Semiconductor Market Trends

Even though it may have not felt like it, 2007 was the best year ever for the semiconductor equipment and materials industry. Perhaps the lack of fanfare can be attributed to the fact that this record year is the result of strength in both the equipment and materials markets, not supernormal growth of equipment. While the semiconductor materials market has experienced four consecutive record breaking years, semiconductor equipment has yet to reach the high set in 2000. Taken together though, the semiconductor equipment and materials market actually first exceeded the high-water mark set in 2000 in 2006. A consecutive record breaking year for the semiconductor equipment and materials industry comes as good news to an industry that got off to an extremely rough start to the millennium.

Value of Semiconductor Equipment & Materials
(in US$ Billion)

Source: SEMI/WSTS

It is clear that the electronic revolution is here to stay, and as the industry matures, semiconductor manufacturers are becoming less dependent on one "killer application" to drive growth. In essence, consumer electronics are replacing the "killer application" with a "killer market", which can lead to more stable, sustained growth. While it is fortuitous that chips are finding their way into more and more applications, given consumers' high price sensitivity, more price pressure is being exerted upon chip manufacturers and their suppliers.

Semiconductor Regional Trends

Given this intense downward price pressure, semiconductor manufacturers are adding capacity at a much faster rate to regions outside of North America, Japan and Europe. Total silicon-based fabrication capacity data indicates that Japan had the largest installed fabrication capacity in 2000, followed by the U.S., Europe, Taiwan, Korea, Rest of World (ROW), and China. ROW includes Asia-Pacific regions not already captured such as Singapore and Malaysia. By 2007 the manufacturing landscape changed dramatically. While Japan still produces the most wafer starts, South Korea capacity has exceeded North America's and Taiwan caught up to North America in terms of capacity. China now has more capacity than ROW. It is important to note that while Japan, North America, and Europe have lost market share, capacity in those regions has actually increased 17% to 25%.

Production Fab Capacity Trends

Theoretical 200 mm equivalent wafer starts per month

Source: Strategic Marketing Associates, January World Fab Watch 2001, SEMI Fab Capacity Report January, 2008

Semiconductor Equipment

Worldwide sales of semiconductor manufacturing equipment totaled $42.77 billion in 2007, representing a year-over-year increase of 6%. Equipment spending in 2007 posted sales just under $5 billion shy of the high of $47.68 billion reached in 2000 but still represents the second highest level recorded for semiconductor equipment manufacturers.

For the first time, the Taiwan market region spent more semiconductor equipment than any other region, growing 46% over 2006 to reach US$10.65 billion. Japan claimed the number two spot with $9.31 billion in equipment sales. South Korea ascended to third place reaching $7.35 billion, passing North America at $6.55 billion. China continued with its expansion by growing 26% over 2006, reaching $2.92 billion. Spending for Europe, China, Rest of World, were in the $3 billion range.

Semiconductor Equipment Markets - Regional Trends

Source: SEMI/SEAJ

If equipment spending trends in 2000 to 2007 are compared, South Korea represents much more (up 9%) of the total market in 2007 versus 2000, while N. America is much lower (down 12%). Europe accounts for about 7% less in 2007 than it did in 2000, while Japan accounts for 3% more of the market than it did in 2000. Taiwan gained about 5% of market share in 2007 compared to 2000. The ROW region, including China, now accounts for 14% of the market compared to 12% in 2000.

Semiconductor Materials

The global semiconductor materials market grew 14% in 2007 reaching $42.4 billion - resulting in the fourth record breaking year for the semiconductor materials market.

On a regional basis, because Japan has the largest installed fabrication base and a significant packaging base--focused on advanced packaging technologies, it consumes the most materials on a revenue basis. Not surprisingly China grew 37% last year; this is the result of renewed aggressive fab and assembly facility investment. One interesting fact to note is that because of the substantial packaging base in China, approximately 61% of its materials consumption is for packaging materials. However, as additional fab facilities come online, it is expected that materials consumption in China will shift to wafer possessing materials.

2007 Regional Materials Market

$42.39 Billion

Source: SEMI March 2008

The semiconductor materials market in relation to semiconductor equipment is currently roughly equivalent. However, this is not always the case, in times where the equipment industry outpaces growth of the materials industry, there tends to be a correction the following year or two. In 1995, we saw the 200 mm ramp which caused the equipment market to outpace growth of the materials market. That growth came at a price with the slowdown in 1998.

Total Equipment Revenue vs. Total Material Revenue Trends

Rose Associates, SEMI, SEMI/SEAJ

After 1998, the equipment market recovered and in fact set its all time high in 2000 only to experience its worse downturn ever in 2001. This image also clearly illustrates that the overall semiconductor equipment and materials industry strength in 2000 was the result of super-normal growth of the equipment sector - not materials. The materials market slowly regained its momentum and finally exceeded 2000 levels in 2004. However, in 2004 the equipment industry's growth outpaced the materials market as device manufacturers were investing in 300 mm. Again, this excess growth came at a price; the equipment market declined 11% in 2005, while the materials market experienced a successive record-breaking year. In 2006 materials and equipment markets grew in tandem, about 20% each, resulting in a third record-breaking year in a row for materials and the second strongest year ever for equipment, second only to 2000. This re-alignment of growth can be seen as evidence that the industry is maturing as it is capable of reining in its capital expenditures to be better aligned with underlying demand.

Conclusion

There is a significant regional shift occurring in the semiconductor industry, which is being accelerated by the growing consumer electronic market. And while the industry is in a constant challenge to provide more processing power for less money, a whole new array of end markets are now available, which frees the industry from relying on one killer application. As a result the semiconductor industry has had six consecutive years of sustained growth and equipment and materials suppliers are finally reaping the benefits. The semiconductor equipment and materials industry grew 9% in 2007, after growing 22% in 2006, making 2007 the best year ever for the equipment and materials industry. While 2007 did not have the exuberant feel of 2000, there is something to be said for steady, sustained growth of a more mature industry.