposed a revision in the timing targets for the 450 mm generation semiconductor manufacturing and foundry pilot lines, which are now delayed about 2 years (2015–16, versus the previous 2013-14 target made by the ITRS in 2009).

By 2015-16, Intel Corp (INTC), Globalfoundries Inc., Samsung Electronics Co. Ltd. and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) will have 450mm wafer fabs constructed and equipment installed.  While these are only a handful of fabs so far, they represented 34% of the revenues of the entire semiconductor industry in 2012, as shown in the table below.

What’s in store for equipment suppliers?
Market share is a key determinant in what semiconductor equipment supplier will reap the benefits of sales to customers that represent a third of the total industry.  And this is important.  A vendor will not have a 450mm position unless it has a 300mm position.  In other words, the slate will not be clean going from 300mm to 450mm as far as purchases are determined.

Semiconductor manufacturers will purchase 450mm equipment from the same equipment supplier that sold them 3000mm equipment.  For an equipment company to become the supplier of record to a customer, it needs to execute well, providing best-of-breed equipment and technology.  Unless that company self-destructs, the execution they focused on to sell 300mm equipment will carry over to 450mm.

So who’s to gain in this transition?

ASML (ASML) is an easy one. Besides the fact that they dominate the lithography market with an 84 percent share (see chart below), they also dominate the EUV (extended UV) market with a 100 percent share. ASML announced they would port their EUV to 450mm only.  Intel invested $4.1 billion in ASML, as part of an effort to raise the overall confidence level in EUV and the 450mm wafer transition. TSMC and Samsung also recently invested in the Dutch-based lithography giant for similar reasons.

KLA Tencor (KLAC) dominates the process control market with tools for semiconductor inspection and metrology (measurement) and will be another winner in the 450mm transition. KLA-Tencor holds a 50 percent market share, and that share has been growing worldwide, as shown in the chart below.

Hitachi High-Tec’s process control revenue grew 16.6 percent in 2012 and will be a winner in the 450mm transition.  Hitachi purchased SII Technologies in 2013, which recorder revenues of $90 million in 2012, further escalating Hitachi’s revenues in 2013.

Applied Materials (AMAT) made claim that they gained share against KLAC in 2012, but this is not the case according to our analysis.  Applied has been hyping its process control sector of late, perhaps in response, according to rumors mind you, to the fact the now president, Gary Dickerson, was turned down for the post of CEO of KLAC when he worked there, and then resigned to become CEO of Varian Semiconductor, before being hired by Applied last year.

Based on analyzing the semiconductor equipment market for 27 years, I see erosion in Applied’s execution.  Many of the top executives left the company last year and the vacuum was filled by ex-Varian Semiconductor employees from their misguided $4.7 billion acquisition of the company in 2011.

Lam Research (LRCX) dominates the plasma etch market with nearly a 50 percent share, as shown in the chart below. If we go back to 2000, Applied Materials had led the market with a 36.6 percent share and Lam held only a 26.3 percent share. In the following 12 years, Applied’s share dropped to 27.6 percent while Lam’s increased to 48.3 percent.

Lam Research will be another winner in the 450mm transition. The company is a leading capital equipment supplier to the largest memory manufacturers including Samsung, Toshiba and Micron (MU) and also the key supplier to TSMC.

More importantly Lam recently secured a key etch win with Intel, long a stronghold for AMAT.  Lam acquired Novellus last year. Novellus went head-to-head in competition with Applied Materials in the deposition market, and there had been constant speculation that the re-badging of Novellus hardware by Lam will find its way into Intel.  It appears this may now be the case, Lam’s etch and deposition wools will share a common platform, and it will drive strong sales in Intel’s 14nm build-out.

The semiconductor equipment industry is dynamic and things change. For example, in the metal CVD market in 2000 for example, Applied led the market with a 70.6 percent share compared to 17.1 percent for Novellus. In 2011, Novellus claimed a 64 percent share to Applied’s 17.2 percent.