5 Takeaways From ISS

At the recent Industry Strategy Symposium (ISS) in Half Moon Bay, Calif., there were a multitude of presentations on a number of subjects. The event, sponsored by SEMI, had presentations on the outlook for ICs and equipment. It also discussed the latest business and technology trends.

In no particular order, here are my five takeaways from ISS:

Bullish outlook
Citing an inventory correction and lackluster memory demand, the IC market reached $339.7 billion in 2016, up a modest 1.5% over 2015, according to Gartner.

The market looks brighter for 2017, however. For example, the IC market is projected to reach $364.1 billion in 2017, up 7.2% over 2016, according to Jim Hines, an analyst at Gartner, in a presentation at ISS. That’s above Gartner’s previous forecast for 2017, which was up 5.5% for the year.

“(The) inventory correction that began in 1Q ‘16 is over now and restocking of both semiconductors and finished goods will continue into 2017, helping (the) industry maintain the growth momentum throughout 2017,” Hines said.

In another forecast, the IC market is expected to reach $307 billion in 2017, up 6% over 2016, according to G. Dan Hutcheson, chief executive of VLSI Research. IC unit growth is also 6%, Hutcheson said. The overall semiconductor equipment market is expected to reach $58 billion in 2017, up 8% over 2016, he said.

“Demand will come from process generations (that were) introduced in 2016,” he said, referring to 10nm and 7nm. Demand is also high for 200mm tools, although “tool availability will restrict growth,” he said.

M&A mania
What are the big trends in semis? “There are two big economic trends happening right now,” said Gary Patton, chief technology officer at GlobalFoundries, in a presentation at ISS. “One is in the area of mergers and acquisitions.”

In total, the merger and acquisition activity in semiconductors had a combined value of $103.3 billion in 2015, up from a mere $16.9 billion in 2014, according to IC Insights. More than two dozen acquisition agreements were announced by semiconductor companies worldwide in 2016 with a combined value of $98.5 billion, compared to the record-high $103.3 billion in purchases struck in 2015, when over 30 deals were reached, according to IC Insights.

And 2017 will be another big year. What’s driving the M&A? Some chipmakers want to cash out, as the IC business has been a relatively flat and maturing market. R&D costs are also rising amid ongoing competition in the segment.

It’s a slightly different story in the equipment industry, however. The days of the mega-mergers are over. The equipment sector is still seeing some acquisition activity, but it’s on a much smaller scale.

Both regulators and chipmakers are reluctant to bless the mega-mergers for three basic reasons. First, the mega-mergers ostensibly create monopolies in some tool segments. Second, consolidation could slow, if not stunt, innovation. Third, it reduces chipmakers’ buying power.

China or bust?
In his presentation, Patton mentioned two big trends. The first is M&A. “The second fundamental change is China,” he said.

As before, China remains the largest consumer of chips. In fact, China is projected to consume 44.2% of the world’s chips in 2016, according to Gartner.

At the same time, there are a staggering amount of new fab projects in China. In total, there are some 17 fab projects right now, according to Gerald Yin, chairman and chief executive of Advanced Micro-Fabrication Equipment (AMEC), China’s largest IC equipment maker.

In 2017, semiconductor capital spending is expected to reach $66 billion, according to AMEC. Of that, China represents $10.1 billion, or 15.3%, of the CapEx total, according to the company. By 2020, semiconductor capital spending is expected to reach $73 billion, according to AMEC. Of that, China will represent $20 billion, or 27.4%, of the total, according to the company.

China appears to be following this strategy: “If you build it, they will come.” Not sure this strategy will work in the long term, however. China has the money, but not all of the technology. Plus, it needs a multitude of customers to fill these fabs.

Is EUV (finally) happening?
At ISS, there were a few presentations on extreme ultraviolet (EUV) lithography. At first glance, they appeared to be the same old pitch—EUV is required for chip scaling and the technology is making progress. The EUV proponents have been saying that for years.

But there was a significant announcement about EUV during the same week as ISS, but not at the event.

During its earnings call, TSMC talked about its EUV strategy. Originally, TSMC planned to use 193nm immersion and multi-patterning for 7nm. TSMC’s 7nm risk production starts in early 2017, with production slated for 2018. Then, the company planned to insert EUV at 5nm.

Now, the company has a slightly different plan. “For EUV, as Mark Liu said, we do plan on using EUV for a few layers for 7nm when the technology goes into its second year of production,” according to a spokeswoman for TSMC. “For 5nm, we plan on using EUV ‘extensively’ (i.e., a lot more layers than just a few layers).”

Liu, the co-CEO of TSMC, implied that the company will accelerate its insertion of EUV. This is a major development for customers as well as ASML, the supplier of EUV scanners.

During its earning call this week, ASML “noted they are largely sold out of EUV systems for 2017 and see a realistic scenario that capacity will be maxed out in 2018 as well. We see ASML enjoying EUV deployments not just at the traditional foundry/logic customers (INTC and TSMC) but they also see uptake at memory OEMs (Samsung notably),” said Amit Daryanani, an analyst at RBC Capital Markets, in a research note.

That’s positive news. But let’s wait before we celebrate here. The EUV power source is still a question mark. So are EUV pellicles. So, let’s wait until EUV is in production. And then, we can celebrate–finally.

Forecasts (and everything else) are up in the air
All of the forecasts stated above, and elsewhere, are up in the air.

On Friday, Donald J. Trump will be sworn in as the 45th president of the United States. Any new administration brings in some uncertainty on both the political and economic fronts. The new administration is particularly unpredictable. It makes forecasting even more difficult, if not impossible. With that in mind, it’s hard to forecast consumer spending patterns for 2017.

So here’s the best forecast for now: Look for a cloudy, if not a stormy, period in the near term. Maybe even for the long term.

Related Stories
New Wave Of Consolidation
What’s driving it, what’s next, and who should be concerned?
Why EUV Is So Difficult
One of the most complex technologies ever developed is getting closer to rollout. Here’s why it took so long, and why it still isn’t a sure thing.
Changes In China
What was discussed at the Beijing Microelectronics Forum 2016
China’s Capital Equipment Market To Boom
The country’s “Made in China 2025” plan should benefit equipment suppliers, foreign and domestic.