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SMT & Inspection | January 11, 2007

Wafer equipment investments to<br>total $150B over next four years

Over the next four years $150 billion will be invested globally in wafer fab equipment, according to a keynote speaker at the SEMI Industry Strategy Symposium (ISS) conference.
Steve Newberry, president of Lam Research, noted that memory makers will account for 54 percent of the spending and pure-play foundries for 21 percent. “Those two segments will continue to dominate what determines success for wafer fab equipment companies," he said.

Equipment buying patterns will also change in the future, with larger volume purchases being made by “gigafabs" that produce more than 100K wafer-starts per month, according to Newberry. Further, the customer base for equipment and materials suppliers will decline due to consolidation, joint ventures and manufacturing alliances, requiring closer collaboration among all parties.

A proliferation of new materials will add complexity to the development of new tools and processes, according to Newberry. During the 1980s a dozen materials were used in semiconductor manufacturing and only four new materials were adopted during the decade of the 1990s. However, since 2000 more than 40 new materials have been added to the mix. “Making smart choices about which materials and which devices are likely to win is going to be critical for the success of companies," said Newberry.

The volatility of the silicon cycles will be reduced going forward, according to Newberry. He pointed out that the industry's capex-to-revenue ratio declined from 26 percent in the 1999-2002 cycle to 20 percent in the current cycle, which started in 2003. During the past three years the capex ratio peaked at 22 percent, whereas in previous cycles it peaked above 30 percent, triggering a significant downturn in orders the following year. These trends will result in cycles with lower amplitudes but more frequency, said Newberry.

.Jackson Hu, CEO of Taiwan foundry UMC, noted that in the past innovation in chip design was typically driven by new fabless start up companies. However, there were fewer fabless start ups in 2005 than in 1999. One factor contributing to the decline is the increasing complexity of system-on-a-chip (SOC) designs. “If you talk to the venture capital companies, [they say] it takes $30 million to successfully develop one new product in a startup [chip] company," said Hu.

U.S. companies dominate the fabless market, accounting for 74 percent of total market revenues in 2005, followed by Taiwan companies with 17 percent, according to Hu, citing data from the Fabless Semiconductor Association (FSA). China and Europe were in equal third place, each with 3 percent of the market.

Hu believes India will be the region to watch in future for fabless company growth. “China is not the largest threat to Taiwanese fabless companies. India is the largest threat due to large numbers of engineers in design and software," he said.

The high cost of engineering talent in the U.S. has accelerated the outsourcing trend. Hu noted that for the price of one design engineer in the U.S., a company can hire five or six engineers in India. In fact, nine out of the top 10 fabless companies have now established design centers in India, according to Hu.

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