5 Takeaways From SEMI’s SMC

At the recent Strategic Materials Conference (SMC), there were a multitude of presentations on a number of subjects. The event, sponsored by SEMI, had presentations on the IC industry, market drivers, electronic materials and other subjects.

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

Materials M&A mania
Last year, the IC industry experienced a dizzying array of merger and acquisition (M&A) activity. This year, though, the M&A activity has cooled off in the semiconductor sector. And except in a few cases, M&A has also slowed down in the fab tool arena.

The electronic materials sector is a different story, however. In recent times, there have been a number of large and small acquisitions in this business.

For example, in late 2015, DuPont and The Dow Chemical Co. announced plans to merge. Then, in September of 2017, the companies completed the deal, which in turn created a combined entity called DowDuPont.

Then, last October, Air Products completed the separation of its Electronics Materials Division. It spun off the group into a new company called Versum Materials.

Then, late last year, Linde and Praxair announced plans to merge. That deal is still pending.

There are numerous other examples as well. It’s no wonder. The IC industry itself continues to consolidate. There are fewer and fewer customers for materials at the leading edge.

Going forward, expect more consolidation in the electronic materials segment. The large suppliers will become larger. Regardless, the changes will create some jitters in the supply chain.

Silicon wafer madness
M&A is not only taking place in electronic materials but also in the silicon wafer market.

The business continues to undergo a number of changes. Last year, for example, Taiwan’s GlobalWafers acquired U.S.-based SunEdison Semiconductor, formerly known as MEMC.

Then, earlier this year, South Korea’s SK Holdings signed a deal to buy a 51% stake in LG Siltron from another Korean vendor, LG Corp. LG Siltron is the world’s fifth largest silicon wafer maker, behind Shin-Etsu, Sumco, GlobalWafers and Siltronic.

M&A can present some problems. “The company with the biggest problem is Sumco. Sumco started as a merger between Mitsubishi Materials and Sumitomo Sitix. They later absorbed Komatsu Metals. Thus their capacity is comprised of equipment from three different technology bases. Sumitomo became the dominant player in Sumco, so the Sitix equipment was kept updated, while equipment from Mitsubishi and Komatsu was not,” said Richard Winegarner, president of Sage Concepts, a market research firm.

There are other issues. For years, there was a glut of capacity in silicon wafers. And chipmakers were able to get their hands on wafers at bargain basement prices. That’s all changing, however. There is no longer a glut of 300mm wafers. “We are in balance today,” said Mark Thirsk, managing partner of Linx Consulting.

There is another way to look at the supply/demand issue. “My database indicates that the silicon industry has the capacity to produce 13 billion square inches versus a demand of 10.7 billion square inches. Thus there shouldn’t be any real shortages if companies have been keeping their equipment updated,” Sage’s Winegarner said.

200mm wafers, meanwhile, appear to be in short supply. The supply chain is in chaos. “As for 200mm, several companies consolidated their production into fewer facilities in an effort to reduce costs. The announcements were that all of the old equipment was moved from the diverse facilities to the concentrated ones, thus no reduction in capacity. The truth may have been different,” Winegarner said. “One case was SunEdison, which moved all of their 200mm capacity to Kulim, Malaysia. They later closed the Kulim facility and claimed the production was moved back to earlier facilities. They then went bankrupt and sold their capacity to Sino-American Silicon’s GlobalWafers division.”

Fab tool super-cycle?
From 2000 to 2015, the semiconductor and fab equipment sectors were the tale of two markets. On one hand, semiconductor revenues increased from $190 billion to $335 billion during that period, a 75% jump, according to Credit Suisse at SMC.

Then, on the other hand, the wafer fab equipment (WFE) sector was flat and hovered around $32 billion for the same period, according to the firm.

Now, WFE is on the upswing. It is expected to reach $45 billion in 2017, up 11% from $35 billion in 2016, according to the firm. In 2018, WFE is projected to hit $47 billion, it added.

So what happened? For one thing, leading-edge foundry vendors have been able to scale much further than many had thought. Chipmakers are moving from 16nm/14nm to 10nm/7nm with 5nm in R&D.

To move down the process nodes, chipmakers require various multiple patterning techniques. This, in turn, is fueling an enormous demand for deposition, etch and other equipment.

Another big driver is memory. For example, there has been a surge in DRAM and NAND. Capacity is tight for DRAM, causing prices to increase in the arena.

And demand for 3D NAND is enormous. 3D NAND, the biggest driver for fab equipment today, is heavily dependent on deposition and etch.

The bottom line is that many fab tool vendors are seeing huge demand for equipment. But on the other hand, the challenges are escalating at each node or iteration. Fab tool vendors are being asked to solve more and bigger problems at each turn. And there is hardly any time to celebrate the upturn.

New apps
To be sure, though, traditional chip scaling is slowing down. The leading-edge logic process cadence is extending from two to three years. And fewer and fewer customers can afford to stay at the leading edge.

Even though Moore’s Law is slowing down, the IC party is far from over. “There is a broadening of Moore’s Law,” declared Dave Hemker, senior vice president and technical fellow at Lam Research, during a presentation at SMC.

In other words, the IC application space is moving in several directions at once. Smartphones are still the largest market for semis. But smartphones are not the only big market for ICs.

Other growth drivers include AI, autonomous vehicles, IoT, big data, VR/AR, additive manufacturing and personalized medicine, according to Arthur Sherman, vice president of corporate strategy and marketing at Applied Materials.

Based on current and future projections, the industry is upbeat, at least for now. “The outlook looks quite good,” Sherman said at SMC.

China watch
China’s semiconductor industry continues to expand at a frenetic pace, as there are nearly two dozen new fab projects in the nation.

There are two types of fab projects in China—domestic and multinationals. On the multinational foundry front, for example, UMC is ramping up a new fab in China. In addition, GlobalFoundries, TowerJazz and TSMC also have new fab projects in China.

On top of that, several domestic chipmakers are building new fabs. But reports have surfaced that some of these domestic fab projects have been delayed, creating some uncertainly in the market.

While the industry is keeping a close eye on China’s semiconductor industry, it should also pay attention to the nation’s efforts in the application space.

China is aggressively pursuing 5G, Industry 4.0, smart grids and other technologies, according to Lung Chu, president of SEMI China. “In some areas, (China) is moving faster than the rest of the world,” Chu said during a presentation at SMC.

For example, Europe, Japan, Korea and the United States are racing each other to deploy next-generation 5G wireless networks. 5G is the follow-on to today’s 4G wireless networks.

China also wants to be first to the 5G market. Earlier this month, for example, China Telecom Beijing Research Institute, China Electric Power Research Institute and Huawei announced plans to cooperate on the development of 5G power slicing technology.

5G is more than a cellular network. It will enable carriers to slice up the network and provide different services, such as mobile broadband, machine-to-machine communications, personalized TV and others. Stay tuned.

Related Stories
Silicon Wafers: M&A, Price Hikes
Silicon wafer capacity is also tight.
Why Fabs Worry About Tool Parts
How a single O ring can affect yield, and what to do about it.
One Belt, One Road
China’s policy may have big implications for semiconductors and IP.