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1 Semiconductor Market
• Global semiconductor demand has grown at CAGR 10% since 1991 from to
$139 billion in 2001, however growth is expected curb as the main markets for
semiconductors are maturing.
• Global semiconductor equipment demand has grown at 12% CAGR since 1991
to $28 billion in 2001, following closely that of semiconductors, but there is still
debate of how new technology will off-set reduced growth expectation of end-
user markets.
• Outsourcing of non-core activities by equipment makers has become almost an
industry standard and many companies still have more room for outsourcing.
• Currently, there are many suppliers that provide outsourcing services to
equipment OEMs, however there are niche markets that do not have high
competitive intensity (I.e. manufacturing outsourcing).
Global semiconductor demand has grown at CAGR 10% since 1991 to $139
billion in 2001 and equipment demand has grown at 12% CAGR since 1991
to $28 billion in 2001, following closely that of semiconductors.
$250.00 Semiconductor Demand and Equipment Billings
$200.00
Billings ($billions)
Sales ($billions)
$150.00 Equipment billings ($billion)
Semiconductor sales ($billion)
$100.00
$50.00
$-
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002.
© 2002 Business Ecosystems LLC. All rights reserved. 4
Semiconductor Markets
100%
90% 13% 13
Source: ICE; Status.
© 2002 Business Ecosystems LLC. All rights reserved. 5
Semiconductor Markets
$70.0
Total
Americas EUR Japan Asia Pacific Total $200.0
$60.0
$175.0
$50.0 $150.0
$125.0
$40.0
$100.0
$30.0
$75.0
$20.0
$50.0
$10.0
$25.0
$- $-
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: “World Market Shares 1982-2001”, SIA, 2002.
© 2002 Business Ecosystems LLC. All rights reserved. 6
Semiconductor Markets
•Pioneers in wire-less
telecommunication chips
•Non-volatile memory for
telecomm applications
•High-end
Microprocessors
•Wire-line •Innovation in chip production
telecommunications techniques
chips (broad-band) •DRAMs, flash and other memory
•PC hotbed chips
•Innovative companies •Largest consumer of wire-less
telecommunication chips
•Houses world’s largest Foundries
and Contract Electronic
Manufacturers
75% 75%
Other
Japanese
50% 50%
American
25% 25%
0% 0%
1982 1985 1988 1991 1994 1997 2000 1982 1985 1988 1991 1994 1997 2000
75% 75%
50% 50%
25% 25%
0% 0%
1982 1985 1988 1991 1994 1997 2000 1982 1985 1988 1991 1994 1997 2000
1 Semiconductor Market
Billings
80% SalesEquipmentbillings
Semiconductor sales
60%
40%
YoY change
20%
0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-20%
-40%
-60%
7 years cycle 5 years cycle
Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002.
WFE
Total 2000: $36.2 billion
4%
Total 2001: $21.3 billion
Note: the proportion of each type of equipment category was assumed to be similar to that of N.A. Billings YTD 2002
Source: “World Wide SEMS,” SEMI, 2002 © 2002 Business Ecosystems LLC. All rights reserved. 12
Semiconductor Equipment
Largets Semiconductor
(Ranked by 2001 reven
• Equipment companies that successfully lower their operating leverage will most
likely survive to the industry’s cycles.
• Additionally, the semiconductor equipment technology roadmap poses many
challenges to toolmakers, which need to focus on their core to be successful.
• Semiconductor companies are suffering increasing pressure to manage the
growth of manufacturing equipment prices as Fabs and IDMs are facing shorter
electronic product life cycles and saturated customer’s preferences for more
hardware functionality.
• There is consensus among many of the companies interviewed for this study
about the need to outsource manufacturing operations, but still there is no clear
indication of what type of companies would survive as the supplier of choice.
30.00
~
20.00 Lam Research
Tokyo Electron
10.00 Axcelis
Varian SEA
-
1997 1998 1999 2000 2001 Applied Materials
(10.00) Novellus
Mattson
(20.00) KLA-Tencor
(30.00)
~
Note: operating leverage is defined as the percentage change in operating earnings as a result of a 1%
change in revenues over the same period.
40.0% 40.0%
30.0% 30.0%
20.0% 20.0%
10.0% 10.0%
0.0% 0.0%
1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001
• For leading companies such as Applied Materials, Axcelis, Novellus, KLA and
Varian, inventories have been declining relative to total current assets in the
last six years.
• This has been achieved mainly by following principles of lean manufacturing,
outsourcing and world class supplier management practices.
Multi-specialty
Technology
Tier 1
Technology outsourcing
Outsourcing
Manufacturing
outsourcing
Manufacturing
Tier 2
outsourcing
Components Contractors Components Components
Raw
materials
© 2002 Business Ecosystems LLC. All rights reserved. 19
Semiconductor Equipment
$15.00 $8.4
• Gross margins for
equipment $10.00 $3.6 $4.9
companies are 45% $5.00 $2.1
$8.0
• Proportion of $4.7
$-
equipment COGs 2000 2001
dedicated to $8.36 $4.91
ManufacturingOS
outsourcing is 60%
Technology OS $3.58 $2.11
• Of this, 75% is
RM, Lab, OH $7.96 $4.68
manufacturing and
25% technology
outsourcing
Clients • Toolmakers are consolidating, this also There is significant potential for contribution to
consolidates the structure of their supplier base toolmakers manufacturing operations if suppliers
• Also, they are increasing the levels of begin to assemble key tool subsystems.
manufacturing outsourcing to reduce exposure to Toolmakers need to lower their operating leverage
industry’s cyclical nature and shift to a variable cost model, which is not
• Are increasing the bar regarding outsourcing possible without manufacturing outsourcing
supplier’s selection criteria companies. The bargaining power of customers is
• Are willing to develop long-term partnerships with relatively low in terms of the technological demand
exceptional suppliers needed vs. available in the market, thus an OS firm
that meets toolmaker’s selection criteria, has high
probabilities of getting and keeping a contract.
Competitors • Fragmented industry, major player do not have There is opportunity for incumbents to increase
more than 10% of the $5 billion market market share as the outsourcing industry expands,
• Outsourcing capabilities depend heavily on however they need to develop the right mix of skills
mechanical, electrical, electronic and value chain (clean assembly and welding, logistics,
management expertise manufacturing engineering, ERP and materials
• The number of competitors is growing management, etc.) in order to get an entrance at the
• Some companies are forming alliances or are toolmaker’s door.
growing through acquisitions to combine various
skill sets that would be very difficult to grow
internally (I.e. merger EFTC with K*Tec in 2002 ,
Saint-Gobain and Holz machining in 2000, Ontario
Corp and CDS systems)
• Capital intensity is determined by the company’s
business model (pure assembly vs. vertically
integrated)
Potential • IP component companies are integrating forwards The window of opportunity is open for
competitors as technology or manufacturing outsourcing manufacturing outsourcing companies, but is
companies (I.e. a leading component company is closing as new companies are poring in the market.
planning to build custom gas delivery systems) The first company to develop a sustainable model
• Global electronic assembly manufacturers are that serves the industry through its ups and downs
targeting the semiconductor equipment market will have the clear first mover advantage.
(Jabil, Sanmina, Suntron, etc.)
Suppliers • Comprised mainly of raw materials, components Is unlikely that the supplier base for manufacturing
and machining services suppliers outsourcing companies is going to change much,
• Fragmented, but for some key components (I.e. however managing these suppliers (lead-times,
mass flow controllers) there can be a limited supplier development, monitoring, long term
number of suppliers (MKS, Celerity) commitments, etc.) is increasing in importance as
the complexity of the outsourced equipment
increases and client requirements become tougher.
Technology • Currently, toolmakers are averse to outsource the Manufacturing outsourcing companies must be
manufacture of IP assemblies as some are updated about their clients technology roadmaps.
protected as trade secrets These outsourcing firms will have an increasing role
• Equipment complexity is increasing due to in design to manufacture engineering as IP
technological demands (more demands on lower protection issues are resolved via contract clauses
power consumption, new sources of energy, more and/or strategic alliances.
automation requirements, etc.)
Diversification within Less than 30% of revenues from High Increasing the probability that a supplier will
SEMI single customer (rough average, survive a downturn in the client’s business
depends on specific toolmaker)
Diversification in other Less than 25% of revenues in semi Very high Promote suppliers ability to withstand semi
industries (rough average, depends on equipment industry cycles, thus ensure
specific toolmaker) reliable future customer support
Material handing Extensive use ERP systems (BOM, Very high Increase likelihood of positive respond to
capabilities product follow-up, e-connectivity, sudden increases in equipment demand
etc.)
Supplier base development and
management
Manufacturing Threshold: high number of High Suppliers are given non-core items to
engineering skills manufacturing engineers/employee manufacture, thus it is critical that a
supplier is able to propose modifications of
Ability to improve new product new designs and to manufacture Build-To-
designs (mechanical, electronic, Print (BTP) items very efficiently
materials, chemical, assembly and
testing functionality)
Quality standards Semiconductor industry standards Average Need of compliance with toolmaker’s
compliance compliance customers’ (Fabs) quality standards
ISO 9001, orbital welding, etc.
Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent
analysis. © 2002 Business Ecosystems LLC. All rights reserved. 24
Semiconductor Equipment
Location One day’s driving distance high Need to support JIT (kanban) manufacturing
from supplier, on a global methods in each of the customer’s locations.
basis! There exists an industry directive to reduce
inventories in the value chain.
Financial solvency Cashflow positive, no risk of high Supplier capacity to cope with high levels of
financial distress due to working capital, mainly inventory, when
excessive debt manufacturing complex mechanical assemblies
and of fixed assets (PP&E: machining tools,
clean-rooms, plant facilites, etc.)
Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent
analysis.
2001
1) When possible, revenues from semiconductor related operations were selected, thus
these numbers represent conservative revenue estimates.
* Excludes companies such as Solectron, Sanmina, Jabil, Suntron, etc, who are mainly
focused on the electric/electronic manufacturing outsourcing market; also includes sales
figures presented in Duns Database for which 2001 period was assumed.
Assemblies 90% (27) •Companies chose not to do assemblies either because it is not their core focus (I.e. a machining
company dedicated to components) or because it is pursuing bigger projects (modules and
subsystems)
•It is relatively simple to manufacture assemblies parting from a component manufacturing
operation, and depending on the type of assembly, facilities Cap Ex might be needed I.e. clean
room construction
Tool Modules 60% (18) •Companies tend to have a specific expertise in the semiconductor equipment market I.e. Isys
manufacturing (laser welding), FM industries (subsidiary of NGK insulators), Jade Corporation
(experts in assembly), etc.
•Operational challenge to be successful in integrating a complex module is far greater than that of a
assembly of component manufacturer; thus these companies tend to be vertically integrated from
the raw material level
Subsystems 30% (9) On average, companies tend to have IP in one or more specialties of the semiconductor industry.
This is particularly true for companies that specialize in Gas Box design. I.e. Wolfe Engineering,
Celerity, MKS, Dakota Systems. Marler Enterprises and CDS Leopold are companies that also
have semi expertise in other areas such as ion implantation tools
Complete tools 10% (3) Companies like Coorstek, Gem City Engineering and Maine Machine have dared to assemble
complete tools; there is not indication that they are doing this profitably
Material handing • Efficient and effective utilization of ERP systems linked with supplier base and inbound
capabilities logistic function
• Project based organization
Manufacturing • Development of unique manufacturing techniques
engineering skills
• Fast prototyping
Quality standards • SPC in place, intelligent quality systems, effective preventative quality systems
compliance
• Quality certifications in all of the relevant manufacturing processes (orbital welding,
brazing, plating, clean room operations, etc.)
Location • Effective capacity rationalization and planning processes
• World class inbound and outbound logistics function
Financial solvency • Working capital management
• Focus on return on assets (operating margins X asset turns)
• Ability to withstand cycles
Appendix
Toolmakers
Components Subsystems End
(Tools & Fabs
suppliers suppliers Markets
Process)
• Raw materials
• generic
components
Product line
spectrum
sub- Complete
Components Assemblies Modules
systems tools
sub- Complete
Components Assemblies Modules
systems tools
C.D.S. Engineering
Celerity
CMS Welding & Machining
Coorstek
D&H Manufacturing
Co
Dakota Systems
Dff Corporation
FM Industries
GCE industries
Gem City Engineering
Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam
Research, Novellus, MKS, Varian, Veeco and Innovent research.
© 2002 Business Ecosystems LLC. All rights reserved. 31
Manufacturing Outsourcing
sub- Complete
Components Assemblies Modules
systems tools
Isys Manufacturing
Jade Corporation
Karlee Company
Knust-Sbo
Maine Machine
Main Companies
Nor-Cal
Norwood Tool
Prattville Industries
Rentec
Saint-Gobain (Holz)
Synchrovac
Wolfe Engineering
Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam
Research, Novellus, MKS, Varian, Veeco and Innovent research.
© 2002 Business Ecosystems LLC. All rights reserved. 32
Coorstek
CDS Engineering
Saint-Gobain (Holz)
Karlee Company
Syncrovac
Brenner Tool & Die
Wolfe Engineering
GCE Industries
Nor-cal
B&B Manufacturing
FM Industries
Allied Devices Dff
Dakota systems Main Machine
Innovent
Jade Corporation U.C.T.
CMS Weld. and Mach. Norwood Tool
(part of CDS) Rentec Isys Manufacturing
Knust-Sbo
D&H Manufacturing
m05$ < eunev e R
Prattville
A&D Precision Adem Llc Marler Enterprises
Component
Component manufacturer
manufacturer Higher
Higher electromechanical
electromechanical assemblies
assemblies
Total Gas flow Y2000: 400 1,000 - 9,500 Aera, STEC, Unit Instruments (kinetics), Mykrolis,
$1,000 control (general purpose is MKS Instruments, (first four comprise about 80% of
million around 2,500) the market. EMCO, a division of Advanced Energy,
produces sonic systems for niche applications
Valves, fittings Y2000: 260 450 - 9,000 MKS Instruments (25%), Inficon, Helix, VAT and BOC
Edwards (7%-8% each), others (45%)
Gauges Y2000: 215 200 – 6,400 •Capacitance based gauges: MKS (leader)
(pressure (general ASP 1,000 –
measurement) •Indirect measurement gauges: Granville Phillips, a
2,000) division of Helix, (25%), MKS Instruments, Inficon,
BOC Edwards
Gas analysis Y2000: 70 25,000 Inficon (35%), MKS Instruments-Spectra (20%),
and other Ulvac, Stanford Research Systems and Anelva (less
sensors than 5% each), Variety Instruments, Luxtron and SC
technology
Leak detection Y2000: 15 20,000 – 30,000 Inficon and Alcatel Vacuum, (18% - 20% each),
Varian, Ulvac (each with less than 10%), MKS is a
new entrant with a portable leak detection device
Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001
© 2002 Business Ecosystems LLC. All rights reserved. 35
Technology outsourcing: Subsystems.
IP Driven World market Price ranges ($) Main companies
size ($Millions) (for a typical (% Share of Market SOM)
Subsystems manufacturing process)
Vacuum Pumps Y2000: 1,500 5,000 – 25,000 Alcatel vacuum products, Anelva, IGC-APD
Cryogenics, A-Vac industries, BOC Edwards,
Branston Engineering, CTI-Cryogenics, Ebara
Technologies, Hy Vac products, Kashiyama,
Leybold Vakuum, Osaka Vacuum, Pfeiffer
Vacuum, Seiko Seiki, Ulvac Technologies, Varian
Vacuum
Power Direct Current Y2000: 490 3,100 – 175,000 •Top ten suppliers control almost all of the market
conversion and
control systems Mid-frequency (ASP of 9,500) •Advance Energy (53%), ENI and MKS-ASTeX
for (second and third)
Radio-frequency
semiconductor •Other suppliers: Comdel, Huettinger, Kyosan,
applications Matching networks Daihen, Muegge Electric, Adtec, CPI, Trazar and
($580 million) Microwave Shindingen
Other power Y2000: 90 10,000 – 20,000 MKS-ASTeX (Astro product is the defacto
sources: reactive (Integrated subsystem’s standard, they command 90% SOM), Advance
gas ASP 40,000 – high Energy is a new entrant
value added)
Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001
© 2002 Business Ecosystems LLC. All rights reserved. 36
Technology outsourcing: Subsystems.
IP Driven World market Price ranges ($) Main companies
size ($Millions) (for a typical manufacturing (% Share of Market SOM)
process)
Laser technologies for Y2000: 315 500,000 Cymer Inc. (82% SOM of installed excimer
semiconductor applications (Current generation 248nm lasers), Gigaphoton and Lambda-physik
KrF excimer lasers) (second and third, but well behind Cymer)
700,000
(Next-generation 193nm ArF)
Tool Automation Interface Y2000: 400 15,000 – 50,000 Asyst Technologies (80%), Brooks
for Automation* (16%), Adept Technology
semiconductor (third), 31 more supplier who are niche
applications ($755 players
million) Atmospheric Y2000: 150 15,000 – 30,000 (includes PRI* (>60%), MECS**(5%), Rorze, Daihen,
robots*** hardware, controller and pre- JEL, Brooks, Yasakawa (remaining)
aligner)
Vacuum robots*** Y2000: 95 30,000 Brooks Automation (90%), remaining is split
between Daihen (3%), JEL (3%), PRI (2%)
and MECS and others (3%)
Vacuum cluster Y2000: 75 500,000 Brooks Automation (86%), Daikin (12%), PRI
(simple platforms can sell (2%)
150,000 – 175,000)
Integrated front Y2000: 35 120,000 – 140,000 Asyst (50%), Brooks (29%), PRI (11%),
end (IFE)**** (Basic 70,000 – high end Adept, Rorze
200,000)
* Brooks Automation acquired PRI, a new entrant in the tool automation market, in 2001
** Purchased by Asyst in 2000
*** Excludes robots sold with IFEs and vacuum cluster tools and takes into account only merchant sales and not captive robot capacity. Captive robot
capacity is comprised mainly of vacuum robots as these are highly customized for the process tool
**** Merchant market in 2000 represents about 10%-15% of total market
Integrated process control Y2000: ~100 <$100,000 Nova Measuring Instruments (>70% in CMP
(growing sub-segment) IPC market), Nanometrics (Integrated
metrology for CVD), Rudolph Technologies,
Therma-wave (agreement with AMAT), KLA-
Tencor (CMP IPC market)
Reticle inspection/ repair Y2000: 500 $500,000- KLA-Tencor (72%), Leica Microsystems (13%),
$1,000,000 Applied Materials (6%), Nikon (4%), Lasertech
(3%), others (2%)
Source: “Perspectives”, SG Cowen, May 8, 2001 © 2002 Business Ecosystems LLC. All rights reserved. 38
Toolmakers.
IP Driven World market Price ranges ($million) Main companies
size ($millions) (for a typical manufacturing (% Share of Market SOM)
Tools process)
Lithography Y2000E: 6,000 $5~$10 million Based on units: Nikon (35%), Canon (22%), ASM Lithography
(~1,100 units) (30%), Silicone Valley Group (9%), Others (4%)
Etch & clean Y2000A: 6,808 Not Available Applied Materials, Helix Technologies, Lam Research, Tegal,
Tokyo Electron
Thermal Y2000: 613 Not Available Y2001: Applied Materials (84%), Mattson (12%), Daippon Screen
Processing (1.5%), Axcelis – SEN subsidiary (1.5%), others (1%)
(RTP) Y2001: 368
Thermal Y2000: 622 Not Available Y2001: Tokyo Electron (45%), Hitachi-Kokusai (25%), ASM
Processing International (13%), ASML (10%), Koyo Thermal (4%), Novellus
(Furnaces) Y2001: 420 (2%), Other (1%)
Ion implantation Y2000E: 1,500 High energy >$3.5 Y1999A: Axcelis (46%), Technologies, Varian Semiconductor
(545 units) (30%), Applied Materials (17%), others: Nissin and Ulvac (7%)
High current: $2.5-$3.5
Medium current: $2.5-$3.0
Deposition*: Y2000A: 9,010 Not Available Applied Materials, Genus, Helix, Lam Research, Novellus, Tokyo
Electron, among others.
CMP Y2000A: 1,506 Not Available Y2000A: Applied Materials (55% - gained to 60% in 2001), Ebara
Technologies (22%), SpeedFam-IPEC (15% - fell below 10% in
2001), Lam Research (5%), Peter Wolters & Strasbaugh (3%)
Source: “Photolithography Outlook 2000”, Lehman Brothers, April 14, 2000; “Beam Me Up, Ion Implantation”, Lehman Brothers, October 23, 2000;
“Semiconductor Capital Equipment”, Bear Stearns, May 2002; Dataquest, April 2002
© 2002 Business Ecosystems LLC. All rights reserved. 39
Wafer
Wafer Fabrication
Fabrication (WFE)
(WFE)
Diffusion/
Photo-
Wafer
Wafer Mfg.
Mfg. Epitaxi Etch Strip Metal CMP
lithography
Implant
Test,
Test, Assembly
Assembly &
& Packaging
Packaging (TAP)
(TAP)
Materials Management, Chemical Distribution, Automation
Source: www.infras.com 40
© 2002 Business Ecosystems LLC. All rights reserved.