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Does the fab tool business model need mending?

Posted: 21 Jan 2011 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor equipment industry? fab tool industry consolidation? fab tool business model?

Another slowdown looms large for the IC equipment industry in 2011 even as chipmakers increase their capital spending.

The anticipated downturn could further speed up the ongoing consolidation in the fab tool industry and cast a shadow over the general health of the business. The past years have seen few fab constructions, leading to massive consolidation in the equipment sector. Some now view the fab tool business model as simply broken.

Fewer choices in the equipment vendor base could cause higher tool prices, less innovation and monopolies in some tool segments, such as ion implantation, lithography and metrology. Still others believe that fab tool vendors must consolidate and pool their R&D resources to tackle the next-generation technology nodes, the extreme ultraviolet (EUV) lithography supply chain, and the potential shift to 450mm fabs.

Two big fab tool buyers�Intel Corp. and GlobalFoundries Inc�have markedly different views about the subject.

Consolidation in the industry has put the fab tool supply chain in peril, because there are �not enough choices? in the various segments in the vendor base, said Norm Armour, vice president and general manager for the Fab 8 project in New York state for GlobalFoundries, the foundry spinoff of Advanced Micro Devices Inc. (AMD).

Robert Bruck, vice president of the Technology and Manufacturing Group at Intel, has a different viewpoint. �Last year at (a SEMI event), Bob Bruck posed the hypothesis to me that consolidation (in the fab tool sector) was good for customers,? wrote VLSI Research CEO G. Dan Hutcheson, in a recent report.

�Being an economist, firmly grounded in anti-trust teachings, my gut pushed back. But Bob came up with a good point: fewer competitors means less duplicative R&D, which makes the equipment industry more efficient, which should translate into lower cost,? Hutcheson wrote.

In any case, the fab tool industry has undergone a sea of change. During the early days of the IC industry, chipmakers built their own fab tools, because there was little or no semiconductor equipment business to speak of.

Then, starting in the 1950s and 1960s, a new crop of independent semiconductor equipment maker burst onto the scene. Chipmakers began to buy tools from a plethora of new startups in the arena. The fab tool business prospered in the 1980s. In 1981, there were over 300 vendors that sold equipment to 300 or fewer chipmakers, many of which had wafer fabs, according to VLSI Research.

At the time, there were multiple vendors in each fab tool segment, giving chipmakers a viable choice. For example, in the mid-1980s, the lithography market included ASAT, ASML, Canon, Eaton, GCA, Nikon and Ultratech. Another firm, Micronix, was developing an X-ray stepper. IBM and Japan Inc. were separately devising large-scale, synchrotron X-ray systems for next-generation devices.

In the same decade, the fab tool business model began to fall apart. In 1987, pure-play foundry Taiwan Semiconductor Manufacturing Co. (TSMC) emerged, propelling the fabless industry. Since the emergence of foundries, this model has not only propelled a new crop of fabless chipmakers, but it also forced integrated device manufacturers (IDMs) to re-think their fab strategies.

Over time, a growing number of IDMs moved towards the fab-lite model. In 2001, for example, there were 16 logic IDMs that had fabs. �Intel, Samsung, and potentially STMicroelectronics will be only IDMs with production wafer capacity at 22-/20nm in 2012/2013,? said Handel Jones, an analyst with International Business Strategies Inc.

Over time, only three foundries�TSMC, Samsung and GlobalFoundries�will have the resources to build new fabs and keep up with Moore�s Law. In memory, Samsung and Toshiba will survive over the long haul. Beyond that, there are questions in the current memory landscape.

Fewer fabs, coupled with the cyclical downturns, have led to considerable consolidation in the fab tool arena. In 2011, there are estimated to be some 140 tool vendors that sell equipment to only 20 customers with fabs, according to VLSI Research.

Good news, bad news
This year, the IC equipment business is expected to hit $46.3 billion in terms of sales, down 5 percent over 2010, according to the firm. In 2010, the business hit $48.8 billion, up a whopping 99.7 percent over 2009, according to the firm.

On the bright side, capital spending is on the rise. Just in the last week, GlobalFoundries doubled its capital spending in 2011. Intel recently said that its capital spending budget would hit $9 billion, plus or minus $300 million, in 2011, implying 73 percent year-over-year growth.

�With Intel now on the offensive, and including recent capex updates from Samsung and GlobalFoundries, our 2011 capex model moves to plus 12 percent year-over-year versus 5 percent? in the original forecast, said C.J. Muse, an analyst with Barclays Capital, in a report.


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